APPrO is an organization founded and funded by commercial enterprises that generate electrical energy in Ontario, and our main focus is respectful and effective advocacy.
We accomplish this by being a thought-leader in energy policy: putting forward well-developed policy proposals, developing compelling and realistic propositions, regulatory interventions, gathering the financial resources necessary to play an appropriate role in these matters, and communicating with others in and around the sector, such as by publishing this magazine and running a major annual conference – both of which focus on issues of relevance and importance to our members and the industry in which they operate.
For the first IPPSO Facto edition of 2010 our Editor has offered me this space in the magazine to outline few of the issues on APPrO’s current agenda.
The Ontario electricity system
It goes without saying that electricity is fundamental to human welfare, essential to economic prosperity and at the centre of the climate change debate.
For many years Ontario’s electricity sector has been fashioned to achieve the most economically efficient electricity system: i.e., an appropriate balance between prices for consumers, reasonable returns for the long-term investment in generation and transmission, and the imperatives of reliable system operation and interconnection with our neighbours.
But it is clear that electricity policy is coming to be used increasingly to address environmental, climate change, health, economic and energy objectives in a more integrated way. This new direction is entirely legitimate – but it is a choice with its own set of outcomes, and those outcomes will impose costs not previously borne by the sector or the electricity consumers of Ontario. Whatever the shape of our future electricity system, it’s clear that overall costs will be higher when compared to the starting point of the existing one. It is important that consumers of all types are made aware of the reasons for these higher costs, and the benefits associated with them.
And while these changes of policy focus will provide new opportunity for developers, they will also introduce new uncertainties for existing suppliers.
We need to ensure policy makers are vigilant on behalf of energy consumers and taxpayers in ensuring that new investments are as economically efficient and as prudently incurred as they can be, and that we think carefully about unintended consequences: as Robert Louis Stevenson said, “Everybody, soon or late, sits down to a banquet of consequences.” Let’s make sure ours is as small a portion as possible. ...
We also need a realistic handle on the costs: as was said here some issues back, “if it can’t be measured, it’s highly unlikely it can be managed.” And we need a revised Integrated Power System Plan to come back before the OEB, as soon as possible.
Ontario’s hybrid market structure
This market is where APPrO members sell their “product”, but it’s also a key instrument for furthering a number of government objectives.
While there has been much criticism about the market, extensive changes are not likely or necessarily desirable.
The wholesale market should provide for economically efficient scheduling and dispatch of supply and exports, and HOEP should provide a signal of the average hourly marginal value of electricity to both consumers and producers. Efficient and reliable operation of the electricity grid requires these. But there are a number of aspects of the structure that could be improved.
We’ve been working with our members as well as the IESO and OPA on pricing issues, and while it’s truly a work in progress, we are committed to durable changes that result in better price formation: prices should to the extent possible reflect the underlying costs of production. Some progress has been made with the IESO to correct problems that suppress HOEP: for example, the IESO’s recent decision to use average demand forecasting in most hours in order to improve price formulation and mitigate surplus generation conditions that are being seen on a more frequent basis. This is something we have been advocating for a long time - but there are other improvements that can also be undertaken. We’ve also found that a number of our interests in improved pricing are shared by large industrial loads too, and this has strengthened our resolve to make the market work better.
Natural Gas
As more and more new natural-gas fired power generation has been contracted and comes on-line, natural gas rates and services have become far more important for generators, the IESO, OPA and rate-payers alike. Getting the best services at the best cost within a highly regulated framework is time-consuming, and frequently costly. APPrO has been engaged in these matters since the OEB’s far-sighted NGEIR process began in 2005, and we expect to be following – and intervening in – these matters at the OEB again in 2010. Ontario’s generators, working with Union, Enbridge and TransCanada, have made good progress on rates and services since 2006 and understand each other a lot better than we did back in 2005. But we still have work to do to make sure that gas services and rates reflect Ontario’s changing electricity system needs.
TransCanada Pipelines’ Mainline rates increased significantly in 2008 and 2009 and will again in 2010. This has had a dramatic impact on the bottom line of a number of APPrO members who use Mainline service. Working with TCPL and other shippers, APPrO is actively engaged in efforts to revisit TCPL’s rate design, business model and suite of services with the goal of developing tangible solutions for increasing throughput and revenue and/or reducing costs on the system in order to stabilize and ultimately reduce tolls. I anticipate that this will present a major effort for APPrO in 2010.
Climate change
Last month’s Copenhagen COP 15 negotiations focused the world’s attention yet again on this important matter, and yet again demonstrated just what a complex and difficult problem it is. In Ontario, APPrO ands its members have been working closely with the province to better understand the complexities of cap and trade regulation enabled by Bill 185 (the cap and trade legislation passed late last year), including the GHG reporting requirements already promulgated in O.Reg 452/09, and their impacts on generators. We have worked hard to educate the government about how these impacts should be accommodated in this framework. We continue to follow the Western Climate Initiative discussions as well. This is seriously complicated stuff, with a number of thorny (and mostly unresolved) technical, contractual, financial and jurisdictional issues — but we all know it’s coming and we have to be prepared to deal with it. It too will require significant effort in 2010.
Supply procurement
APPrO has been working with the provincial government since 2003 to advocate for open, fair and transparent procurement processes for new supply.
Our aim has been a consistent approach, which would provide a high degree of predictability and a level playing field. Under the current approach, APPrO members have been able to invest billions in the construction of new power plants because Ontario’s competitive electricity procurement processes were open, fair and transparent.
The Green Energy Act’s new FIT provisions also provide a platform that should significantly accelerate and enhance the rate of future renewables investment, and APPrO – along with other industry stakeholders and the OPA – worked hard to make the FIT Program practical and workable.
Yet in early October we became aware of a Directive issued just six days after the FIT rules were finalized, which sets aside major transmission capacity in SW Ontario together with other financial incentives for (at this point) one company under arrangements that remain secret. This puts Ontario’s progress in danger.
A secret deal which directs long term power purchase agreements and significant transmission capacity to one company is a radical departure from the open and transparent procurement processes that have created a vibrant power generation development sector in Ontario, and is bad public policy. APPrO is and will remain resolutely opposed to it.
These issues – and more besides – will require APPrO’s attention and focus. We welcome your input, and we’ll try to keep you up to date on our progress through the pages of IPPSO Facto.
Our best wishes to all of our readers in 2010!
Dave Butters, President & CEO