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  Date de dernière mise à jour : 02.05.2011  
 

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THE RÉGIE DE L’ÉNERGIE: AN OUTLINE

Speaking notes:
Mr. Richard Carrier
Director of Rates and Finance
Régie de l'énergie

presented at the
13th Annual Wind Energy Conference, 1997
Held at Château Frontenac, Québec City

Canadian Wind Energy Association
October 20, 1997

 

1.0 INTRODUCTION

Ladies and gentlemen,

It is with great pleasure that I have accepted your invitation, on behalf of the Régie de l'énergie, to participate in the 13th Annual Wind Energy Conference held here in Québec City by the Canadian Wind Energy Association.

The Régie de l'énergie is a recently formed organisation whose creation has been suggested by many of those involved in the Québec energy industry. Much is expected of this new institution. In the next few minutes, I will attempt to inform you concerning its powers, functions, objectives and priorities, so that everyone may have a clear understanding of its role in the evolution of Québec's energy market.

2.0 CREATION OF THE RÉGIE DE L’ÉNERGIE

Four major phases have led to the implementation of Régie de l'énergie.

First, the creation of the Régie de l'énergie, which is the result of one of the major recommendations contained in the report of the Consultation Table of the Public Debate on Energy presented to the State Minister for Natural Resources in March 1996. This far-reaching public debate has enabled all those involved in the market to present their perspectives on the future of this sector. It is the general consensus that the recommendations of this report constituted a major contribution into the deliberation that the Québec Government had undertaken.

The second important phase refers to the adoption by the government of the new energy policy known as "L’énergie au service du Québec, une perspective de développement durable". Adopted during the autumn of 1996, this sustainable development policy defines the main objectives and strategies that have been retained by the government in the field of energy.

The third point to be noted is the adoption by the National Assembly of Bill 50 entitled An Act respecting the Régie de l’énergie on December 23, 1996.

Finally, there is the appointment of the members of this new agency by the Conseil des ministres and the coming into force of the Act on June 2, 1997.

3.0 ROLE OF THE RÉGIE

The major role of the Régie de l'énergie is clearly defined in section 5 of the Act:

" 5. In the exercise of its functions, the Régie shall promote the satisfaction of energy needs through sustainable development. To that end, The Régie shall have due regard for economic, social and environmental concerns and for equity both on the individual and collective planes. The Régie shall also foster the conciliation of the public interest, consumer protection and the fair treatment of distributors. "

This definition is far-reaching. It describes the raison d'être of the Régie, which includes the satisfaction of energy needs in the perspective of sustainable development, the establishment of guidelines to govern this action, the conciliation of the public interest and that of consumers as well as the fair treatment of distributors.

Let us focus now on the functions and powers of Régie de l'énergie.

4.0 FUNCTIONS AND POWERS OF THE RÉGIE

To understand the role that the Régie will play, it is useful to take a few minutes to describe its powers.

In the field of electricity and natural gas, the Régie has exclusive jurisdiction to:

1. fix or modify the rates and conditions for the transmission or supply of electric power by Hydro-Québec or the rates and conditions for the transmission, delivery or supply of natural gas by a natural gas distributor or for the storage of natural gas;

2. monitor the operations of Hydro-Québec or of natural gas distributors to ascertain that consumers are adequately supplied and are charged fair and reasonable rates;

3. approve the resource plan of Hydro-Québec and of every natural gas distributor;

4. examine any complaint filed by a consumer concerning the application of a rate or a condition.

The Régie may also, on its own initiative or on the application of any interested person:

1. determine the rate or return of Hydro-Québec or of a natural gas distributor;

2. determine the cost of service allocation method applicable to Hydro-Québec or to a natural gas distributor;

3. formulate general principles for the determination and application of rates fixed by the Régie;

4. formulate general principles applicable to electric power transactions of Hydro-Québec or of natural gas transactions of natural gas distributors.

As applies to other powers provided by the Act, the Régie shall advise the Minister on any energy matter submitted to the Régie by the Minister and may, on its own initiative, advise the Minister on any matter within its jurisdiction (section 47).

