Introduction December 1, 2019
This post is one of two long reviews related to Alberta’s regulatory evolution since about 2012. Although I primarily wanted to put it on the record for historical purposes, I do believe it is relevant to current considerations at both the Federal and Provincial levels concerning the appropriate structure of regulatory organizations. In my opinion, events in Alberta since the changes discussed in this article were implemented support my contention that regulatory Boards should have the traditional structure rather than a configuration that aligns them with private corporations in terms of how they are governed. Both Federal and Provincial (Alberta) governments have adopted an ill-considered corporate structure. These decisions appear to have emerged following reviews that may not have had the proper initial direction or were influenced by special interests. A recent controversy in Alberta involving questionable spending on a new institution to advise foreign governments on regulatory processes would, in my opinion, have been highly unlikely under a traditional Board structure. More importantly both effectiveness and efficiency are enhanced under a Board approach. However, the story told here has more relevance for the Alberta Board because its work is largely focussed on regulation in the field. Relevance to the national Board is mainly related to my view of appropriate governance for such organizations. I provide this historical discussion in the (admittedly faint) hope that it might generate some reflection on, and possibly even reconsideration of, those decisions (though not likely until future reviews are undertaken).
In June of 2013, Alberta’s Energy Resources Conservation Act was replaced by the Responsible Energy Development Act. The legislation also dissolved the Energy Resources Conservation Board (ERCB) and replaced it with The Alberta Energy Regulator (AER). The new Regulator is radically different from the historical norm, both in structure and relationships to others in the energy sector. The new regulatory environment has characteristics likely to make it less responsive to the public and subject to greater influence from industry and government bureaucracies. The erosion of the Regulator’s independence, particularly in the role of making new regulations, was not necessary to achieve the government’s stated objectives and may be detrimental to the public. This paper provides an explanation of how this new approach evolved and a critical assessment of the resulting regulatory environment.
To the early resource conservationists,who fought for the conscientious management
of Alberta’s natural endowment (David H. Breen, Alberta’s Petroleum Industry and the Conservation Board, Dedication, University of Alberta Press, 1993)
A funny thing happened on the way to the 75th anniversary of Alberta’s Energy Resources Conservation Board (ERCB). The government decided to celebrate the anniversary by combining it with a funeral. The Board was terminated as of June 2013, and a new entity has taken its place. The changes have come through Bill 2, The Responsible Energy Development Act (REDA), which eliminated both the ERCB and the Energy Resources Conservation Act (ERCA) . This has created a new environment: friendlier to companies, less so to landowners, and characterized by political oversight—reducing the independence that was a large factor in the success of all previous incarnations of the regulatory board. These legislative changes will make it difficult for the new organization to maintain the quality of its predecessor.
How this fate has befallen an organization with a world-class reputation as technically superb, inherently fair, and organizationally excellent–a model other provinces and countries came here to learn from–is a sad comment on politics, bureaucracy, and the power of self-interest. Very little of the responsibility for this ignoble fate would be laid at the ERCB’s own doorstep by a neutral observer in possession of all the facts, since, in hindsight, one can see the path wind back over two decades. Yet the ERCB has paid the ultimate penalty—dissolution. There are many instances where significant changes such as this can be justified by changing circumstances. This is not such an instance. Rather, this seems driven by various forces that have combined to reinforce skepticism about independent institutions in government. There are likely to be inevitable implications for the integrity of regulation and, therefore, responsible energy development in the province.
I am not prone to conspiracy theories, so I won’t argue that there was a group who sat down to plot the story I tell here. However, self-interest and opportunism are inherent features of our society, and it seems clear they have been at work, albeit patiently, over a long period of time. There were several players who contributed to the story. First, there was the government bureaucracy, represented by line departments of government who have responsibilities related to those of the energy regulator. The tension between this group and the ERCB had been in play for decades. Then there is the energy industry, initially led by a segment of the so-called junior oils, which had long chafed at the ERCB’s regulatory framework which, in their minds, was costly, time consuming and burdensome. The larger companies were more complaisant since they could more easily absorb regulatory costs and, with broader experience, had an understanding that regulation also brings benefits. In particular, they realize the broad public usually accepts a certain amount of development, even when it affects them directly, as long as that development is undertaken in a responsible way. Inadequate regulation can lead to sharply reduced public support; a situation much more challenging for industry than regaining regulatory approval. Good regulation not only ensures responsible development, it also leads to public confidence in the system. That, of course, is less important when the government is willing to ignore some public concerns or even to reduce the public’s ability to influence specific projects. That apparent willingness may have led to a change in corporate strategy in recent years; the large company sector of the industry is a major sponsor of the new regulatory model. And then there are rank and file members of political parties, including those who are elected to govern the province. This group is closely exposed to influence from the aggressive segment of the energy sector. On the other side of the debate, there is another group—environmentalists, lawyers, journalists, and populist writers, some of whom have been arrayed against development and took the other side of the junior oil coin—claiming the ERCB was not stringent enough in discharging its role—that it should have regulated more aggressively and denied more projects. Considering these forces arrayed against the Board, it may be remarkable that it lasted 75 years. The Board survived and thrived over those years because it evolved to be an organization based on recognized principles of regulation: effectiveness, efficiency, and fairness. As a quasi-judicial agency, the organization developed a culture of open communication, fair dealing, and technical integrity that gave it credibility in the eyes of the public and a majority of companies in the energy industry.
A brief review of changes that have been made to the regulatory framework over time may be helpful. The Board has had a number of changes in both name and some responsibilities over the years. In recent years the changes involved only small modifications in role and responsibility, and certainly no major changes to the legislation that governed the regulatory activities. The newest change, establishing the Alberta Energy Regulator in 2013, has, in contrast, been enabled through major changes to legislation and structure.
Energy Resource Regulation in Alberta: A selected Time Line
• 1932 – Turner Valley Gas Conservation Board created (TVGCB).
• 1938 – Petroleum and Natural Gas Conservation Board (PNGCB) established.
• 1957 – PNGCB, renamed the Oil and Gas Conservation Board (OGCB).
• 1971 – OGCB renamed Energy Resources Conservation Board (ERCB), includes coal and hydro.
• 1995 – ERCB and Public Utilities Board merged into the Alberta Energy & Utilities Board (AEUB).
• 2008 – AEUB dissolved and its powers reallocated to the new ERCB and the Alberta Utilities Commission (AUC).
• 2013 – ERCB dissolved, Alberta Energy Regulator created.
