The Relationship between Policymakers, Regulators and the Decision-Making Process in the Energy Sector

Posted on Wednesday, November 1, 2017

Author: Louis Légault

Director of legal services
Régie de l'énergie du Québec

It is imperative for regulators to operate in a manner that is free from political interference. For example, good practices, or "best practices," recommended by the OECD in its guidelines, help to prevent such intrusions, but are sometimes in opposition to the will of legislators who might, on occasion, want to postpone the implementation of clear policies or could attempt to intervene in the regulatory process.

Regulators and legislators need to interact regularly, which can be problematic for the independence of the regulatory process. Clear guidelines are needed to frame these interactions. This tension between energy policy and regulation has long been felt by both regulators and legislators, and does not spare the Régie de l'énergie in Quebec. The Régie enabling legislation (LRÉ) provides several possibilities for the government to express its will to the regulator, and an obligation imposed on the regulator to submit to said directives. At the same time, the law also provides for communications from the regulator.

The energy policies enacted by the government, for example the 2030 energy policy, must therefore be taken into consideration by the regulator in its decisions, and these must be in accordance with the objectives of the policy.

While I was a lawyer at Hydro-Québec, I was asked to represent the company before the Quebec Superior Court. In the context of the first application of the provisions making it possible to fix Hydro-Québec's transmission rates, the Régie ordered the Transmission Provider to disclose evidence related to the recognition of all the assets necessary for the operation of the network, as well as contracts in progress and having an impact on the electricity transmission service. Hydro Quebec opposed it, despite the Régie’s decision. The Minister of Energy and Natural Resources at the time, Minister Brassard, then issued a directive, approved by the government, which essentially stated that the Régie had to take into consideration all the assets of the Transmission Provider's network as " cautiously acquired and useful "in setting tariffs.

On the basis of the provisions of the LRÉ, the Court was able to prevent a situation that some would describe as political interference. As a result of this decision, the government passed an Act to amend the LRÉ to ensure that assets were presumed prudently acquired and useful.

Occasionally, the communication is done in reverse: when it is the regulator who addresses the legislator. An example of this is the "Notice from the Régie de l'énergie on the distribution of electricity to large industrial consumers" (Notice A-2005-01), and more recently, "Notice A 2014 01 on the supply and transmission of natural gas necessary to meet the natural gas needs of Quebec consumers in the medium and long term ". The Régie recently published a document on the Minister's request for an opinion on "Measures to Improve Tariff Practices in the Electricity and Natural Gas sectors" (Notice A 2017-01, File R-3972- 2016). This opinion deals with the issue of cross-financing as well as the tariff structure, and offers solutions to the government.

Then there is a recent case where the Régie addressed the minister on its own initiative, following the publication in 2014 of a particularly damning report for the administrative justice system in Quebec. This study, titled "La justice administrative, entre indépendance et responsabilité (Administrative Justice, Between Independence and Accountability)," commonly referred to as the Noreau Report, and signed by four law professors, highlighted problematic issues, including the process of appointing administrative judges and their salaries, and processes initiated by the government for all government agencies. This led to amendments to the LRÉ, strengthening the jurisdiction of the Régie and adding other responsibilities. In addition, a new regulation came into effect a few months ago, which allows for the establishment of a formal procedure for the appointment and renewal of Régie Comissionners. This new regulation will eleviate some of the criticisms of the Noreau report, while ensuring greater independence for the tribunal.

In conclusion, the legislative framework provided for in the LRÉ makes it possible to control exchanges between the policymaker and the regulator with clear rules, and allows dialogue between the two entities. The government can make its priorities known to the regulator, without encroaching on its independence. As confirmed by the Superior Court in 2000, the LRÉ protects the Régie's discretion and prevents political interference. Finally, if the Régie needs to give its opinion to the government, its procedure provides for it and has already, as a result of questions raised regarding the independence the administrative tribunals, already led to amendments to its enabling legislation, by the government.

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