The Régie may make any inquiries necessary for the exercise of its functions and, to that end, the commissioners are vested with the powers and immunity of commissioners appointed under the Act respecting public inquiry commissions (R.S.Q., chapter C-37).

The Régie is also vested with the power to monitor the prices charged for steam and petroleum products and it may, on its own initiative or at the Minister’s request, advise the Government or the Minister concerning steam or petroleum product prices (sections 55 to 59 inclusively).

I will now explain how these functions and powers will be exercised by the Régie and give you an idea of the relationships and issues relating to those activities that are of special interest you.

5.0 SPECIFIC REQUIREMENTS OF THE ACT

Beyond the general objectives and powers assigned to the Régie, the Act provides for special procedural requirements concerning the approval of distributor resource plans (section 72); the rate determination (section 48 et seq.); the conditions by which a distributor may proceed to investments intended to increase production, transmission or distribution capacity or to export electrical power (section 73); and finally, the approval of contracts to purchase or exchange electrical power and of the commercial programs of distributors (section 74).

The subjects concerned are numerous and the issues are significant for all who are involved in the sector, including those interested in the development of wind energy.

5.1 APPROVAL OF RESOURCE PLANS

To begin, I will refer to the role of the Régie, by mentioning the obligation of distributors to submit a resource plan to it for approval:

" 72. Hydro-Québec and every natural gas distributor shall submit to the Régie for approval, at the intervals fixed by regulation of the Régie, a resource plan, the form and tenor of which are determined by regulation of the Régie, proposing strategies for achieving a balance between the supply of and the demand for the energy distributed by the distributor, through means which operate on both supply and demand, in keeping with economic, social and environmental concerns and having due regard for the risks inherent in the chosen sources of supply. "

This section is of importance because it embodies the will of the legislator to implement the concept of satisfying needs through sustainable development.

According to this section, the distributor is obliged to submit a resource plan that includes the means employed which relate to both supply and demand in view of achieving a balance in their respective markets.

It is stated that these resource plans will comply with the form, terms and timetable established by regulation of the Régie.

As you have noted, the distributor will also have to consider the economic, social and environmental concerns as well as the risks inherent in its choice of supply sources.

To put it simply, section 72 establishes the basis of the approach which will be followed by the Régie, that is the integrated resource planning or IRP. This approach, which constituted a consensus during the public debate on energy and which have been included in the government policy, will make it possible to put on equal footing both electric power and natural gas distributors as well as the means to do so that are inherent in supply and demand .

The Régie will initiate hearings on the characterisation methods of the electric power production systems. These constitute a prerequisite to the integrated planning of resources.

5.2 RATE DETERMINATION

The methods by which distributor rates will be established will, for their part, conform to the traditional economic and financial regulation requirements. This involves the determination of a rate base; of the overall amounts of spending necessary to cover the cost of providing the service; of a reasonable return on the rate base; etc.

Section 49, no. 10 stipulates, however, that the Régie, as is the case for resource plans, is to: consider the economic, social and environmental concerns as have been identified by the government, and that it may: fix a rate to compensate for energy savings which are not beneficial for the distributor but are beneficial for the consumer or class of consumers.

5.3 PROJECT AUTHORISATION CRITERIA AND EXPORTATION CONTRACT APPROVAL

The government requirement that economic, social and environmental concerns be taken into consideration is also included in section 73 relating to authorisation methods or criteria for distributor investment projects or for the exportation of electric power (73, no. 6).

5.4 THE CHALLENGE OF THE FUTURE

How will the Régie carry out its responsibilities? Which methodologies will be chosen to ensure a neutral and unbiased survey of the various options involved in both supply and demand? How will environmental factors be taken into consideration? What will be the rules for the fair treatment of distributors of electric power and natural gas?

Which transitional mechanisms will be implemented until new approaches are fully operational?

These are as some of the questions that will have to be discussed at the Régie.

