Grant Sprague and Bev Yee are very capable senior bureaucrats.
They’re the Alberta deputy ministers of energy and environment, respectively.
Here’s hoping they bring to bear all the skills in their respective toolkits for the task at hand: leading a review of the Alberta Energy Regulator.
Sprague and Yee should keep in mind three little letters as they dig into the process: E, S and G. This trio of letters should be a reminder that such a review ought not to be the witch-hunt the current political construct and framing suggest it is.
They stand for Environment, Social and Governance and while not new, they’re increasingly shaping expectations of investors looking to ensure they capitalize energy companies who take ESG considerations seriously.
The ESG dynamic is also a proxy reminder not to toss out the proverbial baby with the bathwater as the United Conservative Party seeks to erase anything vaguely associated with NDP thinking. ESGs are just one tangible dimension of risk in a politically motivated process that by all appearances smacks of an old-fashioned lynching party.
But first some context: the current reality is that energy politics in Alberta is becoming a hateful, divisive space. And instead of the industry constructively and collectively understanding the complex restructuring forces with which it must grapple (supply gluts et al) it has become a fractious and fragmented space, in which putative answers to complex sectoral woes are distilled down into naively simplistic solutions. Put simply, whether we acknowledge it or not, our molecules are at each other’s throats.
The bottom line is this: we’re struggling to survive in a political climate that encourages divisiveness rather than one which encourages collaboration.
To wit: there are elements of our sector that simply adore a bogeyman. There’s plenty to be had if you subscribe to the UCP thesis that everything wrong in energy is someone else's fault.
The AER is merely the latest “culprit” the UCP is handing to those in the sector looking for something or someone to hang in effigy. Want a scapegoat to blame for sector travails? The UCP has a closet full ready to trot out. Other provinces. Canadians. Foreign interests. Liberal politicians. But you know it’s bad when they start to eat their own young.
Thus the AER review.
But back to ESGs. One key driving force behind the review, suggests Energy Minister Sonya Savage, is the time it takes to process an application. She points to other jurisdictions like Texas, which she argues process things exponentially faster. Implicit in her argument is that this is attractive to investors. To a point it may be, but the minister’s advisors would do well to get in front of her the headlines that tell the other side of the Texas Permian story; those that detail investment dollars leaving in droves and those that detail looming environmental debacles, particularly horror stories involving water.
Here’s the thing about investors: they come in all shapes and sizes.
But one thing increasingly binds them together: an expectation that companies with which they place capital understand and respond to ESG imperatives. Here’s a funny thing: those same investors also expect solid and robust regulatory frameworks within which those firms operate to safeguard that capital’s return.
There is capital parked on the sector sidelines, particularly for the oilier molecules. It will watch this process with interest. Dry gas producers face a larger problem no amount of regulatory tinkering will remedy.
To suggest the AER is not a robust regulator is laughable. It is world-class and in recent times, has introduced a broad spectrum of improved services designed precisely to solve the very problems of which has been accused. It has been tackling red-tape challenges for years.
Two recent innovations come to mind: the new OneStop application process simplifies applications dramatically. The Integrated Decision Approach (IDA) is an innovation which underpins simplified yet long-range understanding of an application’s life-cycle context into a bundled decision.
And another thing: regulatory dynamics are a two-way street. Many companies that have hacked into staffing levels in recent years need also to look in the mirror and assess the quality of their regulatory inputs. Remember the truism of GIGO: garbage in, garbage out (although the OneStop process should help with this).
Good regulators are creatures of the sector AND society within which they function; thus the current construct of the AER ought to mirror regulatory and socio-economic realities.
Has the AER's staffing grown in recent years? Indeed it has changed, largely in response to the increasingly complex environment in which it is expected to function – an environment that bears little resemblance to times even 15 years ago. One example: the growth that came with the AER’s actual creation, as the new enterprise took on the Environmental and Sustainable Resource Development function. Its actual staffing has remained relatively flat for the last several years.
Here’s the conundrum: the UCP is desperate to appease the industry, or at least certain elements of it. Destroying the AER’s ability to balance environmental and fiscal imperatives could actually set Alberta’s recovery back into the Intensive Care Unit bed closest to the morgue.
Weaken the regulatory framework and you do at your peril. Sloppy regulation begets sloppy industrial operation. And sloppy industrial operation begets sloppy reputation and social unrest. And the kind of capital we want driving our sector forward loathes sloppy reputations and the risk it brings.
But ESGs are just one dimension of a challenge that could easily prove up the “Law of Unintended Consequences” unless handled with integrity.
For Sprague and Yee, and the interim board, this will be a delicate task. Deputy ministers are, of course, political creatures. They must be to be effective in their roles. Here’s hoping they help their political masters guide the review to be a reasonable and rational process, one that keeps front and centre a regulator’s role in a robust economy – and one that helps the UCP resist its political impulse to toss people and process under the nearest conveniently rolling bus.
Perhaps most important will be the stakeholder input that ought to guide the review to stay away from the UCP temptation to bring the AER closer to government.
Here’s a suggestion for all those stakeholders, including ordinary Albertans whose resource wealth is at stake: remember the great line in the Joni Mitchell ballad Big Yellow Taxi.
“You don't know what you got 'til it's gone...”