The problems faced by the now dissolved Board in recent years had a complex origin. A crucial event that led to the Board being accused of “spying” a few years ago was important. But another contributory element had been evolving for some time before that—a growing unease on the part of politicians, and their associated bureaucracy, with the Board’s “independence”. This independence enabled the Board to make regulations to implement the legislative guidelines enacted by government. The Board did not report directly to a Minister, but rather, through a Minister to the Executive Council, or Cabinet. It was only partly funded by government; the other part came from a levy on the regulated industries, primarily oil, oil sands, gas, and coal. Criticism that this levy meant industry bought influence was groundless; the levy was a tax, not a gift—a way to allocate some costs of regulation to the industry. That structure was by design, because having the Board as an independent entity, although one ultimately responsible to the government through legislation was good for both the government and the Board.
In 2007 an ill-fated hearing into an application for a new transmission line was convened in Red Deer, Alberta. The hearing was the last stage in a series of proceedings reviewing the need and location for a high-voltage transmission line to strengthen the provincial grid by enhancing the connection from the northern part of the province’s electrical system to that in the south. The hearing generated local controversy and was disrupted both vocally and physically, causing the hearing panel to adjourn and reconvene in another community some weeks later. At the reconvened hearing Board staff expressed fears for their safety. The Board hired covert security personnel, one of which was invited to participate in an intervener’s conference call, did so, and that action later led to charges from intervening parties that the Board had spied on them and compromised lawyer-client confidentiality. This became broadly referenced in the press as “the spy scandal”. The media coverage of this event was highly critical and also factually questionable. I found only one relatively objective review of the incident—an academic review by a lawyer from the University of Calgary, Alice Wooley (discussed in a related article on this blog). Nonetheless, the press coverage eroded the Board’s mantle of credibility and may have contributed, in subsequent years, to the decision to enact wholesale change to the regulatory environment in Alberta.
Back to the Future—The Critics Prevail, and Politicized Regulation Emerges
In 2008, shortly after the events associated with the transmission line were concluded, the AEUB was dissolved and its responsibilities were returned to its previous incarnations, the ERCB and the Alberta Utilities Commission (AUC, formerly called the Public Utilities Board). This structural change had little to do with the hearing crisis. Rather, it was apparently based on a report that concluded the mandates and cultures of the two organizations were very different. In any case, it is important to note that this change, like the one that had merged the same two Boards in 1995, was not accompanied by major changes to the underlying legislation. The historically proven approach to regulation was maintained with a minor shifting of institutional responsibilities. That contrasts starkly with what is happening today. The changes in 2013 radically alter the regulatory environment by completely rewriting the legislation. What led to this is an interesting, though depressing, story.
Shortly after separating the Boards in 2008, the government struck a task force, guided by the Department of Energy, consisting of three MLAs with support from related line departments, to review energy regulation and canvass stakeholders regarding possible improvements. My judgement is the review was flawed by preconceived notions that required more critical assessment and by the fact that technical regulatory issues were influenced by political considerations. The task force reported to the Premier and a public report, Enhancing Assurance, was issued in May 2011 . While I am sceptical of aspects of the report, it was relatively neutral on the ERCB. The report led to proposed legislation, Bill 2, the Responsible Energy Regulation Act. The legislation went very much further than the report in changing the regulatory environment. That, in itself, raises a question as to whether the additional changes were negotiated privately. In any case, both documents adopted the idea of a single regulator for all aspects of upstream energy regulation. This was presented as justification for many of the changes that would ultimately dissolve the ERCB and introduce an entirely new, and (unfortunately) somewhat politicized, approach to energy regulation in Alberta. The presumed benefits of a single regulator are significantly overstated, and cloud the real issues.
Before I address the changes in detail, I should show my colours and set out my biases. I do not have any direct interest in the matter. I left the Board in 1999, after 12 immensely fulfilling years. My time with the Board was the most extraordinary and rewarding experience of my working career. There was some elusive quality to the organization. Its apolitical nature appealed to me. Facts and reasoned debate prevailed, within the guidelines of provincial legislation, and guided by objectivity, technical competence, and the tenets of natural justice. Board Members came from different professions and differing world views—but all were committed to efficient, fair regulation and the regular discussion at the board table was rigorous, often highly educational, occasionally spirited and always focussed on finding fair, effective solutions. The technical quality of Board staff, largely made up of engineers, geologists, economists, and related technicians was very high and, critically, they worked in a culture of cooperation that had evolved over decades.
The ERCB’s regulatory role traces its history to 1932, when massive flaring of natural gas inspired the government to initiate regulation. This led to an ongoing focus on conservation in energy regulation and the formal establishment of the ERCB in 1938. As time passed, the Board established many field offices around the province from which staff were deployed to handle inspections and mediate complaints from the public. The Board steadily evolved, as the industry grew over the decades, and gained an international reputation for technical excellence in establishing guidelines and regulations for the energy sector and for its procedural fairness in handling disputes both within the industry and between the industry and the public. The number of foreign delegations coming to Alberta, mainly to learn the essentials of effective regulation, grew to the point where access had to be rationed—it was taking so much time of the Board’s staff. The Board’s reputation at home was also excellent for most of its history, (until very recent events associated with the charge of spying). The rural population of Alberta generally regarded the ERCB as a fair and objective purveyor of reliable information and an effective mediator of the inevitable conflicts between land owners and the oil and gas industry. This reputation was something thoughtful leaders in the industry valued as well, because even honest, well intentioned firms (which most of them are) could find it difficult to persuade reasonably skeptical landowners that development could happen with little impact on their lives. When the Board’s field staff confirmed that it could, and committed to shepherd the process, potentially significant conflicts were defused. Of hundreds of conflicts each year, most were resolved and the number of hearings was remarkably small. In 2012, there were 36,382 applications; 21 were scheduled for hearing but 14 of those were resolved so only seven hearings were actually held .
The small number of cases that could not be resolved and so went to a hearing usually, but not always, ended up being approved. This led environmental critics, on occasion, to claim the Board was biased in favour of development. But that was a short-sighted view—approvals regularly included conditions requiring the proponent to make sure that the impact on residents and the local environment was minimal. And on a few occasions, very sensitive projects were denied because the project would have unacceptable impacts on people or the environment. Moreover, the whole regulatory system was designed to be fully transparent so that when industry considered projects they would know the rules they must follow and the level of impact that would be acceptable. It would have been surprising if they brought many projects forward that clearly would not pass the tests. Sometimes, of course, the commercial reward was thought to be high enough that a company would propose a project even if it was controversial or borderline in terms of the written regulations. In such cases, if the Board could find a way to condition an approval to ensure acceptable impacts, the project would be approved. If it could not, such projects were denied.
Sometimes development would proceed and unforeseen effects would plague local residents. In one notable case, a development was allowed and several years later it had expanded to a degree that it was impinging through activity, noise and odours, to the detriment of the landowner involved. After a lengthy investigation and hearing, the Board required the company to meet its obligation by, among other things, shutting in some of the facilities that might later be set up in a different location. This was clearly a very expensive resolution for the company but just as clearly was the right thing to do (ERCB Decision D93-3).