Concerning wind energy, as you all probably know, the energy policy stipulates that a "share" could be reserved for it by the Régie in the context of the resource plan. The government also anticipates the possibility of a "green rate" to be offered to consumers, one that is similar to the "green pricing programs" applied by some North American companies.

Many states, for example, have implemented a "net billing" concept by virtue of which the consumer who possesses a low capacity wind turbine is compensated for the electric power produced in accordance with the regular rate of the distributor.

The Act literally provides the Régie with the means to establish the basis of a diversified market in the case of potential supply options and of a more neutral one as concerns the various means to achieve a balance between supply and demand. This includes all of the energy efficiency measures.

The challenge facing the Régie, and for all those involved in the field of energy, will evidently be to find procedures that will both make it possible to reach market objectives in a context of rapid evolution and that are also in harmony with evolving regulatory practices.

6.0 DEBATE ON THE OPENING OF ELECTRICITY MARKETS

The restructuring of the North American electricity market constitutes one of the major changes with which all those involved in the energy sector are faced. In the case of natural gas, for nearly 10 years now, customers have been choosing their suppliers. Gas prices have been fluctuating in accordance with the market situation of supply and demand while, prior to 1985, these prices were strictly regulated.

In Québec, the conditions of the non-discriminatory access of customers to the distribution or storage infrastructures are being reviewed by the Régie. In the coming months, this process will permit the completion of the unbundling of services whose principle has been decided last December. This approach has already been applied in Ontario as well as in some American states.

In the electricity sector, a number of factors explains the fact that such a move towards the opening of the markets has been slower in coming.

In the United States, as a result of the new technical and financial realities in the production processes of electrical power, including cogeneration and new forms of renewable energy, such as solar and wind energy, regulation authorities have forced the emergence of competitive-type markets where before, distributors holding exclusive rights could bill the customer for all of the costs resulting from their past choices.

Recent decisions 888 and 889 of the FERC have established the bases according to which the American energy markets will operate. These bases include, among others, free and non-discriminatory access to transmission infrastructures to producers in general.

Finally, as a result of this new context, US producers and distributors caught up in non-competitive cost structures will benefit, due to decisions rendered to date from financial compensations for the portion of their investments that became non-productive. That refers to the well known "stranded assets" or "stranded costs" issue.

In Québec, the government has already authorised a Hydro-Québec transit rate which enables local producers to buy or sell on American markets. The latter will, in turn, now have access to the Québec wholesale market. This essentially concerns municipal markets.

The liberalisation of electricity markets will have to be carefully studied. The Act stipulates that, upon a proposal by Hydro-Québec, the Régie will be obliged...:

" 167. ...within six months of the coming into force of this section, [to] advise the Government on a procedure for the determination and implementation of rates for the supply of electric power in respect of a consumer or class of consumers referred to in section 52. "

How will the electric power production price be established? What will be the adjustment mechanisms of this price? How will the financial consequences resulting from these new mechanisms be passed on into the supply charged to the consumers? These are some of the questions that will be considered by the Régie.

Following section 167, no 3 ,The Régie will also have to, within the time determined by the government, advise the government on the advisability of and the terms and conditions applicable to the liberalisation of electric power markets.

The main question is: how would these new modalities be reconciled with customers needs satisfaction and sustainable development

To this regard, could the initiatives proposed constitute a threat to the competitive advantages of Québec businesses; will they be compatible with environmental protection approaches; and will the realisation of energy efficiency potential that is beneficial to society or the development of capital intensive energy such as renewable energies be jeopardised?

Once again, it is only after formal public hearings and after having received the opinion of all those involved, including your own, that the Régie will advise the government on the conditions and mechanisms to be implemented.

This brings me to describe the process that will be adhered to by the Régie and the priorities that it has established for the coming months.

7.0 OPERATION OF THE RÉGIE DE L’ÉNERGIE

Organisation

Now for a few words on the status of the Régie and the principles that will guide its operation. I will refer here to the principal observations presented by the chairman of the Régie, Mr. Jean A. Guérin, during an address delivered last September 24 to the Association Pipeline and the Club d’électricité.

