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Bureaucracy's Electrical Octopus Review Panel Calls for Simplified Chain of Command
April, 2008
A recent advisory report to Ontario's Minister of Energy recommends a more streamlined approach for delivering conservation and demand management programs. The report also calls for further consolidation of local distribution companies (LDCs) and advises that Ontario Power Generation (OPG) needs a clear determination of its future role as developer of generation facilities and retailer of electricity.
The recommendations, released in late December 2007, come from a specially appointed Agency Review Panel charged with examining the mandates, operating efficiency and interrelated workings of Ontario's numerous public electricity agencies. These include:
( the Ontario Energy Board (OEB), which regulates the electricity market, generating facilities, and transmission and distribution systems;
( the Independent Electricity System Operator (IESO), which administers the electricity market;
( the Ontario Power Authority (OPA), which is responsible for developing and updating the Integrated Power System Plan (IPSP) - a strategy for securing and maintaining an adequate long-term electricity supply for the province - and for the delivery of conservation and demand management programs;
( Ontario Power Generation (OPG), the electricity generation component of the former Ontario Hydro, which now operates two nuclear generating facilities and the hydroelectric generation facilities that provide Ontario's base load electricity supply;
( Hydro One, the transmission component of the former Ontario Hydro, which now provides the regulated transmission network for power flow throughout the province (and is also one of the largest of the local distribution companies); and
( 86 local distribution companies (LDCs), which are the regulated providers of local lines and connections to the power grid.
As well, Ontario's Ministry of Energy develops and directs policy and programs.
All agencies are focused in some way on the goal of ensuring a stable power supply to meet a forecast for steadily increasing demand. However, the Agency Review Report concludes that duplication of functions among the various agencies, lengthy and onerous approval processes for transmission and generation projects, uncertainty about OPG's status, and an unwieldy number of small-scale local distribution companies are undermining efficiency and driving up costs.
Ontario's current record for peak demand is 27,005 megawatts (MW) - set August 1, 2006 - but analysts predict peak demand will reach 29,000 MW within 10 years and will exceed 33,000 MW by 2027. Ontario-based generating capacity now stands at 26,000 to 28,000 MW, depending on variable production factors, but some key nuclear facilities are nearing the end of their lifecycles and will have to be refurbished or replaced within the next 20 years. (See page 10.)
The Ontario government has set targets to:
( conserve 6,300 MW of electricity by 2025;
( double renewable energy capacity to 15,700 MW by 2025;
( eliminate coal-fired generation, which currently amounts to more than 6,400 MW of capacity, by the end of 2014;
( maintain the nuclear generating capacity at its current level of 14,000 MW; and
( add additional gas-fired generation for use in peak periods.
DUPLICATED FUNCTIONS AND PROCESSES
Currently, the IESO manages the provincial initiative to install smart meters in homes and businesses throughout the province; coordinates the emergency load reduction program, which provides large customers with payments to reduce or shift power use during periods of urgent peak demand; and is developing a comprehensive demand response program for large electricity customers. Meanwhile, the OPA is responsible for developing programs and procuring CDM - including providing up to $400 million to LDCs and other organizations for CDM incentive programs. The OPA's Conservation Bureau, under the direction of the Chief Energy Conservation Officer, promotes CDM, monitors progress in attaining conservation targets, and recommends changes to building codes and equipment/appliance standards to improve electricity efficiency.
The Agency Review Report recommends reorganizing the functions into one agency, noting: "The OPA's unique critical task was drawing up Ontario's first IPSP in almost two decades in response to the market's failure to respond adequately to market opening... Now that the IPSP has been submitted to the OEB for approval, we believe it is opportune to reassess the need for a separate agency and have concluded that, while the OPA's functions remain necessary, housing them in a distinct agency is becoming unnecessary."
The report calls for a redistribution of the OPA's responsibilities between the IESO and the Ministry of Energy, while giving the Chief Conservation Officer more independence to perform oversight of progress toward the provincial CDM goals. The report also recommends that Hydro One and the IESO develop a uniform approach for the connection assessments required before new or modified supply can be connected to the transmission system since, currently, the two entities have distinct but largely redundant requirements that prolong and add costs to the approvals process.
CONSOLIDATION AND CLARITY NEEDED
Although the number of LDCs has shrunk considerably - from more than 300 prior to the opening of electricity market to the current 86 - critics maintain that much more consolidation is needed to improve operating efficiency. A breakdown of the numbers of customers served shows that three LDCs account for 46.3% of all provincial consumers, whereas 36 separate LDCs have fewer than 10,000 customers each and collectively account for just 3.5% of Ontario consumers.
"The relatively large number of LDCs still in existence, and the size of many of them, requires the expenditure of considerable time, effort and costs by provincial agencies," the agency review panel notes. "Particularly affected are the IESO, through its role in operating and settling the market, the OEB as the regulator of the LDCs, and the OPA in delivering conservation programs."
Review panel members point to uncertainty over how OPG fits into future power production strategy, and call for more clarity. Currently, the company has a rather nebulous status as a quasi-competitive generator that sells most of its output at regulated rates set by the Ontario government. A 2005 memorandum of agreement with the Province dictates that new hydroelectric projects will be OPG's priority, while its role in future nuclear projects remains undefined.
The report also highlights concerns about OPG's place in the market, stating:
"From OPG's perspective, the use of directives and uncertainty about compensation, particularly the fact that only about 8% of existing output receives market rates, can be seen as hobbling its ability to operate as a commercial company and generate earnings adequate to new support new investment. From the perspective of other participants, the possibility of support from the Province can be seen as providing OPG with an unfair advantage over private sector generators."
SCHEDULING DELAYS, PERSONNEL DEFICITS
Ever increasing demand means tight timelines for bringing new electricity supply into service and is creating concern about delays and obstructions to project development. The report calls for a single integrated process for obtaining approvals from the various regulators - including the OEB, the Ministry of the Environment, the municipalities in which a project will be located, and the federal government in some cases - that review applications. The recent 2008 Ontario budget indicates that the government is acting on this advice with a promise that "the government will also work with stakeholders to ensure these energy projects can proceed expeditiously and that approvals processes are timely and predictable."
The agency review panel also considered human resources issues and the need to draw more workers into the energy field. It recommends the establishment of an Electricity Sector Council that could bring together employers, labour groups and education/training bodies to identify skill requirements and promote career advancement and training opportunities.
The four-member Agency Review Panel was chaired by James Arnett and included Dave Cooke, Charles Harnick and Sharon Manson Singer. An earlier report released by the review panel in June 2007 focused on executive salaries within Ontario's electricity agencies.
The complete text of the Agency Review Panel's reports and recommendations can be found at www.energy.gov.on.ca/index.cfm?fuseaction=electricity.reports#2007
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