Alberta’s government benefited over time by having this effective, technically proficient, neutral, and independent agency that rivalled the knowledge of the industry it regulates. One important benefit was apparent when highly sensitive or controversial developments were decided by the independent body, thus occasionally providing a critically important buffer for elected representatives.
The independent relationship enabled the Board to develop a regulatory framework over time without reference to political oversight. The government still controlled the underlying regulatory environment because it controlled the legislation. But the Board was able to seek an efficient approach in carrying out its role so long as it met the intent of that legislation. Global institutions, such as the World Bank, have recognized this as a critically necessary feature of effective regulation. Generations of politicians in Alberta have recognized the advantages to government, the public, and the industry of having fair, effective, and independent regulation. Nonetheless, the Board itself recognized the elected government’s authority and responsibilities and always consulted on sensitive issues.
Senior bureaucrats serving politicians had never been quite as sanguine about the Board’s independence. Why this was is somewhat puzzling, although there always seemed to be some resentment of the Board’s independent status. This attitude may have been influenced by certain political figures who felt they should be able to make or influence regulatory decisions. In any case, there were attempts to change that status over time and during the 10 or 15 years prior to dissolution, the Board’s independence seemed to me to have been eroding. This was a slow process, including the appointment of new Chairmen from the ranks of the senior civil service—Deputy Ministers from government departments who had closer ties with current politicians. My concern was less that Deputies were appointed than the apparent reason—which seemed to relate to enhancing political control. One consequence was a decline in the management role and influence of Members as compared to the Chair. That, among other things, led to the gradual remoulding of the Board in the image of a government department, implicitly raising a question as to why independence is important.
Part of the reason some bureaucrats did not support the Board’s processes was natural—they usually thought they had developed policy carefully and didn’t think another agency should question them. More specifically, they did not like that the Board’s processes sometimes required them to explain themselves publicly and endure cross examination. As well, Departments had their own goals and objectives. For example, when a company purchased rights to undertake some form of development but then ran afoul of related rules, they could appeal to the Board—who would decide the matter based on the legislation and the technical merits of the case. The Departments would have preferred to discuss these occasional conflicts in private, with Board colleagues they knew well. But the independence of the Board and its adherence to principles of natural justice, essentially a duty to act fairly, meant they had to participate in a quasi-judicial proceeding and make their case in an open public forum. That, and other frictions, in my experience, had led to some considerable tension between the Board and senior bureaucrats over the past two decades or more.
As well, there had been an ongoing effort on the part of segments of the energy industry to limit the influence of the regulator on their operations. This effort was aided by the previously mentioned “Spy Scandal,” an event that may have softened public support for the Board, thus allowing the voices of those who object to regulation to be heard more easily in political circles. Faced with these forces within its own ranks, and from a major industry driving growth in the province, what were the politicians to do? It may not be surprising that they eventually took their cue from the Queen of Hearts: “Off with their heads”!
Why have Regulatory Boards; and why should they be independent?
One reason regulatory Boards are needed is that you cannot write legislation and associated rules to cover every situation. There must be some capacity to evaluate and determine how the intent of the rules is best applied in specific circumstances. That requires detailed understanding of field operations. The field surveillance group of the ERCB resolved many conflicts. Nine rural centres and a regional office at Ft. McMurray connected the organization to the working industry and the affected public. Problems that could easily have become major disputes had often been resolved by staff at an early stage. When hearings were required, the Board operated much as would a judge in a court of law. More importantly, the quasi-judicial nature permeated its culture, ensuring fairness, avoiding bias and seeing that anyone directly affected by a decision could have his or her say. The interaction of the staff of the Board with public, industry and even government entities was a major strength of the organization over time.
Although people occasionally spoke of the Board as making policy, that was at best ambiguous. Energy policy rightly comes from the government of the day through the legislation it passes. The Board’s regulatory activity was always guided by that legislation, both for making general rules and in its case-by-case decisions. The Board’s regulations were more correctly viewed as rules to implement the government’s policy. This is important because part of the justification for changes such as giving a new entity, the Policy Management Office (PMO), a say on the Board’s regulations is false. The policy coordination that should be considered by such a group is energy legislation—not the Board’s regulations. The role of the Board was aptly described by former Chairman, Gerry DeSorcy in his preface to David Breen’s remarkable account of the Board’s history.
… I expect that they will note the shift in emphasis for the organization from that of a regulator and policy maker in the early years to the primary role of regulator that we see today. This change is largely because of the shift in society whereby an impartial arbiter, at arms length from government, is required to make regulatory decisions regarding energy developments. …[guided by] the twin objectives of serving the public interest of the province and of doing so in an efficient manner based on the premise of working co-operatively with other involved parties . (G. J. DeSorcy, October 1992, Foreword to David H. Breen, Alberta’s Petroleum Industry and the Conservation Board, University of Alberta Press, 1993.)
In my experience, industry criticism had often been directed at legislation that enabled affected people to have a voice. These critics often represented the junior oil and gas operators, for whom regulatory proceedings were a significant expense and a source of delay. They argued that hearings were too expensive, allowed too many people to participate, and gave landowners a potential lever in negotiating higher payments to allow access to their land. On the other side, environmental proponents and legal commentators often complained the Board was too stringent in terms of hearings and participation. As is often the case, there was some truth in both views. The Board understood that the hearing process provided some leverage in negotiations and tried to be forthright in advising landowners when a complaint appeared weak. On the other side, the Board did limit participation largely to affected landowners– environmental issues such as climate change are not resolvable in hearings about a specific well. However, arguments against hearings were often exaggerated and self-serving, and over time the Board was often forced to defend this very basic right of affected people to be heard.
I was amazed to find that the current legislation responded to these old, discredited arguments by reducing the scope for affected parties to be heard, and by reducing the independence of the new regulator and increasing the scope for political influence. These draconian changes are particularly hard to understand given the very small number of hearings (7 – 11 per year in recent years) under the former system.
The importance of a regulatory framework independent of political influence (except through open legislation) has both practical and philosophical dimensions. First, the province owns the lion’s share of the resources, approximately 80 per cent, and establishes the rules for all development. There are occasional conflicts between what a current government wants and what a specific company believes are its rights under the rules. Obviously it is important to have an independent, neutral arbiter in such situations.
In Alberta surface rights and sub-surface rights are generally separated. Companies who lease sub-surface rights from the government must be able to access them even when it means they have to go on land owned by someone else. Sometimes companies come into conflict with individual landowners for a broad variety of reasons. In such cases, the government department that leased the rights to the company has generated a financial benefit and government will receive more financial benefits if oil or gas is found and produced. Clearly the government has an interest in such development proceeding, and so it is again important to have an independent, neutral arbiter to resolve conflicts.
