Efforts to speed the adoption of new energy technology are not limited to equipment sellers and environmental advocates. Ontario’s energy regulator has begun a major initiative to facilitate innovation, ensuring that the design of electricity rates does not hinder customers or electricity distributors considering investments in new kinds of equipment.
Brian Hewson, Senior Manager of Strategic Policy at the Ontario Energy Board (OEB), says, “This policy change is about preparing for the future, addressing the transformation in the electricity sector, in particular customers' new demands on the system. It’s about ensuring the distributors are able to respond to customers' expectations for greater reliability, and have the flexibility to adapt to new technologies that customers want.”
In fact a growing number of regulatory agencies across North America and Europe are moving towards systems for “Revenue Decoupling” in which wires companies (electricity transmitters and distributors) are told to keep on providing high quality network services, even while their customers start buying their electricity from other providers. Conceptually this is similar to rulings in the 1990s when telephone companies were forced to continue providing local service as their customers started buying long distance services from a busy competitive market. Of course the regulator in both cases is committed to ensuring that the utility collects enough revenue from monthly fees to maintain the network. In the case of power distribution, the revenue dedicated to maintaining the wires network is being “decoupled” from revenue related to generation and energy management – freeing up money for the kinds of services which can be sourced from a variety of competing providers.
The primary driver underlying the new policy is a growing recognition that the energy system is changing dramatically: New technologies for energy management, distributed generation, micro-grids and storage are making it possible for attractive investments to be made closer to the customer end of the electricity spectrum, rather than always being structured as large-scale investments sited at high-volume utility centres.
The Board is trying to open pathways for innovation while ensuring revenue stability for distributors. Many observers believe the decision will allow customers and electricity distributors to entertain an unprecedented range of new proposals for energy services and energy infrastructure. The development proposals could come from within the utility, from its customers, from entrepreneurs with innovative ideas for deploying new technology, and from consortia with multiple players. Some groups may start trading electricity services amongst local customers to meet various types of technical requirements on a moment-by-moment basis, providing services akin to those which have always been provided by the central grid operator. The potential for innovation is astounding, especially for a system that has assumed for more than 100 years that all electricity would be sent down a one-way path from large central power plants.
Some may see this as a watershed moment in utility history, when local utilities became facilitators of a changing suite of energy services, rather than quasi-monopolistic vendors who also happened to own the only distribution channel for a single essential service.
Electricity distribution rates typically represent 20 – 25% of the consumer’s bill in Ontario, covering the cost of the local wires, poles and billing systems. The rest of the bill is for the electricity commodity itself (approximately 50-60%), bulk power transmission and grid operation (15-20%). The Board’s decision affects distribution rates for residential and low volume customers only. However it plans to move on and make the rates for larger customers, and for gas customers, consistent with the new policy.
The new policy will likely encounter controversy. Some utilities have warned that certain classes of customers will likely see increases or decreases in monthly bills that will be difficult to explain. An environmental group objects to the policy because they believe it will reduce one of the incentives for conservation. The Board has engaged stakeholders in consultation and continues to do so.
The Board is holding fast to its key program principles. No additional money will be collected in total. The rate structure is “designed to be fair to all customer classes, to investors and to (distributors).”
It might be said that, with this decision, the regulator is making innovation part of the normal business of maintaining the grid for Ontario’s electricity distributors.
The OEB’s decision was released on April 3 under the title, “A New Distribution Rate Design for Residential Electricity Customers.” The Board anticipates a transition process spread over the next 5 years.
- Jake Brooks, APPrO, the Association of Power Producers of Ontario - www.appro.org