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The Minister of Energy's speech to the Empire Club today suggests that the new Ontario government is committed to putting in place a combination of regulatory and market mechanisms that will encourage energy efficiency, renewable energy and distributed generation, while also bringing greater clarity and fairness to local distribution utilities (LDCs), customers, and others involved in the energy market. Over recent years, IndEco has worked with numerous clients and partners on various energy-related initiatives that have the potential to bring a range of benefits to investors, stakeholders, customers and the environment. In many cases, uncertainty about the regulatory and market framework within which these initiatives would occur has led to them being delayed. Today's speech represents an important first step towards breaking down these barriers.
The traditional press is likely to focus on announcements regarding changes to Ontario Power Generation, and the likely effect on prices, but I would draw your attention to the following key issues:
- a framework for demand side management (DSM)
- new rules for how rates for local distribution companies will be set
- the introduction of time-of-use rates
- a renewed role for retailers, and the implications for customers wanting to buy energy from renewable sources
- restatement of support for renewable energy
- removal of barriers to distributed generation.
A framework for demand side management
Last summer, the Ontario Energy Board began looking at how DSM might be delivered within Ontario. IndEco assisted several organizations participating in this process, and prepared several documents that input into this process, including an Enbridge policy paper on principles and frameworks for DSM in Ontario, and a piece for the Canadian Environmental Law Association on DSM and low income consumers. We also assisted Enbridge in preparing a A Recommended Response to the Minister’s Directive on DSM/DR for the OEB and the Canadian Energy Efficiency Alliance's Demand Side Management Framework for Ontario.
Our work on this initiative made it clear that the existing gas industry DSM programs should be left as is, and local electricity distribution companies (LDCs) should be made accountable for DSM programs for their customers. The Ontario Energy Board in its report to the Minister recommended instead a central agency model. In his speech, Minister Duncan announced a new Conservation Secretariat within the new Ontario Power Authority that will lead the efforts to engage and empower consumers. The Conservation Secretariat will develop province-wide conservation programs. Local distribution utilities will be encouraged to do DSM at the local level. Minister Duncan will be asking the Ontario Energy Board to establish a framework to help LDCs deliver energy conservation programs as appropriate, and to remove current disincentives for LDCs. The Minister sees a much more important role for LDCs than did the Board, saying they "can and should be agents of change at the local level to promote conservation."
The Premier will be delivering a speech next week with additional details on the conservation initiatives the government will be taking. Watch for details he might offer on accountability, and incentive mechanisms.
New rules for how rates for local distribution companies will be set
One of the key barriers in recent years for LDCs taking action on DSM, renewables or distributed generation has been that the rates they operate under had been frozen, and were at a level where it was difficult to maintain existing operations and facilities. IndEco had worked with a number of organizations, including Toronto Hydro and Milton Hydro on developing DSM plans. These plans were shelved when the price of electricity was frozen in November 2002, and it became clear that there was no support for or openness towards a new set of rates that would allow these plans to be delivered. The new approach to developing plans for approval by the OEB, along with the endorsement of the 'conservation culture', should bring a new willingness to entertain applications for new DSM programs.
Time-of-use rates
A key component of our Milton Hydro plan was the use of interval meters and time-of-use rates. We presented data, based on some pilot studies, showing some customers are willing to make dramatic changes in their energy use profile, given the right incentives. The Minister said the new standard rate plan to be offered to consumers will allow them to take advantage of time-of-use rates and to shift consumption to periods of lower demand and prices.
Retailers and green energy
The Minister's plan is to give consumers the choice of the new standard rate plan, or to purchase their electricity from energy retailers or directly through the market. Prior to the November 2002 price freeze, about one million Ontario residential customers had signed up with retailers to buy their electricity, and a number of retailers offered or were considering offering consumers the option of buying green energy. With the price freeze, these retail contracts were effectively null and void, several retailers disappeared, and new market entrants were scared away. Consequently, it has been essentially impossible to buy green electricity, except in the form of 'green tags'. The details of the role of retailers in the new market, or the regulatory framework under which they would operate remain to be specified, but it can and should mean new opportunities for customers interested in buying green energy. (Of course, all electricity will be 'greener' by 2007 if the restated committment to replace all coal-fired electricity generation is met.)
Support for renewable energy
The support for renewable energy is broader than just reopening the door for retailers, though there was nothing new announced today. The committment to a target of 1350 MW of new renewables by 2007 was reiterated, along with the announcement that the government will be issuing a request for proposals for 300 MW of renewable generation, perhaps as early as next week.
Barriers to distributed generation (DG)
Finally, the Minister expressed the government's desire to unlock the potential for efficient generation, and said it will "remove barriers, free up resources and bring new thinking and new ideas to the challenges that lie before us." Large consumers will be given the opportunity and information to pursue co-generation or DG opportunities.
The plan for fleshing out the details includes the following: the Premier's speech on energy conservation next week, the introduction of draft legislation in June, Committee study and evaluation of the draft legislation over the summer, and a hoped for passage of the legislation in the fall.
The full text of the Minister's speech is here.
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