More generally, the regulatory structure ensured that the government spelled out in legislation the rules under which development could take place. This allowed companies to make investments in exploration and development activities with less concern that such investment would be at risk because of some decision by government entities that was not clear in legislation. The Board followed legislation. In conflicts, legal advisors argued what the correct interpretation should be in a quasi-judicial forum similar to a court of law but subtly different because the Board had in-depth technical competence in energy that allowed it to understand and rule on specialized issues. While the Board looked to the courts for guidance on the law and some procedures, the courts had generally deferred to the Board on technical matters related to energy.
In the new legislation, the REDA, there are several specific items evidencing that the regulatory hearing commissioners will have less independence than did ERCB Board Members:
• Board members were previously appointed for a minimum of 5 years (ERCA s 5(3); under the REDA there is no term so presumably the cabinet can remove a sitting commissioner at will.
• The Minister may give directions to the Regulator; …(a) ”providing priorities and guidelines,” and (b) “ensuring the work of the regulator is consistent with the programs, policies and work of the Government …”(REDA, s 67 (1)).
• Cabinet can direct what factors the Regulator and hearing commissioners must consider in “considering an application or conducting a regulatory appeal, reconsideration or inquiry” (REDA s 78(f)).
• Public interest is removed from the decision criteria.
The removal of the public interest, a priority for the ERCB over its entire history, was puzzling at first, but then the fog cleared—the removal enables the Minister to give direction and specify decision criteria that could come in conflict with a public interest guideline. Replacing the public interest with the “Minister’s interest” may not sit well with many. In any case, these changes bring the potential for inappropriate political influence. Professor Shaun Fluker of the University of Calgary’s faculty of law has described independence in legal terms and provided the following useful background context .
… the Supreme Court of Canada has applied the three pillars of judicial independence to administrative agencies: (1) security of tenure; (2) financial security; (3) administrative control over the judicial function. Generally at common law, an administrative agency that adjudicates legal rights must be perceived as free from political influence. [emphasis added by author].
Professor Fluker concludes:
The well-informed person, viewing the matter realistically and practically, can only conclude there is no independent hearing process at the proposed Alberta Energy Regulator.” (Shaun Fluker, “Bill 2 Responsible Energy Development Act: Setting the stage for the next 50 years of effective and efficient energy resource regulation and development in Alberta,” ABlawg, November 8, 2012. http://ablawg.ca/2012/11/08/bill-2-responsible-energy-development-act-setting-the-stage-for-the-next-50-years-of-effective-and-efficient-energy-resource-regulation-and-development-in-alberta accessed 08 December 2013)
I believe the greatest harm of a politicized process will be to the rights of landowners. The energy industry can look after itself; it has access to government, and resources to devote to protecting corporate interests.
Board vs. corporate structure
The structure is no longer the normal model, a regulatory tribunal supported by technical staff. It is instead a corporate board structure, with a Chairman and a board overseeing the CEO of the new organization. The CEO is precluded from sitting on adjudicative panels . The Minister justified this structure as being similar to what works in industry, as if comparison of a regulatory tribunal and a commercial corporation is reasonable or even possible . History and experience has shown that a board tribunal approach is clearly superior to the corporate governance model for the activity of regulating technical activities such as resource discovery, development, and distribution. This is because the relationship between the staff and the members of the tribunal–who administer the organization, participate in the tribunal activity in settling disputes, implementing the regulatory framework, and guiding the front-line delivery in both the field and in resource evaluation–is crucial to the evolving knowledge necessary for effective regulation. Those ties allowed each element within the ERCB to continuously improve by learning from the others and fostered the excellence for which the Board had been recognized around the world. I do not believe a “corporate” approach will be nearly as effective.
To take but one example of how the previous structure led to excellence, I will focus on the regulatory activities, although similar relationships existed with various information and knowledge branches within the Board. Most applications were handled efficiently, in a matter of days, with no objections. Some proposals led to conflict with residents concerned about safety, water, odours, noise, traffic and other legitimate potential effects on their lives. The Board’s field surveillance team handled most of these conflicts, although sometimes it helped to involve a Board member. Most conflicts were resolved at this stage. When a hearing was required, usually three Board Members and a team of staff with expertise on the issues traveled to the site; most hearings were held in a local community. Every consultation with the public was an opportunity for interaction and learning for both the Board Members and the staff involved. The field surveillance personnel looked forward to these interactions and used them to inform the Board about regulatory issues in their regions, what works and what doesn’t, and how local companies are working with the public. The hearing staff, who had relevant expertise for the issues in dispute, learned as well, and provided their own contribution about the matters in contention. The Board Members with related knowledge discussed their interpretation of all of these things and also provided a sense of what needed to be looked for to resolve the issue.
These activities helped resolve specific conflicts, ensured regulations remained relevant and effective, and even helped identify those that were no longer required. When the full Board met on its own, these experiences were shared and fed into the discussion of the adequacy and continuing relevance of specific regulations. That helped to identify areas that needed to be given more attention, sometimes resulting in new regulations, but often simply enabling conversation with companies to achieve greater efficiencies. These discussions also helped the Board recognize organizational needs, shifts in staff emphasis, or even changes in structure. Moreover, technical excellence was preserved by the practice of the Board in recommending new appointments to its ranks, from which the government would select. In earlier times, such appointments were invariably from within, thus providing a strong incentive for employees to demonstrate excellence and to stay with the Board even though they could earn more in industry. More recently, the unspoken agreement was that roughly half of new appointments to the Board would come from the senior staff, others would come from the ranks of external professionals. (That had eroded too: some ERCB appointments were non-professional political appointments, more likely to have a harder time with technical complexity). This short description could be repeated for every aspect of the Board’s operation but it does not do justice to the beneficial effect the structure had on the capacity of the Board as a whole to learn and adapt to meet changing requirements over many decades.
It is not that the new corporate structure with an external governing board cannot deliver a form of regulation. Rather, it was patently unnecessary to make such a change; several disadvantages, no discernible benefit. Compared to the former Board model, it likely will be less effective. The Chair relates primarily to the CEO; the CEO will not be regularly exposed to the front lines or to hearings. The government appoints a roster of hearing commissioners. These will not be fully independent for reasons discussed and so will be subject to influence. They may be able to establish a productive relationship with staff, but it will be less automatic and more prone to deteriorate over time. New regulations will now go through several levels of approval, with some levels outside the organization being non-technical and open to lobbying. A few cases where regulations developed over months are not approved, or are watered down, will send a clear message. The elimination of independence may well feed through the ranks. The objective will no longer be clearly to protect the public interest, to find the right solution; rather, there will sometimes be an objective to find a solution that meets criteria the Minister set down. The new Alberta Energy Regulator (“AER”) is more clearly working for the government, less clearly, the public. The industry will have opportunity for greater influence. The staff will do its best to continue as before. But if the new administrators do not take positive steps to involve, listen to, and learn from the experienced personnel, they could soon begin eroding that valuable resource. In my view, the rather common occurrence of 30 to 40 year employees, which has served Albertans so well, could soon be uncommon. I noted earlier one reason a technical Board is needed is because you can’t capture in legislation all situations found in the field. Rather than expert interpretation from a base of objective, technical excellence, there is greater risk that the handling of technical issues will be affected by criteria set by a Minister.
