The Association of Power Producers of Ontario tabled its assessment of the proposed Green Energy Act with members of the provincial parliament on April 22. APPrO President Dave Butters presented APPrO’s views and comments on the significance of the legislation at public hearings called to examine Bill 150. Speaking to Ontario legislature’s Committee on General Government, Butters said that the GEA “proposes a bold new framework implementing a broad series of coordinated actions designed to make it easier to bring renewable energy projects to life and to make Ontario a green energy leader. From the perspective of the developers of large scale projects, there are many positive elements of Bill 150”, but noted that there will be outcomes that are difficult to estimate at this stage. He said that the Act will produce a wide range of benefits over a long period of time, but it will also add costs to the power sector, likely increasing the consumer’s cost of electricity.
"Electricity policy is being used to address environmental, climate-change, health, economic and energy objectives in a more integrated way,” he said. “This is an entirely legitimate policy direction, but it is a choice with its own set of outcomes, and those outcomes will incur costs not previously borne by the sector or the electricity consumers of Ontario. The impact should not be downplayed."
He also noted that, "(T)his new system’s overall costs will be higher when compared to the starting point of the existing electricity system. The challenge, as I see it, is that the benefits will be dispersed broadly, extending across many sectors of the economy, across many years and across many important objectives such as global warming, but the costs will be increasingly visible on the electricity bill. The consumer will be purchasing a much broader set of products and benefits than has traditionally been the case: reliability and more variable green energy; cleaner air and Ontario jobs, for example. This is a very different way of doing business, and there needs to be a better understanding that the consumer’s bill will increasingly reflect this new way."
For the full transcripts of Mr. Butters remarks, including questions and answers with members of the legislature, please see below.
Transcript of APPrO presentation to the Ontario Legislature’s Standing Committee on General Government, April 22 2009
The Chair (Mr. David Orazietti): Our next presentation is the Association of Power Producers of Ontario.
Good evening, and welcome to the Standing Committee on General Government. You have 10 minutes for your presentation and five minutes for questions among members. Please state your name for the purposes of our recording Hansard, and you can begin.
Mr. David Butters: Thank you, Mr. Chair. My name is Dave Butters. I’m the president of the Association of Power Producers. I see some friends here on both sides of the House—all sides of the House, actually. I have distributed copies of our presentation. I’ve also given you a copy of our latest issue of IPPSO FACTO, which has practically everything you ever wanted to know about the Green Energy Act: the good, bad and the ugly. I don’t think I need to tell you too much about APPrO; I’ll skip over that. Suffice it to say that we are the makers of commercial electricity in Ontario. We make about 98% of it. It’s our business; it’s very important to us.
What I do want to say is that there is no question that Bill 150, which is what we’re talking about, is an innovative, forward-looking and potentially game-changing piece of legislation in terms of its impacts. It does propose a bold new framework, implementing a broad series of coordinated actions designed to make it easier to bring renewable energy projects to life and to make Ontario a green energy leader. From the perspective of the developers of large-scale projects, which is generally APPrO members, there are many positive elements in Bill 150.
We applaud the government’s vision for a “best in class” renewable energy feed-in tariff. As the details of the FIT emerge, the OPA will need to work through the inevitable obstacles associated with implementing a policy initiative of this scope, and those discussions are ongoing. We’re engaged in those with a number of other stakeholders.
One thing that we do need to ensure with regard to the feed-in tariff is that, by providing meaningful incentives under the tariff for new biomass generation facilities, we don’t create the unintended consequence of driving up the prices of an already limited biomass supply in the province. You only have to look at the state of our troubled forestry industry to get a sense of that. So the incentive shouldn’t come at the expense of existing biomass facilities. We already have those. They shouldn’t be forced to close down because they simply can’t compete for the limited fuel supply against FIT-funded generators. That’s a concern of ours. Nor should we lose sight of the fact that Ontario’s experience with competitive procurement is also a well-tried and effective means to get project certainty and low cost and will continue to be necessary for projects outside the FIT envelope.
The bill also takes an impressive step to reduce costly delays for approvals and to provide greater certainty for developers by streamlining the requirements to obtain multiple permits, licences and approvals relating to provincial environmental issues, by reducing duplication and by providing one-stop shopping for renewable energy approvals with a six-month service guarantee. We’ve talked about these in the past. These are well known. Together with other amendments which limit the effect of zoning and demolition control requirements, renewable generators, I think, can look forward to getting their projects online faster, with fewer regulatory hurdles and less opportunity for what we would call social friction.
Now, that’s the good news, and as I said, I think the act is an important step in a very important direction. I want to look ahead now a little bit and outline some of the issues we think a Green Energy Act will force us to pay attention to.
It is clear that the bill is reshaping and redefining the objectives for Ontario’s electricity sector, and it’s making them broader. Electricity policy is being used to address environmental, climate-change, health, economic and energy objectives in a more integrated way. This is an entirely legitimate policy direction, but it is a choice with its own set of outcomes, and those outcomes will incur costs not previously borne by the sector or the electricity consumers of Ontario. The impact should not be downplayed.
