OEB Plans to Introduce “Proportionate Review” of Utility Rate Applications

A recent webinar presented by Ontario Energy Board (OEB) staff to representatives of Ontario’s electricity distributors (LDCs) sets out the OEB’s plan to link utility performance and regulatory review. As seen in the presentation from the webinar, the OEB intends to employ a more light-handed review process for LDCs who have demonstrated strong performance in relation to the OEB’s “expected outcomes” under the Renewed Regulatory Framework for Electricity Distributors (RRFE). Practically speaking, this means that some utilities will be able to have their rates approved without a hearing, or through an “abridged” hearing process.

The RRFE aims to implement outcomes-based regulation, where customers are assured of value for money. By focusing on results rather than activities in its regulatory oversight, the OEB believes that LDCs will respond to customer preferences, focus on innovation and enhance productivity. The OEB’s planned proportionate review framework is an evolution of this approach. It recognizes that where an LDC’s results (financial, operational, organizational and service) are strong, less review and oversight is required. Effectively, strong-performing utilities will be rewarded by having a less rigorous rate-setting process. The OEB believes that this will allow the regulator to focus regulatory effort where it’s most needed.

The materials from the OEB staff webinar include a slide that illustrates the various “streams” (levels of review) available under the proportionate review framework:

Clearly, the choice of which “stream” applies will be very important. This determination will be made by the OEB (presumably based on input and recommendations from OEB staff), and there is no indication that the applicant or other interested parties will have input into or recourse against the decisions made. A slide from the OEB staff webinar sets out the criteria that the OEB will take into account to determine the level of review:

The OEB’s new proportionate review framework is currently being piloted, which means that there will soon be some practical information about how the criteria set out above will be considered and applied. All 2018 LDC rebasing applications are being assessed against the criteria in the framework to determine what type of review would be applicable. Additionally, the proportionate review framework is being used for two LDC cost of service applications for 2018, to test and evaluate the concept. The results of this testing will be reviewed in order to make improvements to the proportionate review framework. The OEB is targeting full implementation of the proportionate review framework for all May 1, 2019 LDC rates applications.