There is one argument for a corporate structure that deserves examination. The argument is that the management role is best handled independently from the quasi-judicial role. In other words, judges don’t necessarily make good managers. While there is some merit to this position, it should be assessed within the context of the management requirements for a regulatory agency. Specifically, the Board of a commercial corporation, and its Chief Executive, have a major role in contributing to understanding economic and market forces, personnel and compensation, strategic direction domestically and internationally, research focus, pricing, and other things related to marketing and sales of products and/or services. Regulatory boards have a much different management challenge—the focus is constrained by legislated government policy and is mainly concerned with developing and delivering regulation both efficiently and effectively. That significantly alters the management burden.
As well, the new regulatory corporate board is limited by government oversight with respect to things like compensation and even appointments. The primary management function that seems important in the new approach to governance is the budget development and approval process. And for a regulatory board, it is the cost side of the budget that is important. In that context, the separation of management from the regulatory function is much less persuasive. That is because costs should be assessed in relation to regulatory effectiveness. The direct experience former Board Chairs and Members had with regulatory activities contributed to their understanding of budget requests from line departments and enhanced that area of decision-making.
I would argue the former Board-based organization was equally able to address the costs of its activities, perhaps even more able than a non-participating CEO and an external board, because of a more intense involvement with requirements in the field. Of course, there is a time commitment that has to be handled properly. The Chair of a Board, in the model I prefer, normally sits on only very important proceedings. As well, the Chair is supported by an internal management structure that carries out the analysis necessary for good management decisions in all areas, including balancing what is needed for effective regulation with costs. That had been handled in the past through a COO and executive team that reported to the Chair and Board, thus retaining the benefit of advice from involved, knowledgeable Members of the regulatory board who also had responsibility for organizational performance.
Integral to this argument is the relationship between effectiveness and efficiency. My previous discussion of how the ERCB worked and why I believe it was successful was mainly couched in terms of its effectiveness. In this context, that meant how well the system achieved the objectives of facilitating energy development while minimizing the unavoidable impacts on people and environment. I contend that, on that dimension as discussed above, the Board model is clearly superior to the corporate governance approach. The other important aspect of regulation is how efficiently it achieves the objectives. To use an exaggerated example, you could achieve greater effectiveness by having thousands of personnel in the field, watching every move the companies make—but that would involve high costs and be viewed as inefficient by reasonable people. The corporate model and the Board model are more closely comparable with respect to achieving efficiency. While I think the Board model is superior, both can likely achieve acceptable results. However, the corporate model has added roughly a million dollars to administrative costs in published executive salaries alone. That suggests that someone expects this approach to lead to even greater savings elsewhere. The “elsewhere” is part of my concern. There is tension between efficiency and effectiveness in all pursuits, including regulation. Will the quest for efficiency in the new corporate model be achieved at the expense of optimal effectiveness? Although BP’s unfortunate 2010 experience in the Gulf is perhaps an overly dramatic example, it illustrates the potentially very high value of optimal, or even simply adequate, effectiveness in regulatory practice. The new corporate board members, some with a background in industry are, in my view, less likely to get the balance right—overemphasizing the efficiency side because they are not involved in delivering regulatory services.
Now assume you reject my arguments and prefer a corporate-style Board and CEO approach. You then have to decide where the ongoing regulatory development role should reside. The government decided that developing new regulations should be controlled by the new external Board and that was included in legislation. The CEO is precluded from hearings, and the evolution of regulation is primarily resident with an external Board of Governors. This strikes me as inferior to having regulatory development reside with those who live it every day. But the drafters of the legislation felt so strongly about this matter that it is one of the few things the new regulator cannot delegate. This is a critical change to rule-making and a clear victory for industry. Regardless of whether my broad concerns and suspicions about that are warranted, there is no question that it will have a significant effect on the efficiency of both the new agency and the promulgation of needed regulations over time. Corporate Boards usually meet quarterly (Of course, Board members are all part-time and have other commitments, so the extent of their availability, even quarterly, will be constrained) . The need for regulatory changes does not follow a neat schedule. That means internal built-in delays–and after internal approvals are in place they must be submitted to the government. The process will be considerably more time-consuming than in the past. That is neither efficient nor effective.
There is another possible reason for changing to a corporate style organization. It enables the management of the organization to be separated from the quasi-judicial role, allowing the deflection of criticisms about independence, since the Commissioners will have some independence in specific hearings (although less than before). However, as discussed above, the other major role of the organization, regulation in the field and development of future regulations as things change over time, will come under the Chair and the CEO. That may well be what the industry wants, thereby avoiding or diluting the technically proficient group they have had to deal with on the regulatory front. Neglecting, for the moment, that the new Chair is from industry, the scope for external influence will be greater. Recall that there have been very few hearings every year and the emphasis on independence of hearings is revealed as not addressing the main issue—ongoing development and revision of the regulatory framework.
In summary, the new corporate organization will reduce interaction by having management separate from tribunal activities, and the tribunals will have a much smaller interaction with the staff. A critical source of excellence provided by the previous fully integrated structure will be diluted or essentially lost. The Chair, Board and CEO will have a high focus on the cost side of activities, because of the greater prevalence of the industry viewpoint, and that seems to have been part of the rationale. In a worst case, it seems possible that field work will be severely curtailed and an important connection between the regulator and the public will be lost. New regulation will be guided by and flow through the managing CEO, the Chair, and the Minister. The corporate approach will thus take longer and be more amenable to day-to-day influence by government bureaucrats, and through the government, the industry. A single CEO will be more susceptible to influence from both government and industry than would a Board with nine Members. Government and industry can affect the CEO’s future—the public, not so much. Even if we are lucky now and the province has found a high-minded, effective CEO, what about the future? There is an old rule of management that says the focus should be on devising effective systems for the task rather than having systems that rely on or require great people to make them work. The system of regulation development by and with diverse teams of Board and staff who are on the front lines seeing what works, what doesn’t, and what once did but is no longer needed is more effective than a top-down corporate structure.
