| Home | Industry Relations | OEB Resource Guide |    |
OEB Resource Guide
Energy Sector Regulation: A Brief Overview
The OEB receives its jurisdiction from provincial legislation and regulations. In carrying out our mandate, we balance a number of objectives, including protecting consumers’ interests and ensuring the viability of Ontario’s natural gas and electricity sectors. To achieve this balance, we must ensure that the rules and regulations are applied fairly and consistently.
Mandate of the OEB:
To regulate the province’s electricity and natural gas sectors in the public interest.
How have the OEB’s role and energy sector regulation evolved?
For most of the 20th century, the publicly owned (Crown corporation) Ontario Hydro was the major force in Ontario’s electricity sector. Ontario Hydro dominated all aspects of the province’s electricity sector, serving as the primary generator and transmitter of power. It also had authority to regulate and set the rates at both the wholesale and retail levels. The OEB was created in 1960 with a limited mandate to set rates for the sale, distribution and storage of natural gas.
In the late 1990s, the government decided to restructure the electricity sector. These regulatory reforms included the breakup of Ontario Hydro, the creation of a wholesale electricity market and giving the OEB responsibility for regulating part of the sector.
The natural gas industry has been evolving since the federal/provincial agreement in 1985 that deregulated the priced supply at its source.
Why is the energy sector regulated?
Most industries in Canada are subject to some form of regulation governing what they can and cannot do. The energy sector, however, is more closely regulated than many other industries because of the unique characteristics surrounding energy supply and delivery.
For example, unlike other industries in which there are numerous companies competing to sell their products and services, electricity and natural gas distribution and transmission are considered to be “natural monopolies.". This is due, in part to the inefficiency of having duplicate facilities. Natural monopolies include infrastructure industries, such as electricity and natural gas delivery, that are capital-intensive and vital services. Since there is a significant economic “barrier to entry” in initially constructing the infrastructure, there is little or no competition and a firm in a natural monopoly position could price its products and services significantly above costs.
The primary goal of energy sector regulation, therefore, is to ensure that the public good is served in a marketplace that is not competitive.
What is “economic regulation”?
Regulation of the energy sector is considered a form of “economic regulation". Laws, regulations and other requirements have been designed to address the natural monopoly position of companies, acting as a substitute for the economic forces that would normally influence them in a competitive market. Economic regulation is also designed to provide oversight of the markets to protect consumers. The OEB’s role as an economic regulator is to balance the interests of regulated entities and consumers.
- The public is well served if both the pricing and the standard of service being provided are fair and reasonable. In this regard, the OEB’s objectives include regulating prices to levels that are “just and reasonable” for consumers and setting standards of conduct and conditions of service for entities to follow in their operations.
- The regulated entities are well served if they are viable businesses, so that they can sustain these pricing and service levels in the longer term. Entities must have a reasonable opportunity to recoup costs and earn a fair return for the significant financial investment they make in the supply and delivery of energy to consumers.
Economic regulation plays additional roles in terms of ensuring appropriate treatment of all consumers. For example, in a competitive market, dissatisfied consumers can complain, switch to a competitor or do without. Since these options are not readily available to them for electricity or natural gas distribution, the OEB also serves as a forum for hearing and attempting to resolve consumer complaints.
What are the benefits of regulation to the regulated entities?
- Regulation helps foster market integrity and public confidence.
- It provides legitimacy in matters such as rate changes because the public can be confident that such increases have been fully vetted, justified and explained.
