Yedlin: Getting down to building new energy regulator

Yedlin: Getting down to building new energy regulator by Deborah Yedlin, April 13, 2013, Calgary Herald
Gerry Protti has not been wasting any time. Days into his new post as chairman of Alberta’s new energy regulator, Protti said his immediate agenda is filled with hiring a chief executive officer, filling out the board of directors and hiring commissioners. Legislation to establish the ‘one stop shop’ for energy regulation in Alberta was passed by the government in December. It effectively pulls together the Energy Resources and Conservation Board and Environment and Sustainable Development under one roof and accords authority to administer the Public Lands Act, the Environmental Protection and Enhancement Act and the Water Act, as each relate to energy development.

It’s a tall order, but Protti isn’t exactly a shrinking violet. He didn’t waste any time in an interview this week addressing concerns voiced by some who questioned his effectiveness in the new post as an energy insider. “It’s not my role to assess penalties. That’s the job of the hearing commissioners. That is where the independence is clear,” he said. “They are appointed by Order in Council, they conduct their hearings independently. Their findings can only be appealed in the court of appeal.” “We will maintain independence through a clear transparent hearing protocol and conduct.”

Protti also emphasized the search for a CEO, board members and the commissioners is being done on a national basis. “We are looking for the best possible candidates. We need individuals with strong governance capabilities and knowledge of the sector,” he said while speaking from Edmonton. When all these pieces are put in place, the goal is to have a transparent and robust regulatory system that will stand up to the criticism and scrutiny being levelled at Alberta, he said.

“We have high ambitions to strike the right balance between economic development of our energy resources and environmental oversight,” said Protti. Energy Minister Ken Hughes is confident the new system – under Protti’s stewardship – will meet the test. “The eyes of the world are on us, and we’re OK with that,” Hughes said. The confidence shown by Protti and Hughes in the new regulatory body is because of how it is being constructed. Alberta’s energy regulator will be set up using a governance model, the only one, notes Hughes, to be structured using this framework. Coincidentally, both Protti and Hughes are graduates of the Institute of Corporate Directors offered through the Haskayne School of Business at the University of Calgary, completing one of the first courses offered in 2005.

This means a number of things, including that there will be a clear strategy set out for the regulator as established through consultation with all industry associations and the government’s newly created policy management office. Monitoring that strategy will be the task of Protti and his board. Implementing it will fall to the CEO and staff. In other words, it will fall under the ‘nose in, fingers out’ approach to governance, which means Protti and the board have no operational involvement. They will function as a governance and policy board.

For the critics out there, that’s what will set the new regulator apart. “This structure will provide discipline and clear definition to the roles and responsibilities E for the chair, board, commissioners, the G CEO and the province, which is the shareholder,” said Hughes.  While the regulatory enhancement report didn’t exactly specify a governance structure as the route to be taken in setting up the new entity, Protti emphasized the conclusions set out in that report clearly led in that direction. The challenge – and the criticism – of the previous incarnation was that the regulator was often in a position where it had to deal with both policy and regulation. The establishment of the Policy Management Office will eliminate the AER from having to deal with policy issues and enable it to focus on its regulatory mandate. “It was never clear for stakeholders where they could go to raise policy issues. Now they have a spot to go to that is clearly a place to do that,” said Protti.

Any entity – both for profit and not-for-profit – benefits from a strong governance structure. It’s worth noting the energy sector, partly because of the criticism it has to endure and the sensitivities regarding the fundamentals of its operations, has adopted many governance best practices. In fact, many will say Canada is far ahead of the United States when it comes to governance; you don’t see individuals holding the dual positions of chairman and CEO in Canada, which is often the case at U.S. companies. One of the challenges, of course, is attracting qualified individuals to work for the new regulator. Given the chronic labour challenges in the energy sector – and the fact poaching from government into industry is long-standing practice – this is no small task. Protti, who is by nature an optimist and someone long-committed to the public service, said the AER will pay competitive salaries. He also said he hopes people will want to sign on to be part of a new era of regulation in the province. What’s encouraging is that the AER is following best practice suggestions laid out in a paper written by Gary Holburn, an associate professor at the Richard Ivey School of Business at the University of Western Ontario and Kerry Lui, a researcher in the Faculty of Law at the University of Toronto, in 2010.

Among the recommendations is that the regulator does not share regulatory powers with the government. With the department of Environment and Sustainable Development now part of the AER, there is no government involvement in the regulator’s function. Another recommendation to ensure independence is that funding be through consumer levies or industry fees; the AER is entirely funded by industry.

While Protti will have a fiduciary duty to table a report on its budget to the legislature, he is aiming to do something that has never been done in Alberta from a regulatory perspective. “Our success will be defined nationally and internationally by third parties,” said Hughes. How Protti sees this unfolding is like this: He plans to set up an independent, third party review that will engage a wide array of stakeholders – international, national and provincial. “I’d like to engage a group of independent experts who will give us comments on how we are meeting our objectives,” said Protti. The question, of course, is whether this new structure will be enough to allay concerns of the critics?

Hughes is optimistic. “Anybody looking at Alberta will see a highly professional and sophisticated leadership of its energy regulatory regime, balancing economic development with environmental leadership and landowner considerations. People will recognize Alberta as leading the best practices of regulation of an industry that is so important to the country’s economy,” Hughes said. Protti has much to do to get everything up and running by June. He expects they will phase in the regulator responsibilities. The ERCB segment should be fairly straightforward, however, the other two departments will require more work. “I’m on it,” he says. “I don’t think I have had as exciting an opportunity like this, in my career, for some time.” [Emphasis added]

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