Alberta needs to reform energy regulations

By Steven Globerman
and Jairo Yunis
The Fraser Institute

The Alberta government recently announced cuts to scores of jobs at the Alberta Energy Regulator (AER), including operations staff, headquarter managers and field workers, as part of a major reorganization.

Steven Globerman
Steven Globerman

The ostensible goal is to make the AER more efficient, effective and resilient by simplifying the organizational structure, reducing duplicated roles and flattening the organization’s managerial  hierarchy.

Improving organizational efficiency and effectiveness is obviously a worthy objective. However, it will be very difficult to achieve unless the goals of the organization are clearly set out in a transparent and operational manner.

The stated goal of the AER is to protect public safety and the environment while ensuring responsible energy development. This seems an appropriate focus for the AER.

Yet this mission clearly involves tradeoffs since many, if not most, energy development projects involve some (however small) risks to public safety and the environment. In this context, the critical part of the AER’s mission statement is ensuring “responsible” energy development, which is so critical to the provincial economy and the lives of Albertans.

In turn, responsible energy development arguably encompasses projects that promise to deliver social benefits that exceed their associated social costs – including the risk-related costs to public safety and the environment.

Jairo Yunis Fraser Institute
Jairo Yunis

Responsible energy development should incorporate due attention to public safety and the environment for both new and ongoing projects. To identify responsible energy development as separate and apart from protecting public safety and the environment is to introduce needless duplication and potential confusion into the regulator’s mission.

The AER should pursue the integrated goal of responsible energy development by weighing the overall potential social benefits of proposed projects against the overall potential social costs.

In many cases, either the expected social benefits or the expected social costs may be so modest that the precise weights given to each would not alter the overall net social benefit calculation.

However, in other cases, especially for a new and major development such as a pipeline, the weights given to the potential economic benefits and the potential environmental and social costs may be critical to the determination of whether the development is in the public interest.

In traditional benefit-cost analysis, a dollar of expected benefit is weighted identically to a dollar of expected cost. However, there’s no compulsion for the AER to adopt this weighting scheme.

For example, if public and environmental safety are more important than economic growth in the minds of Albertans, the former could – and should – be weighted more heavily in the AER’s overall benefit-cost assessment of any project.

Nor is there a compulsion for the regulator to maintain the constant weighting of the relevant benefits and costs over time. If the priorities of Albertans change, reflected most strongly at the ballot box, the regulator’s decision-making process should reflect those changes.

So, to ensure responsible energy development, the regulator must be able to identify and estimate with reasonable reliability the expected social benefits and costs of major energy projects and to apply weights to the benefits and costs that are broadly consistent with the priorities of provincial stakeholders.

Ultimately, the elected provincial government must inform and direct the regulator about how to weight these often-conflicting priorities.

And the regulator must be transparent in implementing those weights when making and announcing decisions.

While stakeholders can draw their own inferences about the regulator’s decision-making priorities from its previous decisions, the more implicit those priorities, the greater the associated costs of participating in and complying with the regulatory process.

While governments and regulators typically prefer as much flexibility as possible in their decision-making process, an efficient and effective Alberta Energy Regulator must operate with a transparent mandate governing responsible energy development in the province.

Steven Globerman is a senior fellow and Jairo Yunis is a policy analyst at the Fraser Institute.

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