Our members are pragmatic: They believe that we can achieve an environmentally and economically sustainable electricity sector in Ontario that supports the business interests of electricity generators and which ensures adequacy, reliability and the optimal electricity cost for Ontario consumers. But they also know, probably better than anybody except for the system operator, that Ontario needs a balance between variable green energy and reliable emission-free nuclear and hydro and low-emissions generation such as gas.
To date, Ontario’s competitive electricity sector has been fashioned to achieve the most economically efficient electricity system. By that I mean the optimum balance between prices for consumers, reasonable returns for the long-term investment in generation and transmission and the imperatives of reliable system operation.
Our bulk power system is designed for and must operate to meet customer demand in real time, meaning that supply and demand must be constantly and very precisely balanced. This is done by controlling conventional generation to make electricity when needed. But the introduction of more green, and therefore variable, generation will change this paradigm. Unlike our current generation fleet, green fuel sources cannot presently be controlled or stored. For example, wind power, which is the most abundant variable resource in terms of megawatt value today, is just as likely to be running when it’s not required as when it is.
Moving Ontario to much greater reliance on intermittent resources such as wind and solar requires that there be extra investment to compensate for this variability. That investment will be on the consumer side—for example, in advanced metering or smart meters; in the way we control the system—for example, in the smart grid and both increased supply and demand management; and through additional facilities, whether that’s storage or ramping facilities or new arrangements for existing facilities like our current non-utility generators to make them more flexible and responsive to system needs.
Consequently this new system’s overall costs will be higher when compared to the starting point of the existing electricity system. The challenge, as I see it, is that the benefits will be dispersed broadly, extending across many sectors of the economy, across many years and across many important objectives such as global warming, but the costs will be increasingly visible on the electricity bill. The consumer will be purchasing a much broader set of products and benefits than has traditionally been the case: reliability and more variable green energy; cleaner air and Ontario jobs, for example. This is a very different way of doing business, and there needs to be a better understanding that the consumer’s bill will increasingly reflect this new way.
The bill also enshrines access as of right to the electricity grid for renewables. This should stimulate renewable investment, as desired. However, an unlimited renewable tariff introduces new uncertainty into the future of existing suppliers. As I already noted, a reliable supply will demand a continuing and important need for some amount of the more controllable and more reliable capability. The province will need to assure existing suppliers of such energy that they will not face an unacceptable investment risk as a result of the priority treatment for renewable energy. To take a real example—this has actually happened quite recently—it would be indeed perverse if new and relatively expensive wind energy displaced low-cost heritage baseload hydro or nuclear energy or, for that matter, high-efficiency combined heat and power.
One of the most significant developments under Bill 150, from a generator’s perspective, is the formal recognition that transmission and distribution constraints are a significant obstacle preventing new renewable generation from coming online. This problem has long been an issue for generators, and Bill 150 presents a policy framework designed to address this issue head-on. However, much of the renewable energy potential is in remote locations of the province and will need extensive new transmission to deliver to market. We need to think very carefully about that, how we’re going to make that happen faster. It’s a challenging issue, and it has the attention of policy-makers everywhere, not just here but in the United States as well.
In closing, I want to remark on a few other issues. In reality, it’s the regulations that will give substance to the act, and those remain to be developed. Until they come forward, the clarity and certainty that all parties need will be largely missing. In that regard, it would be helpful for the government to ensure that draft regulations emerge in an open and transparent manner which will allow for meaningful input and debate.
The provision to allow regulated local distribution companies, or LDCs, to own and operate generation is of some concern to APPrO. This raises questions of confidentiality, risk management, risk allocation and self-dealing. The current statute permits LDCs to do this, with Ontario Energy Board approval, through their unregulated affiliates, which are governed by the affiliate relationships code. There were and there continue to be sound policy reasons for the current approach, and we have seen no persuasive evidence that this needs to change.
Finally, we shouldn’t accept that this initiative won’t be without cost. From the electricity perspective, it will be. That’s why we will need the Ontario Energy Board to be as vigilant as it can be on behalf of energy consumers and taxpayers in ensuring that investments are as economically efficient and as prudently incurred as they can be. We also need a realistic handle on the costs: If it can’t be measured, it’s highly unlikely it can be managed. This is a good reason why the integrated power system plan needs to come back before the OEB as soon as possible.
To conclude, this is a very bold step toward the future. It will change the way we think about the electricity system and its relationship to our society. That’s a good thing, and it will force us all to think not just outside the box but indeed beyond it in order to make it all work. The various agencies of the government involved in rolling this out are all working very hard to make that happen if the bill is approved.
We are well served by their efforts, but we can’t forget that we’re also managing, in real time, a very complex machine every second, every minute of every day, and in some very uncertain and challenging times. I haven’t even discussed the impacts and the complexities of impending climate change legislation, but you layer those on top of this and it gets pretty complicated very quickly.
The future is even more uncertain. Industrial demand is down precipitately, and the trends in this area are not very encouraging. The market price for electricity has been declining relative to the overall bill, and this trend is likely to accelerate over the coming years.