The government recently announced the appointment of the first Chair of the new Regulator . The new Chair has had a successful career, including time in government early in his career, but mainly as a senior executive in the energy industry, including as head of two industry lobby associations, first the Independent Petroleum Association of Canada, and then the Canadian Association of Petroleum Producers (CAPP). This was a remarkable choice that has drawn reasonable criticism. While, in theory, the Chair has a more indirect role than the CEO in the day-to-day running of an organization, in this instance Chair and governors have a dominant role in making new regulations. Moreover, in the long-term planning area, the influence may also be very significant. It has already been significant, since the new Chair was also the industry advisor to the Regulatory Enhancement Project that led to all the changes . The Minister’s defense that the influence of the Chair will be offset by other members of the AER Board is hard to credit . In any case, the appointment of a long-term career energy executive, particularly one with an extensive, high-level lobbying background, suggests a certain lack of sensitivity to public perception. In a recent speech, Gaétan Caron, former Chair of the federal National Energy Board (NEB), said, “In dealing with industry and the public, the Board and its staff must not only be free from bias, but be perceived to be free from bias” (G. Caron, Policy, Politics, and Regulation, to Canadian Association of Public utility Tribunals, 7 May 2013. http://www.neb-one.gc.ca/clf-nsi/rpblctn/spchsndprsnttn/2103/plcypltcsrgltn/plcypltcsrgltn-eng.html accessed 08 December 2013.) The counter argument, that as the new leader of the AER is Chair of a governing board, and is not a working regulator, the potential conflict is reduced, is less persuasive because of the critical role of the governing board in making new regulations .
The Chair and some other Board Members may face a related conflict—the way they think. It is a matter of common sense that the Chair’s long experience advocating for the oil and gas industry will affect his views on regulation. Other board members from industry will have the same perceptual bias (There is a growing literature in psychology and behavioural economics with a theme that long term advocates become increasingly convinced over time that the advocated positions are correct). . Someone who has represented the industry viewpoint for his or her entire career is likely to have a pro-industry mindset. On the other hand, an effective regulator has an open mind about broad issues related to his or her regulatory responsibilities—neither for nor against industry. That fosters a critical and fair approach, not only in specific decisions, but also in the development of regulations. That does not mean that some from industry, who have severed their connections, would be unable to be objective regulators—many have done so. But there is risk. The main concern is that development of regulations may be less effective with someone in charge who has essentially advocated the industry position for over 25 years.
The makeup of the governing board is important. In the future, it could even include deputy ministers, further eroding the independence of the AER Board. There will be independence of a sort in specific decisions; but even that will be subject to direction on criteria and the subtle influence those newly defined AER Board members will be able to bring to bear over time. Even if the deputies are not actually on the new governing board, they will still have greater influence under the corporate structure and PMO. Government departments should influence the Regulator through the legislation they pass and through participation in hearings as necessary to clarify their actions or the legislation itself. That keeps the connection between government departments and the Regulator clearly in the open. That, in turn, provides assurance to people who come before the Regulator that they can get a fair hearing even if a government department has a direct interest in the outcome. The guiding principles come from the legislation the government passes—both departments of government and the Regulator must follow those principles. The potential informal route through deputy ministers, and now a former energy executive, having a role directing the Regulator weakens the link to those principles.
These, then, are the seeds of the demise of a once highly regarded, independent institution. I don’t claim to have a full understanding of how this incredibly bad turn in the course of provincial governance came about. There is much that undoubtedly went on behind closed doors. Interestingly, the Board’s funding, historically shared between industry and government, will now be entirely provided by industry. That adds roughly $50 million to industry’s bill. It may prove to be an investment with a very satisfactory return.
In any case, my experience in dealing with government, plus the evidence of the major flaws in the new structure, strongly suggests to me that the input of seasoned regulators was either not invited or simply ignored. Instead, this very important and highly complex redefinition of the province’s relationship with its major industry suggests that the process may have been driven by a few MLAs and senior civil servants and perhaps industry itself. I am reminded of a wonderfully apt cartoon character, Foghorn Leghorn, who often said, “Don’t bother me with the facts, son, I’ve already made up my mind.” Going forward, a less independent organization will not be as able to reduce conflict between the energy sector and the public, nor will it deflect criticism from the government. Politicians may find they should have been more careful what they wished for.
Recent events and my take on the new legislation
In 1995 the government decided to merge the ERCB with the Public Utilities Board to form the Energy and Utilities Board (EUB). I believe this was an ill-considered action that appeared to stem from the apparent cost savings that could accrue through the administration of the two Boards by one group. When the government forced this union on the two Boards, I happened to run into the late Premier Peter Lougheed at a conference. He was incredulous. Does no one see the vast differences in both culture and operation between these two groups, he asked? Sure enough, years later that decision was reversed and the two Boards were granted an amicable divorce.
The first Chair of the newly formed EUB was a former NEB Member—a competent and experienced regulator. She left the EUB somewhat precipitately. That ushered in the first of the appointments of a former Deputy Minister as Chair of the Board. He was also a competent person, but the move clearly signalled a possible erosion of independence. Shortly thereafter, the Board’s Chief Operations Officer, who had been on the front lines deflecting attempts of the Department of Energy to alter the Board’s role, also left the organization. Logic and articulate debate are not always appreciated. Alberta thereby lost one of its finest public servants.
The next major historical event was the separation of the Boards back into their former selves, the ERCB and the newly named Alberta Utilities Commission in 2008. The then ERCB Chair shifted to private practice and the government moved yet again to appoint a Deputy Minister. This new appointment was a capable bureaucrat of considerable experience with government, in several provinces, though not in regulation. I watched with some dismay as the independence of the Board was slowly eroded through actions appearing to bring it in line with government departments. There is nothing inherently wrong with appointing Deputy Ministers to head a regulatory agency. My concern stemmed from the apparent motivation—increasing control. Nor is it a problem to align the Board’s operations with those of other government entities, unless the departmental influence on the Board’s regulatory activities becomes excessive. However, these things were, for me, a disturbing trend.
I now believe the events described here made it difficult for the Board to counter what, in my view, was ongoing, internal lobbying of bureaucrats who seemed to think the Board’s independence made their jobs harder, or who possibly envied the fact that the Board had flexibility that was not normally allowed to government departments (it may not have helped that In October 2008, the ERCB was named one of Alberta’s Top Employers by Mediacorp Canada Inc.). I viewed these players like lobsters in a trap—if one tries to escape the others pull it back down. In part, as noted above, they disliked having to appear before the Board if their policies were challenged, sometimes for good reason from their point of view, since certain policies had complex rationale. Interestingly, such formal appearances may be avoided in the new legislation, which reads as follows:
Notwithstanding anything to the contrary, the Crown may file a written statement in a hearing or inquiry before the Regulator without presenting a witness to speak to the statement, and unless the statement is presented by a witness, the statement is not subject to cross-examination.
