Utility Board Governance: OEB Best Practices

The Ontario Energy Board ("OEB") recently released its "Report of the Board - Best Practices regarding Governance of the OEB Rate-Regulated Utilities". The report includes what the OEB considers as being "best practices" in four key areas relevant to utility governance.  Those areas are: (1) Director Independence; (2) Director Skills; (3) Board and Committee Structures and Functions;  and (4) Supporting Documentation and Practices. Best practices in these four key areas of utility governance are summarized immediately below. 

(1) Director Independence

(a) A majority of utility level directors should be independent of the shareholders and any affiliate; 

(b) A utility level board of directors must count no less than five directors;

(c) Directors should be able to exercise their independent judgment free from any shareholder agreement or direction.

(2) Director Skills

(a) The full spectrum of skills necessary to execute governance functions and effectively discharge its responsibilities should be represented on the board as a whole;

(b) An inventory of director skills represented on the board should be compiled using a matrix approach;

(3) Board and Committee Structures and Functions

(a) Boards should govern themselves so as to ensure oversight over key functions of the utility business;

(b) Appropriate oversight of key functions can be achieved through and by Committees of the board;

(c) Members on the committees should possess the necessary skills to effectively discharge their responsibilities.

(4) Supporting Documentation and Practices

(a) Boards should have a written mandate and committees a written charter;

(b) Boards should have a written code of conduct;

(c) Boards should provide orientation for new appointees and continuing education and/or other methods of broadening the skills of all directors.

The above key areas of utility board governance identified by the OEB are designed "to assist utilities in assessing their own governance practices against board standards of excellence that are considered to be best practices". While the OEB does not set out these key governance principles as a mandatory set of principles that must unconditionally be followed by all utility boards, the OEB stated that it will expect a utility that deviates from its proposed "best practices" to explain how its governance structure nevertheless ensures proper governance over the utility. The OEB also informed that it will provide expanded reporting and record-keeping requirements so as to facilitate and encourage information sharing necessary to better understanding a utility's governance.