The Régie de l’énergie will be a quasi-judicial economic regulation board, whose decisions will not be subject to appeal. Its main role will consist in regulating monopolistic activities related to the supply of natural gas and of electric power. Within the energy markets, where there are no monopolies, it will play the role of surveillance in order to guarantee that market activity is to the advantage of the consumer.

As mentioned earlier, the Régie will consider the objectives of the Politique énergétique du Québec. Its powers concerning the environment are not to be confused with those of other agencies, such as the Bureau d'audiences publiques en environnement (BAPE) or the Agence de l'efficacité énérgétique, and those concerning consumer protection, namely the Office de protection du consommateur, or with those of any other public agency. When it acts, the Régie will assure that its decisions are in accordance with the requirements of other public agencies, especially concerning environmental standards relating to investments that it will authorise. In return, following the Régie’s approval of installations in the framework of the resource plan of a business, the BAPE will not require businesses to justify their energy rationale a second time.

This brings us to the organisation of the Régie itself:

The Régie de l’énergie is composed of seven commissioners, including a chairman and a vice-chairman, who are:

- Mr. Jean A. Guérin, chairman

- Me Lise Lambert, vice-chairman

- Me Catherine Rudel-Tessier, commissioner

- Mr. André Dumais, commissioner

- Mr. Pierre Dupont, commissioner

- Mr. Anthony Frayne, commissioner

- Mr. François Tanguay, commissioner

Mr. Gabriel Polisois, former director of the Bureau d’efficacité énergétique, has been appointed executive director and Me Robert Meunier acts as Secretary of the Régie.

With a projected personnel of approximately 60 people and an annual budget of 6.5M dollars, the Régie considers that it will be able to adequately and diligently fulfil its mission and meet the expectations of the various clienteles. In order to do so, Régie de l’énergie intends to maximise the use of new information technologies like Internet in its communications. Its Web site will be accessible by mid-November.

Funding

The funding of the Régie will be assured by the collection of an annual duty from every subject distributor. No operating deficit may be incurred in any fiscal year and any revenues which exceed expenditures in a given year will be transferred to the subsequent annual budget.

Moreover, the Régie will keep separate accounts for each distributor and the collection terms of the duties will be in accordance with services rendered to the clientele, based on the user-payer principle.

Rules of procedure

In its operation, the Régie intends to follow strict and transparent approaches. It will foster the participation of all those concerned during public hearings, in order to ensure a proper review of the issues submitted to its attention.

Furthermore, the Régie is in the process of defining formal rules of procedure that will supervise its actions and assure the efficiency, equity and transparency of its regulatory process. Régie de l’énergie wants to assure all the various stakeholders that they will be consulted in due time.

In addition, the Régie intends to make all the necessary efforts to ease and lighten the regulatory process, especially through the simplification of the procedures and mechanisms relating to the determination of the rate of return and the establishment of rates. The Régie will also foster consultation and joint actions among the parties, preparatory meetings and negotiated settlements, in order to keep the cost of regulation as low as possible.

Intervenor fee reimbursement

In section 36, the Act stipulates that the Régie may order any distributor to pay all or part of the expenses, including expert fees, of any person whose participation in its proceedings is considered useful. The Régie may also pay the expenses of groups formed to take part in its public hearings.

The Régie intends to implement those provisions that will be part of its new rules of procedure and practice.

Neutrality and transparency

Because of its incorporation act and operating mode, the Régie has the advantage of an independence that guarantees its credibility. This is a basic condition for its authority, and for compliance with its decisions by the various stakeholders concerned, both in Québec and abroad. This independence will contribute to maintain the confidence of investors and financial institutions who participate in financing distributors. In fact, the FERC has drawn on the ability and independence of the Régie de l’énergie to grant Hydro-Québec a wholesale dealer permit in the United States.