On the other hand, we also know that user-initiated conservation and demand management are the cheapest ways to address climate change. We will need a lot of serious thinking and courage to address the price contradiction if we want people and organizations to respond to price signals. We can’t afford to overwhelm our agencies with trying to make a Green Energy Act work while failing to address these fundamental issues as well.
Those are my remarks. I’d be very happy to answer your questions. I understand that I’m standing between you and the end of this session. I guess that’s the luck of the draw, but I’m sure you want to get out of here quickly.
The Chair (Mr. David Orazietti): Thank you very much for your presentation. I’m sure members have questions. Mr. Yakabuski.
Mr. John Yakabuski: Thank you very much, Dave. And you’re right: I’m always happy to see you, but today I’m especially happy to see you because that does mean that the hearings are over for the day.
I really appreciate your very balanced presentation, and I expected nothing less. You touched upon a couple of things that—we all support the improvements and the broadening of green energy. We all understand that. But the government has not been very forthcoming with respect to the expectations with regard to price. You’ve talked about that. We know that you can’t replace cheaper forms of generation with more expensive forms of generation and have literally no impact on the price. You’re talking about an impact on the price. The minister tries to pretend in some fairytale world that it’s going to go up by 1% a year as a result of this act. We know that’s not true. So I really appreciate you talking about that.
You also talked about the OEB. There’s been some concern raised about that. From your perspective, some people feel that this act amounts to the evisceration of the OEB. Ontario consumers need an OEB to be strong for this act to work in their best interests.
Mr. David Butters: I agree with the need for a strong OEB. I think where it will really play an important role is in looking at the efficiency and the prudence of the transmission and distribution, in essence, because without very large investments in that area, we can’t actually achieve our green energy objectives. That will be a limiting factor: how much we can invest, and how quickly, in transmission and distribution. So we’ll need the OEB to be vigilant and to be testing all of the assumptions that are being made, whether it’s by Hydro One or Toronto Hydro—whichever it is—and to make sure that those costs are being prudently incurred in going into the rate base, because consumers will have to pay for that at the end of the day. There’s no escaping that fact. They can talk about cost allocation, but somebody has to pay for it, and it will be consumers.
Mr. John Yakabuski: Thank you very much.
The Chair (Mr. David Orazietti): Thank you. Mr. Tabuns.
Mr. Peter Tabuns: David, thanks for the presentation and thanks for hanging in until the end. Load demand, load projections: What do you see over the next five to 10 years in Ontario?
Mr. David Butters: That is a very good question. If I had the answer to that, I could probably be the finance minister and be very successful.
Here it is in a nutshell: What we’ve seen is, primary industrial demand has been declining for some period of time. It has taken a real nosedive over the past couple of quarters. Residential, small business and commercial enterprise demand has stayed pretty much the same—it has actually increased a little bit. So I think what we’re going to see, once we get out of the recession, is some pickup in that primary demand; how far up is anybody’s question. We’ll continue to see growth in the commercial and residential sides. What we’re going to get, probably, is a system that’s more peaky, that has more volatility in it, and that’s going to be part of the challenge for the system operator to manage that volatility, because solar’s there during the day and it frequently is there during peak hours, but you can’t count on it. Wind is 50-50 on-peak, off-peak, and only 30% of the time. It’s great stuff, but—so managing that volatility is going to be a real challenge for the IESO. That’s probably where we’re going to need more ramping capability, and we’ll probably see a lot more gas, ultimately.
The Chair (Mr. David Orazietti): Thank you. Ms. Mitchell?
Mrs. Carol Mitchell: Thank you very much for a very thoughtful presentation. I just have to make the comment—and the lovely picture of me, which I’m sure you knew was here.
Interjection.
Mrs. Carol Mitchell: Yes, thank you.
You’ve made some comments about conservation and demand management, and you see that, obviously, we as a government see that as a very critical tool. What can we do to expand on both conservation and demand management, in your mind and your vast experience, to ensure that they are tools that are maximized?
Mr. David Butters: They’re an important part of the picture, and we understand that and we agree with that. But as I said, if the energy price continues to decline relative to the overall bill, the so-called global adjustment—that is the part that you get after the fact—it becomes very hard for people to respond and to see those signals. So I think that if we want conservation and demand management to be really successful, we have to get more of those costs that are going into the so-called uplift into the energy price. That’s very tricky. We’ve got a very complex market, with contracts and non-contracts. There are a lot of smart people trying to figure out how to do that, but if we aren’t successful in that, it’s hard to see how people are going to be incented.
I’ve talked to industrial customers about load-shifting. What they’re saying right now is, “It’s not worth my while to load-shift because prices are low, I can’t hedge the global adjustment part of it, and therefore it doesn’t matter whether I’m running at 5 o’clock in the afternoon or 3 o’clock in the morning.” If prices reflected that, they might do that. So this is the contradiction that we have to solve in all of this.
Mrs. Carol Mitchell: Yes, we heard from—
The Chair (Mr. David Orazietti): Okay, thank you. That’s time for questions. We appreciate you coming in this evening and appreciate your presentation.
Mr. David Butters: My pleasure.
For a PDF copy of the prepared text of APPrO's presentation, please see the following link: