régis gosselin chairman public utilities board of … · régis gosselin chairman public utilities...

Régis GosselinChairman

Public Utilities Board of Manitoba

1Manitoba Public Utilities BoardManitoba Public Utilities BoardManitoba Public Utilities BoardManitoba Public Utilities Board

12/05/2015

� Government-owned (federal or provincial)

� Created by statute

� Mostly (but not exclusively) in natural monopolies

� Fulfills a government-directed mandate

� Government appoints board of directors


12/05/2015

� Address natural monopoly

� Regulatory vehicle

� Supply goods and services

� Ensure availability of public goods

� Economic development

� Government revenues

� Means to achieve public policy aims

� Able to undertake higher risk projects

� Address adverse selection


12/05/2015

� Manitoba Hydro

� Vertically integrated electric utility (generation, transmission, distribution)

� Centra Gas Manitoba Inc.

� Sole remaining natural gas distributor

� Formerly privately owned, now subsidiary of Manitoba Hydro

� Manitoba Public Insurance Corporation

� Sole provider of basic automobile insurance in Manitoba


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� Hydro-Québec

� Ontario Power Generation

� Hydro One

� Insurance Corp of BC

� BC Hydro & Power

� Saskatchewan Power Corp

� Saskatchewan Government Insurance


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� Utility is at arm’s length from day-to-day decision making by government;

� Generally mandated or expected to act in the public interest;

� Policy objectives usually mandated by legislation, regulation and/or cabinet directive;

� Utility customer interests tend to be closely aligned with taxpayer/voter interests;


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� Equity nominally held by Crown rep. (e.g., Minister of Energy), but essentially “widely” held by taxpayer/voter

� Generates funds for shareholder government◦ Taxes, water rental fees, debt guarantee or management fees◦ Dividends

� Ratepayer also gets benefits of returns but bears risk

� Can be assigned supplementary responsibilities by government


12/05/2015

� Cost of capital relatively low (compared to private enterprise);◦ Cost of debt generally based on govt. borrowing rates (i.e. guaranteed)◦ Capital structure can be heavily weighted on debt with little to no impact on borrowing ability. NB Power mandated however to achieve 80/20 D/E ratio over time to reduce debt.

� Can undertake riskier projects

� Can postage stamp rates and services

� Favorable tax treatment (in some cases) – NB Power no longer required to make PILT to government);

� Despite the “arm’s length” objective, gov’t can constrain or overrule regulatory decision making.


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� Its policy objectives trump all other objectives

� Can use full powers to support◦ Borrowing

� Can direct the utility

� Can assign additional responsibilities

� Utility = source of revenue


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“It should not be inferred…that an economic theory of public utility rates which is valid under private ownership becomes invalid under public ownership, and vice versa. On the contrary, the essential principles…apply with modification under both forms of organization.”

Bonbright et al., Principles of Public Utility Rates (2d), 1988, p. 7.


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� Substitution for competition� Provides a check against monopoly power and pricing

� Transparency (most evidence available to public)

� Accountability (Utility must justify decisions)� Public and Stakeholder Involvement (through intervenors)

� Additional “arm’s length” from government involvement

� Quasi-judicial process with independent review of evidence


12/05/2015

� Utility managers’ / directors’ allegiance and focus on company interests may skew interpretation of “public interest”.

� Regulator more directly and uniquely focused on public interest.

� Regulator and parties to the regulatory process perform the requisite due diligence

� Level the playing field


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� Same regulatory processes

� Cost of service versus rate base return

� More hand holding of smaller utilities

� Crowns can appeal Board decisions (and do...)


12/05/2015

� Ratepayer sense of ownership◦ Influences utility decision making

◦ Path dependence

� Crown utilities as policy instruments

� Regulatory authority can be limited

� Higher risk investments/decisions

� Ratepayer wears the managerial decisions

� Level playing field?

� Monopolistic behaviour by the Crown utility


12/05/2015

� Opaque government/utility dialogue

� Incremental complexity of issues

� Constrained regulatory resources

� Board member expertise and availability(Crowns and regulator)

� Allocative efficiency and innovation attenuated because of a lack of competition?


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� What is appropriate level of equity?

� Funding of supplementary non-utility services provided by the utility

� Problematic external benchmarking


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� Ongoing Canadian debate about Crown corporations

� Regulators protect the public interest and will continue to play this role


12/05/2015

� The Role of Crown Corporations in the Public Canadian Economy by E. M. Iacobucci and M. J. Trebilcock, School of Public Policy Research SPP Papers, University of Calgary, March 2012

� The Significance of Government Ownership for Rate Regulation and Competition by Willie Grieve, Feb. 1996

� Regulating Crown Corporations, a presentation by Raymond Gorman to the 2014 CAMPUT AGM


régis gosselin chairman public utilities board of … · régis gosselin chairman public utilities...

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