8.0 PRIORITIES OF THE RÉGIE

During the next few months, the priorities of the new regulatory agency will concern the following issues:

Examination of complaints

The Régie has started to work on the consumer complaint review concerning the application of rates or of terms and conditions applicable to transportation, supply or storage. At the end of August, the concerned distributors were asked to submit their complaint review procedure to the Régie. These suggestions were recently provided and are now under study. A consultation of the various stakeholders will soon be undertaken. The Régie expects that, as early as the beginning of next year, the concerned entities and the Régie will have implemented an adequate approach for receiving and processing these complaints.

Regulation fees and duties

Concerning the funding of the Régie, the Act stipulates that any distributor must pay an annual duty. Early in September, the Régie began consulting all distributors concerned in order to receive their comments on the proposed methods of funding. A draft of the regulation will be submitted to Government following this procedure. It is expected that this new method for the collection of fees and duties will be effective by the beginning of next year.

Monitoring of petroleum products

In the field of petroleum products, the implementation of sections 55 to 59 of the Act respecting the Régie de l’énergie will enable the Régie, on a short term basis, to: exercise its powers of supervision, inspection and inquiry in respect of the sale or distribution of steam or petroleum products. The Régie will then be in a position to hold public hearings in order to assess the amount per litre representing the operating costs borne by a retailer and the expediency of excluding this amount from or including it in the operating costs borne by a retailer in the various regions of Québec.

Incentive measures

In the next year, the Régie de l’énergie will pursue its activities in the natural gas sector, with a concern to ease and lighten the regulatory process. The Régie will also work toward the implementation of incentive measures aiming at the improvement of both distributor performance and the satisfaction of consumer needs.

Inquiry on the determination mode of electric power rates

However, the greatest task during the next few months will undoubtedly be the inquiry that will enable the Régie to advise the Québec Government on the determination and implementation procedures relating to electric power supply rates.

To this effect, Hydro-Québec will in the coming months file its proposal concerning the regulatory process and electric power supply rates with the Régie. With the implementation of the first paragraph of section 167 of the Act on February 11th 1998, the Régie will have to hold public hearings and advise the Government concerning this proposal within a period of six months from this date.

Approval of resource plans

Following the recommendations of the Régie, the government will determine which of the Hydro-Québec activities will be regulated by the Régie according to the traditional cost of service approach, and which will be regulated by the Régie on a non-traditional basis, e.g., an increasing reliance on market mechanisms. Once this step has been taken, the Régie will be able to undertake the review of the principles which should guide the approval of distributor resource plans and the study of its first cause in order to determine the rates and conditions that will apply to the transmission or supply of electric power by Hydro-Québec.

To this end, the Régie will have to proceed to the establishment of a rate base by functional activities, separate the regulated activities from unregulated activities, approve a cost allocation method and fix a rate of return on common equity of Hydro-Québec shareholders.

Competition rules

The fact that both Hydro-Québec and natural gas distributors are now to be subjected to the same regulatory body, and given the equity objective that has been imposed by the Act on both individual and collective levels, the Régie will define equitable competition rules to be applied between the two types of energy and that, as early as the year 1998.

It is essential that these rules avoid favouring one energy distributor at the expense of another distributor, or one group of consumers at the expense of another group.

When exercising its mandate, the Régie will aim at encouraging competition between energy suppliers and distributors and at fostering the free choice of the consumer with no discrimination whatsoever. This is because it is the consumer and not the Régie de l’énergie who must decide which type of energy to choose.

9.0 CONCLUSION

These are the priorities and the principles that will govern the actions of the Régie de l’énergie in the fulfilment of its mandate.

In order to adequately fulfil its mission, the Régie both needs and desires the co-operation and active participation of all those involved in the industry and of the greatest possible number of individuals and organisations interested in one or another of the elements which are involved in the development of the energy sector in Québec. As you have noted, the assignments are numerous, the subjects complex, the issues major and the deadlines imminent.

It is within this demanding, but also stimulating context that the Régie is committed to accomplishing its mission by applying principles of equity, fairness, independence and transparency. In doing so, it will establish the conditions that will foster a healthy competition between suppliers and a respect for the free choice of the consumer - all this in the perspective of implementing sustainable development.

I thank you for your attention.

 

 

 
 


 
 

 

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