The Ontario Energy Board has set a bold and definitive course in the direction of revenue decoupling and fixed charges. At the same time a variety of forces are pushing capital costs steadily upwards. This can lead to only one conclusion: Major communication challenges if not open conflict when the capital cost increases are actually passed along to consumers, especially low volume consumers.
In 2012 the Conference Board of Canada estimated that Canada would need to spend $350 billion over the next 20 years to maintain and expand its electricity infrastructure. That estimate is likely under-stated because it was calculated before recent changes that have enhanced the prospects for distributed generation, storage, micro-grids, and related smart control systems. Although the introduction of these new systems could reduce electricity costs for consumers, they will probably increase the capital cost of the infrastructure. While electricity itself may cost less, getting it to the right place will likely cost more.
The causes of higher infrastructure costs are impossible to pinpoint. They are partly the result of social expectations that require new infrastructure to be built to higher standards than what went before. They are partly the after-effect of a period of under-investment that has left us with aging infrastructure. They are partly the general desire to incorporate smarter, more flexible and greener technology. They are partly the inevitable result of increasing demand for relatively scarce resources, obliging suppliers to reach further afield to meet demand. Innovation and efficiency mitigate some of these pressures, but they have their costs as well – costs that are usually embedded in some kind of fee resembling infrastructure charges rather than in commodity costs. Global, national and Ontario trends suggest that a direct result of efforts to control the cost of energy services, is that the cost of energy infrastructure will rise. (See “IEA study sees rising capital costs,” IPPSO FACTO, August 2014.)
This is a shared problem faced by the entire energy industry. The same basic story is true at wholesale and retail levels, for regulated and unregulated suppliers, for electricity and for natural gas, at home and abroad. No one sector is at fault. But we will all feel the heat. The OEB may have actually pushed issue towards earlier resolution, and attracted some initial consumer criticism, with its latest decision on revenue decoupling. (See “New rate rules designed to facilitate efficiency, renewables and financial stability,” elsewhere this issue.) One irate stakeholder called it “the biggest the OEB mistake to date [sic].” Undoubtedly aware that low volume customers will see the largest increases in their bills when infrastructure charges are separated from usage fees, he said, “The vast majority of Res and GS customers will have absolutely no idea of what the OEB is doing to them.”
The communication challenge for the energy industry is comparable to the communication challenge faced by the Ontario government in 2008 and 2009 when it moved to integrate the HST and PST - an initiative which effectively applied tax to products that had previously been untaxed provincially. The change was arguably efficient, reasonably fair, and overall economically beneficial. But there were identifiable losers and any number of opposing interests objecting to the change and putting forward arguments against the HST. Nevertheless the government prevailed in terms of public opinion and was re-elected in large part thanks to a very well-designed and well-executed public education effort explaining why an integrated HST was preferable to the previous system.
As if to highlight the urgency of the issue, in an apparently unrelated announcement, the Minister of Energy said on May 12 that the Ontario government plans legislation this spring that would, among other things, “allow the OEB to establish more nimble structures (for public communication) while enhancing customer advocacy and representation.”
Explaining why infrastructure costs are rising and why fixed charges on electricity bills are rising will be more difficult than explaining the reasons for integrating the HST. It is more technically complex, and less well understood by the general public. It’s a convenient political target. Yet costs are rising and responsible citizens need to make informed choices in response. It will be extremely important to find ways of linking these adult conversations with the many positive aspects of these changes.
The good news
At the very same time, for many of the same reasons, there are positive and exciting stories to tell. The energy system is cleaner, safer, more reliable, more flexible and more efficient than it has ever been. People place greater value on electricity than ever before and it’s doing more and more useful things for us. New technologies are popping up everywhere and innovation shows no signs of slowing down. The OEB believes its rate design initiative is “enabling the future” and they are likely right about that. The new infrastructure to be built will be smart, it will allow consumers an unprecedented range of control, and it will enable further innovations that we can only begin to imagine.
There is a direct connection between the exciting innovations underway in the energy sector and the challenges of rising infrastructure costs. Enabling new solutions requires having a framework in place to connect those innovations. I (In this case, literally connect those innovations.) Ensuring there is public support for the framework requires explaining in advance why the innovations are valuable, and why the infrastructure to accommodate them costs more, and is worth paying for.
There’s a communication challenge ahead
Explaining to the public why future infrastructure costs more may in fact become one of the major pre-occupations of the power industry for several years to come. Someone will need to explain, and probably explain repeatedly, the different kinds of infrastructure costs on a local and regional basis. Someone will need to explain the different systems through which capital costs are collected. Someone will need to highlight what the benefits are, and explain how the benefits are created and distributed. Sadly, someone will need to be prepared to explain why some of the most direct benefits are not shared equally by all consumers. And as the OEB knows, someone will need to explain fixed monthly charges.
Who will do all that explaining and communicating with the public? We know that the OEB anticipates being part of the conversation. We know that the Canadian Electricity Association began a process of stressing the value of electricity last year with its “Power for the Future” initiative. But these are only building blocks. The scale of the communication required is also unprecedented. The delivery of electricity is so dependable and so seamless for consumers that it’s normal to underestimate its value. The energy industry will demonstrate its mettle when it resolves who will be taking on the primary responsibility for each of the various areas in which the industry is seeing communication challenges. What role should be played in the communications effort respectively by the associations, by industry leaders, by government and by regulators?
This is the time for the electricity industry to pull together. Generators, consumers, developers, suppliers, and regulators – all have a stake in getting the message out and getting it right. Infrastructure costs are rising - but these innovations are major opportunities that will reduce overall costs and deliver value like never before.
– Jake Brooks, Editor