The problem with that is that tribunals must give less weight to submissions that cannot be examined—as a matter of both law and logic. If there is disputed interpretation, how is the tribunal to decide in the absence of someone from government to query?
And finally, there is the role of the oil and gas industry. Over the years I was with the Board, I found the oil and gas industry to be, for the most part, good citizens and reasonably cooperative. There were always some who chafed at regulatory oversight. But most of the senior people in the industry accepted the role the Board had to play as necessary in minimizing conflicts with the public. One notable project cooperatively developed by the Board and the industry was the orphan well fund. This fund represented industry acceptance of certain liabilities of bankrupt companies when they otherwise would fall on the public purse. It was a remarkable achievement for both the Board and the industry, and it has been expanded and strengthened since. There are no other industries I know who have voluntarily accepted such responsibility, and the benefits to the province have been significant.
So it was very disheartening to me to find the industry association, CAPP, applauding the recently announced changes: termination of the Board and the move to a more political system . However, it became clearer when I reflected on the fact that the industry will have a much easier time influencing regulation through the political process than it would have dealing with a technically competent regulator on a level playing field. In fact, this may be a primary reason the rules have been changed. There had been intermittent complaints that some ERCB regulations constituted policy and should not be implemented without government approval. That is misleading–the tribunal’s regulations were not energy policy; rather, rules to implement it. Through the new legislation, the Conservative government has apparently accepted the industry’s complaints about the Board; not only did they support the complaints: they tilted the playing field so the new Regulator can no longer implement such rules. To be clear, in practice government has always been able to orchestrate changes in regulations—but it would take an extraordinary issue to cause them to do so. Now the influences are built in at an early stage of all regulatory development.
One level of interference could come from the proposed new Policy Management Office, which is likely to have a review and approval role on new regulations . There is also the requirement that the Regulator provide all changes to the rules to the Minister 120 days in advance to enable review (REDA, s 22). Aside from the fact that either or both of these requirements (among other things) confirms the removal of independence from the new regulator, industry lobbyists will find it much easier to make their case at the political level, in the new PMO. These changes will make it easier for industry to achieve their objectives; but they too may eventually reflect that they should have been more careful what they wished for. The aborted independence of the new Regulator and the greater influence of industry will eventually become apparent to all who choose to see, and there may be a price to pay for both industry and government.
This brief history brings us to the present day where an imperfect storm of partial-truths, misconceptions, and perhaps design has caused the current government to end the days of the previously effective regulatory environment including the ERCB itself. The question then becomes does that matter, and if so, why?
My answer is that the proposed changes are likely moving the province away from an effective regulatory system. This is being done under a report that was ostensibly to enhance assurance of good regulation through integrating regulatory functions that had previously been handled by diverse entities. So the first, and most important, point is that all the recommendations for change to regulation could have been accomplished without changing the Board structure. That raises an obvious question as to why the Board’s structure has been changed. I submit the answer is now clear; it is to reduce, circumvent or end independence of regulation in Alberta.
The new organization is finding its way, however, to date, it seems clear that there is an objective to increase government control. The role of industry is somewhat opaque; but they are undoubtedly happy that regulatory changes are now reviewable in the PMO and through them the political process (not to mention having one of their own put in charge of the new Regulator). I alluded earlier to the proposed PMO, ostensibly composed of the Department of Environment and Sustainable Resource Development (ESRD) and Alberta Energy. If that was intended to coordinate departmental policy it might be construed as a good thing. However, there has always been coordination among these departments and this formalization of an existing committee process does not appear likely to make a significant difference to that activity. So I have to believe the policy office is also viewed as a way to control the new Board. It essentially means that implementing regulations will now go through a political screen—a second chance for industry to argue the case. So the process is more susceptible to undue influence from the industry that is being regulated.
The industry should have some influence. The former Board had always consulted the industry on proposed regulations and provided them with an opportunity to comment, object, or simply raise issues of uncertainty. That was and remains a reasonable approach—but it works because technical people are dealing with similar specialists, and it is hard for either to put things over on the other. This is clearly not the case when you allow technical disputes to be decided by non-technical third parties who may be susceptible to lobbying. If the policy office employs some technical people for advice, it could still be less effective because it lacks the extensive and intensive experience and ongoing interaction the previous Board members and staff had with regulatory issues.
There is one highly-touted aspect of the new approach I find particularly disingenuous—the vaunted notion of a single Regulator (See also work by Nickie Vlavianos, Faculty of Law, University of Calgary. Among other postings on ABlawg.ca she has published, “A Single Regulator For Oil And Gas Development In Alberta? A Critical Assessment Of The Current Proposal”, Canadian Institute of Resources Law, number 113-2012). There is some attractiveness to having all aspects of regulating a specific industry under one entity. However, there are sometimes good reasons to have more than one regulatory entity, while ensuring cooperation and consistency among them. One reason I am sceptical of the concept in this instance is that it seems to have been used to divert attention from, or even implicitly to justify, the organizational changes discussed above. In addition, as some examples set out below show, there is ongoing tension between efficiency and effectiveness. In some cases, one regulator may achieve lower, easily visible, costs at the expense of higher, less visible, risks. It is not clear to me that such trade-offs were adequately considered. The notion of having energy-related roles played by one actor is something that has been discussed over decades, and in the past the idea, though it had some merit in certain cases, has often yielded to the superior logic of transferring responsibilities when warranted and otherwise having good coordination within government. A few examples of how this is being ignored in the new approach are set out below.
The first example is that the new energy regulator is being assigned surface reclamation approvals following the abandonment of facilities, a task heretofore handled by ESRD. The required expertise to assess reclamation is very different from the geological/engineering/economic knowledge the former Board applied to ensure proper energy development. I would argue that Alberta Environment was and remains more competent with respect to reclamation issues because they do that sort of work for a wide variety of other activities and have the requisite knowledge and experience. The new AER Board will either have to take some of that over or develop it. Then the expertise will sit in two places instead of one. From my perspective, the primary reason the reclamation activities of Alberta Environment were not popular with the industry was because there has been an ongoing and growing backlog; the activity has been chronically under-funded. This transfer seems to be a wasteful allocation of resources simply to achieve one regulator for the energy sector.
A very odd role assigned to the new regulator is to enforce elements of private surface agreements. This issue was raised with the Regulatory Enhancement Task Force, and they suggested some additional enforcement beyond what is in place. However, they first mentioned the Surface Rights Board as a possible enforcer. That would make a lot more sense, since that Board is very familiar with leases and related surface rights issues. Nigel Bankes has addressed this persuasively (Nigel Bankes, “Bill 2, the Responsible Energy Development Act and the Enforcement of Private Surface Agreements, ABlawg, November 12, 2012).
