- Characteristics of Regulatory Capture
- Regulatory Cost Recovery
- The Principle of Ex Parte
- Definition of Ex Parte
- What Purposes are Served by Limiting Ex Parte Communication
- Do Ex Parte Communications Prevent Decision Makers from Understanding the Issues?
- * Footnote / Additional Information Regarding Regulatory Capture
“Regulatory capture” are two words that describe what happens when an industry that is supposed to be regulated by an impartial government body, is able to exert so much influence over that body, that the regulator is literally taken captive. When this happens, rather than giving appropriate consideration to the legitimate interests of all stakeholders, the regulator becomes an extension of the industry or businesses it is supposed to monitor and impartially judge or discipline.
Regulatory capture is not the same as what happens when a group of businesses resist some intrusive government action. Resisting an enemy is very different from capturing an enemy, and then using his resources to do your bidding.
When regulatory capture occurs, the industry that does the capturing can use the regulator as a tool—backed by the force and power of government—to impose burdens and obligations on other stakeholders, even to the extent of overriding or ignoring the public interest. This was the case in the United States recently, as it has been repeatedly asserted how the US energy regulator, known as the Minerals Management Service (MMS), maintained such an inappropriate relationship with energy companies, that it didn’t protect the public interest. (Recent scandals at the MMS have revealed regulatory capture so pervasive that government regulators were accepting free gifts from industry, going on all expense paid trips, partaking of sexual favours, etc.)
Characteristics of Regulatory Capture
Once regulatory capture becomes deeply rooted, the regulator will see itself as being in a partnership with the most powerful of the players it is supposed to regulate. And in situations where the regulator is actually financed by regulatory recovery fees paid by the companies it regulates—as is the case with Canada’s National Energy Board—this sense of “partnership” will be even keener.
At the present time, Canada’s National Energy Board (NEB) is so dominated by regulatory capture that it even keeps secrets from the MPs (Parliamentarians) to whom it is theoretically responsible. The regulatory bureaucrats at the NEB refuse to disclose information that would reveal the extent of the influence that the companies they are supposed to regulate have over its policies. Neither will the NEB release this information to other legitimate stakeholders, such as landowners.
(This was evidenced when landowners requested this information under the provisions of the Access to Information Act at a time when the NEB was amending existing policies, imposing liability and duty of care upon landowners, even as it was giving breaks to the energy companies it kept openly referring to as its “partners.”)
Regulatory Cost Recovery
Unknown to many Canadians is that the companies the NEB likes to think of as its “partners,” transfer tens of millions of dollars every year to the NEB as a type of royalty or cost recovery fee. That’s right! The federal regulatory agency is funded by the companies it is supposed to impartially regulate.
Regulatory cost recovery is a fairly common practice in government, and works well when one regulator receives small amounts of money from large numbers of people. An example of this would be Canada’s Registrar of Imported Vehicles (RIV), the federal regulator that oversees the process of importing cars and trucks into Canada from the United States. To offset its costs, the RIV collects about $200 for each vehicle brought into the country.
Substantial numbers of people paying small amounts of money to the RIV will not create compromising situations for the people who run the RIV. But when a secretive regulator, such as Ottawa’s National Energy Board, receives tens of millions of dollars from a handful of companies it openly refers to as its partners, it is inevitable that inappropriate scenarios will emerge.
This explains how the National Energy Board can knowingly ignore clear and persuasive evidence placed before it by the people (landowners) who are directly affected by the outcome of its decisions, and in an inordinate and biased fashion, instead rule in favour of its industry partners.
For example, at the Calgary hearing called to address the jurisdictional transfer of Alberta's NOVA gas pipeline system, when presented with evidence that demonstrated how a jurisdictional transfer would have an enormously negative impact on landowners, the NEB ignored it altogether, among other things, saying it didn’t feel the people presenting the evidence represented very many landowners.
Quite clearly, as a result of a formal judicial hearing, ostensibly on behalf of the government of Canada, the National Energy Board openly suggested that it wasn’t concerned with whether the evidence was right or wrong. It was instead concerned with how many people it thought the presenters of that truthful evidence might represent.
The question it wanted to consider wasn’t one of judicial equity, but rather, whether it could ignore the evidence and get away with it. Behaving in such a manner is regulatory capture in its fullest and most odious form. (For more information about the evidence presented at the NOVA hearing, that the NEB ignored, click here.)
The Principle of Ex Parte
In law, when a legal authority such as the NEB consults with only one side in a two-sided dispute, it is called Ex Parte. Ex parte encounters are something that professional judges and regulators deliberately avoid. The NEB, however, has a long history of meeting with industry representatives ex parte. The legal dictionary defines Ex Parte as meaning, “outside the awareness of a party.” It states:
Ex parte refers to proceedings [or events] where one of the parties has not received notice and, therefore, is neither present nor represented.
Definition of Ex Parte Communication
An ex parte communication is communication with any NEB board member, from any person, about any pending matter when that communication occurs in the absence of other parties affected by the situation. People often refer to these communications as “one-sided,” “off-the-record,” or “private.”
One-sided communication does not mean the communication has to occur in privacy or between just two people in order to be ex parte. Even a public communication before a large audience may still be an ex parte communication, if all the other parties involved or affected by the proceeding do not have notice of, and an opportunity to participate in, what’s going on.
Ex parte communications include face-to-face conversations, phone calls, written correspondence, e-mails, and even instant messaging.
What Purposes are Served by Limiting Ex Parte Communication?
Rules that restrict ex parte communications have their roots in longstanding legal principles of due process and fundamental fairness. With public agencies and regulators, rules limiting ex parte communication also serve an important function because they ensure transparency.
Allowing ex parte communications on a matter, and then remaining secretive about them, as is the case with Ottawa’s National Energy Board, feeds public cynicism and demonstrates that NEB decisions are based more on special access and influence (regulatory capture) than on the appropriate consideration of all the evidence.
Ex parte communications are fundamentally offensive in regulatory and adjudicative proceedings because they involve an opportunity by one party to influence the decision maker outside the presence of the other involved parties. It violates due process. Such communications are never subject to review, rebuttal, or comment by other parties.
Do Ex Parte Communications Prevent Decision Makers from Understanding the Issues?
Rules that govern ex parte communication do not prevent the flow of information to decision makers. Instead, ex parte rules shape how regulators receive that information, and are intended to ensure that decision makers receive relevant information in a fair and transparent manner.
Ex parte rules create an open and transparent environment which allows everyone to know what’s going on, and if desired, provides an opportunity for each stakeholder to rebut any information being presented. Regulators that operate in secrecy do not serve the public interest and cannot serve the public interest because their method of operating does not facilitate what anyone could call an “above-board” adjudication process.
- - -
* Material in this article has been compiled from original text written by CAEPLA staff, and from information gleaned from a number of online sources. For more information on or about regulatory capture, see:
http://en.wikipedia.org/wiki/Regulatory_capture
http://www.thefreemanonline.org/anything-peaceful/hello-ever-hear-of-regulatory-capture/