Toronto: Ontario’s membership in the Western Climate Initiative (WCI) could create some serious problems for generators if certain issues are left unresolved. “Given that Ontario is a relative newcomer to the group, a number of issues specific to the province still need to be worked into the detailed regulatory design,” says APPrO President Dave Butters. APPrO has identified a set of concerns and provided input to the WCI on issues that could be critical to generators operating in Ontario in a 10–page brief filed August 13, 2008.
The key issues are largely administrative, but if they aren’t addressed, “there is a risk of onerous, inconsistent, or even conflicting obligations becoming applicable to generators in Ontario,” Butters says.
APPrO’s comments, prepared by Lisa DeMarco of Macleod Dixon, focused on the need to address unique circumstances in the Ontario electricity sector including the range of existing regulations, the IPSP, the Supply Mix Directive, OPG’s obligations to reduce the use of coal over time, the nature of NUG, Early Mover OPA contracts, and the absence of physical trading mechanisms in Ontario’s market design. It also cited potential issues that will need to be addressed related to Ontario’s current arrangements for ownership of environmental attributes, data systems for tracking emissions, and the obligations that may be placed on low emission generators who might not be able to reduce emissions further.
“It is worth expending some effort now to find solutions in these areas,” Butters says, “to ensure that economic opportunities and valuable time are not lost at later stages in the process.”
In its comments on how provincial equivalency agreements would be needed to accommodate federal rules in Ontario, the brief said, “APPrO strongly encourages all entities to harmonize GHG related requirements in order to avoid a patchwork of numerous and potentially conflicting obligations applicable to the electricity sector and create investment certainty.”
The APPrO paper was in large part a response to a Design Document circulated by the WCI for comment. APPrO expressed concerns that in some cases over-riding current Ontario rules could inadvertently affect reliability and cause emissions to increase: “The WCI Design Document provides no express flexibility or accommodation related to Ontario’s coal phase out and electricity reliability. Given the significant impacts that this will have on climate change and the Ontario electricity sector, APPrO submits that the Design Document should be adapted to address jurisdiction-specific reliability concerns and regulatory requirements applicable to all electricity sources. … There continue to be concerns regarding Ontario electricity supply sufficiency in the period following the proposed coal phase out and prior to the implementation of new nuclear generating facilities or the development of new transmission capacity. This may result in Ontario electricity demand being met by importing coal-fired electricity from U.S. state jurisdictions that are not members of WCI, or new gas generation that operates under OPA generation procurement contracts with little or no flexibility on environmental attributes and related GHG compliance costs. ”
APPrO also expressed concern that low emission generators could be faced with unduly onerous burdens, depending on how WCI rules are applied in Ontario: “the Design Document leaves considerable uncertainty regarding the treatment of renewable electricity generation and its associated environmental attributes as either a GHG source (warranting allowance allocation) or an offset provider (eligible for offsets).”
Existing power purchase agreements in Ontario present their own set of challenges. “The EMC, RES, CHP and RESOP contracts that have been issued to date have stipulated that the OPA will own all environmental attributes (including GHG emission reductions) resulting from the clean or renewable electricity generation. This may pose considerable challenges in the context of the WCI if the OPA is not deemed to be the First Jurisdictional Deliverer (FJD) and may necessitate the resale of environmental attributes to Ontario generators in order to comply with FJD obligations. Similar concerns may apply to existing gas-fired electricity generators covered by non-utility generator (NUG) contracts with the Ontario Government. As a result, APPrO submits that the WCI Electricity Sub-Committee should undertake further design consultations with Ontario generators in order to ensure that existing implementation of FJD obligations on Ontario electricity generators is feasible and free from significant adverse impact.”
Because physical contracts for power delivery are not available in Ontario, the paper notes that “the Ontario electricity market may not be conducive to the proposed point of regulation intended through the FJD mechanism. Similarly, the intent to capture GHG emissions associated with electricity imported into Ontario may be frustrated by these prevalent commercial structures. Further many existing contracts allocate the purchase and sale of environmental attributes and liabilities in a manner that is at odds with the proposed FJD structure. The FJD obligations as outlined in the Design Document may therefore result in significant commercial impact to electricity purchasers and sellers if they are implemented without further consideration and consultation.”
Describing the range of regulations that already create climate-related compliance obligations on generators, “APPrO respectfully requests that the WCI and its members attempt to harmonize and streamline the GHG obligations
applicable to the Ontario electricity sector
with other applicable programs. APPrO further submits that additional consultation with Ontario electricity stakeholders is required in light of the recent addition of Ontario as a WCI member. … harmonization, co-ordination and clarification of WCI caps on GHG emissions and related reductions from the electricity sector is required and must be undertaken in the context of the commercial realities applicable to Ontario electricity generators. … It is uncertain as to whether such caps will be implemented on a corporate basis (as in the proposed federal system) or on an individual facility basis. The choice of the point of regulation will have considerable impact on WCI FJD requirements and the feasibility of implementing same.”
The paper concluded that, “great care should be taken by WCI and regulators to harmonize requirements and work with Ontario electricity stakeholders to facilitate the intended GHG emission reductions to avoid unforeseen negative impacts on all electricity stakeholders.”
For a copy of the full paper, see the APPrO website, and for further information, contact the APPrO office.