Approvals for the use of water are also currently under ESRD. They are to be transferred to the AER for water use in energy development. What sense is there in adding the expertise required to deal with water allocation issues to the energy regulator when there is an existing group that currently approves water allocation for all activities in the province? Not only does that create duplication where it is not needed, it also means some cost and effort are needed to ensure the two regulators use a consistent approach that is fair to all users of water. And this again for the dubious benefit of allowing the energy industry to deal with only one regulator. The complexities associated with implementing this approach have been clearly set out and critiqued by Arlene Kwasniak (“The Responsible Energy Development Act and the Water Act – cloudy confluences,” Arlene Kwasniak, ABlawg, January 7, 2013.) .
And the final example provides an interesting perspective on one reason the old Board had been effective in the past. It relates to environmental enforcement, something that has always been handled by ESRD. Again, they understand this role, deal with all infractions in the province, and are the source of all relevant legislation. Their broad application of the law across energy and non-energy developers allows insight into the relative seriousness of various infractions and enables a balanced application of penalties. When environmental enforcement for energy activities is transferred to the new Alberta Energy Regulator, some of the insight and balance will be lost. The new Regulator will be at a considerable disadvantage because its natural emphasis and expertise is focused on the operations side of the industry, not on detailed environmental impacts. More importantly, however, the use of large financial penalties goes against the Board’s historical approach to regulation in the field. That approach had always been to understand what went wrong, fix the problem and any damage done by it, and identify ways to make sure it did not happen again. This inevitably involved significant costs to the operator, but not necessarily specific punitive costs. Operators generally cooperated with field investigations because they knew the Board was not looking for large penalties; rather, current resolution and future prevention. On the rare occasions when a company was defiant, the Board would shut down the operation until the problem was resolved—a costly penalty, directly and immediately associated with the transgression. This generally led to the problem being resolved. The lessons learned were passed to other operators through meetings, information letters, directives, or new regulations. That approach fostered a level of cooperation between companies and the Board’s field surveillance group that, over time, resulted in better field performance and safety. With the new legislated requirement of large fines, that rapport cannot last—companies are likely to become more defensive and the relationship will become adversarial. I believe that will be to the detriment of future field regulation.
In essence, I am arguing here that the supposed benefits of a one-window approach are less (possibly much less) than what meets the eye. Net benefits, those in excess of the costs of the single window, may even be negative. Superficially it seems that a one-window approach could be better, and certainly it is easier for industry (but, in my view not much easier). However, the effectiveness of regulation is likely to be reduced. And there is often a trade-off between efficiency for those providing the regulatory role and those companies receiving the regulatory guidance. In the past, we recognized that some changes were justified, while others, such as those now being instituted, reduce cost slightly for companies but increase costs considerably for the regulators. In practice, the fact that industry only has to remember one phone number does not mean the overall process is better, either for them or the public. The criteria should be whether the regulations are developed properly, administered effectively, and lead to efficiency overall. These objectives are best met by keeping the regulatory responsibility close to where the associated expertise should be. That is, in its natural home. The proposed changes warp that logic in order to justify a single regulator. And that provides a superficially attractive smoke-screen to facilitate eliminating independent regulation. As a famous line goes, “It was worse than a crime, it was a blunder”.
While I have tried to be objective, I want to ensure my main message is clear. I believe legislation passed in Alberta that has ended the tried and tested system of regulatory oversight of the energy sector, including the ERCB itself, is an unwarranted experiment that will adversely affect the public interest. An important but fallacious argument supporting these changes is that the Board usurps a prerogative of government, energy policy. In fact, the former Board implemented government policy through its regulations, and had always done so with as broad a level of consultation as any entity in the provincial realm. The claim otherwise is not credible, possibly motivated by regulatory initiatives unpopular with some, and enabled by recent vulnerabilities accrued by the Board. For those who are not close to these issues, the significance of the changes may not be obvious—I hope I have contributed to clarity and facilitated further debate.
My intent here was to critically assess the intrusive change to the regulatory environment that, as of June 2013, eliminated the ERCB and, with it, access to the ERCB’s efficient, neutral and fair oversight of energy development in Alberta. The new legislation set out in Bill 2 will dramatically change the regulatory environment in Alberta. Our elected representatives certainly have the right and the power to make such changes. One would have hoped that before they did so, they would have sought out and heeded the thoughts and recommendations of people who understood the 75 year old system and why it was what it was. And that they would have given careful consideration to the implications of their changes. While the government’s initial reviews of the regulatory process were open and collaborative, some changes eventually adopted, as well as the critical decision to replace a regulatory model that works well around the world, were not.
I noted that the players in this story included bureaucrats and rank and file government supporters. They have contributed to the ill-advised change, possibly because of incomplete understanding. I have tried to educate them somewhat in writing this piece; the point of view expressed here may enhance their understanding and possibly influence future thinking. I am less sanguine about the corporate players. A disturbing element, underlying many of the changes that have occurred, is the role of the oil and gas industry. In the past, the industry made its views known and argued for what it thought was appropriate energy policy and regulation in a relatively open and transparent environment. My experience was that many companies recognized the benefits of regulation as well as the costs. They did, of course, put their views forward privately with government representatives as well, but those views seemed to be subject to tempering through advice from bureaucrats and regulators. The current changes seem to reflect communication between industry and government behind closed doors. That is not a healthy approach to policy, especially in the regulatory arena.
I well remember the enthusiasm with which the Minister of the day announced in 1995 the combining of the ERCB and the PUB into one. That enthusiasm was matched 13 years later, in 2008, by the Minister of that day announcing a very important change–the Boards would go back to what they had been in 1995. So I suppose there is a chance that the concerns associated with the new legislation will someday be recognized at the political level. For now, I must caution other jurisdictions in Canada and other countries to think carefully before following the lead of Alberta. The independent Board model, inherently consultative and free of short-term political pressure, is widely recognized as a highly effective vehicle for regulation. The new approach, in my view, is at best a risky experiment.
Change is often beneficial, especially when it comes after broad consultation and reasonable analysis. The changes to Alberta’s regulatory system did follow a report and some consultation—but the main change (that which created a new kind of regulatory structure) had not been recommended. It had not even been mentioned until it was announced. That approach precluded a conversation that could have included participants with relevant experience and diverse views.
Because there is so much about this new structure that reduces the independence of regulatory decision-making, and because the industry has been a major supporter of this new direction, the public in Alberta should be concerned, and other jurisdictions should be wary. In the past, independent regulation has benefitted both government and the regulated industries. It has tempered fierce opposition to sensitive projects, and prevented public disapproval of certain of these projects from being focussed on the government. That result followed from broad acceptance that the regulator was neutral within legislated bounds and from recognition that the regulatory environment embodied a significant concern for the public interest. Those important characteristics are now in question.