The Ontario Energy Board, the primary regulator of Ontario’s electric power sector, has begun a consultation process on the province’s system for planning distribution and transmission investments. The outcome could have significant implications for generators and a wide range of other market participants. Elisabeth DeMarco of Macleod Dixon LLP notes that the process will likely affect the role of the Board in relation to customer protection and determining the cost responsibility for renewable energy and supporting infrastructure investments, two areas that have been particularly in play since the introduction of the Green Energy Act in Ontario.
The proceeding on a “Renewed Regulatory Framework” is an ambitious undertaking that could soon affect the kind of service customers receive, the character of new development undertaken by local public utilities, the role of utility affiliates and the range of business opportunities that become available for those partnering with distributors in Ontario. “The process will seek to marry up the Board’s traditional regulatory responsibilities such as reliability and economic efficiency with renewable energy and smart grid objectives of the Green Energy Act,” says Rob Frank of Macleod Dixon. APPrO Executive Director Jake Brooks notes that there could be significant efficiencies for local distributors if they can use the process to integrate four types of planning they are expected to do: normal system expansion plans to meet growth, CDM plans, green energy plans and smart grid development plans.
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“The Board therefore intends to consider refinements to its policy regarding the assessment of distributors’ infrastructure investment plans. The objective of this work is to ensure that the plans are economically efficient and cost effective. The Board will consider how best to ensure that investment proceeds at a pace and is prioritized on a basis that has regard both to demonstrated need and the cost implications for consumers. This approach may require an assessment of the combined cost impact of both the network investment and the generation that is connected by that investment. The Board will also address the fact that an individual distributor’s planning process may not, if considered in isolation, facilitate the lowest cost investment to meet the renewable energy and smart grid objectives under the GEA. Moreover, as I have suggested in the past, we may require greater regional coordination among distributors with respect to their planning. ... Effective regulation promotes smart transformation. It encourages the right amount of investment and new technologies while maintaining reliability, affordability and sustainability.”
– Howard I. Wetston, Chair & CEO, Ontario Energy Board, Niagara Falls, Ontario, September 21, 2010
The broad consultative process for the Renewed Regulatory Framework, first announced last fall by then-OEB Chairman Howard Wetston, held its first public meeting on February 2. The project is being organized as a combination of five existing or contemplated proceedings at the OEB that include:
• Distribution Network Investment Planning (EB-2010- 0377);
• Rate Mitigation (EB-2010-0378);
• Defining and Measuring Performance of Electricity Distributors and Transmitters (EB-2010-0379);
• Developing Guidance for the Implementation of Smart Grid in Ontario (EB-2011-0004);
• Transmission System Planning (details to follow); and
• Regional Planning (details to follow).
Additional consultative proceedings may be added.
“Network investment is going to be a significant issue for the foreseeable future. That investment is being driven by a variety of circumstances such as Ontario’s aging infrastructure, shifting load profiles, the government’s CDM policy, etc. The Board’s stated objective is that investment should proceed at a pace and based on priorities that consider the ultimate bill impact on consumers including both end use small customers and large industrial consumers,” says DeMarco. “Generators may have particular interest in their access to, and cost responsibility for, new and existing distribution and transmission services.”
Brooks notes that the changes flowing from this process could have long lasting effects, and a range of market participants may need to inform themselves about the process relatively quickly.
Board staff stressed that this stage of the consultative process is intended to gather stakeholders’ views on the kind of mechanisms that are needed to both encourage investment and maintain affordability for the consumer. Key themes were expressed at the February 2 meeting in terms of “managing the priorities and pace of investment with a view to longer term outcomes,” and “Controlling costs upfront with less likelihood of after-the-fact adjustments.”
Staff proposed that guiding principles for this work could include the following:
“To extent possible…
• The pursuit of economic efficiency should be encouraged.
• An appropriate level of reliability and quality of service should be maintained.
• Give consideration to the timing and pattern of expenditures and the corresponding recovery of the associated costs so as to minimize rate and/or bill impacts.
• Regulated utilities have opportunity to earn a reasonable return on shareholder capital and to maintain their financial viability.
Also, regulatory frameworks should be sustainable. And, in practice, a framework should be predictable and understood by stakeholders, and capable of being implemented through efficient & effective regulatory processes.”
Stephen Cain, the OEB staff person who presented on Distribution Network Investment Planning, identified the following key issues for discussion:
• What criteria are appropriate for assessing the prudence of which types of investment?
• Under what conditions should similar projects designed to meet different objectives be evaluated using different criteria?
• How should costs, benefits and risks that are not readily measurable be evaluated?
Another set of practical questions for distributors, quite aside from integrating these new considerations into their business models, revolve around the simple operational issues of how to organize their planning process. What data will they need to collect, how should they prioritize various phases of development, how to sequence the various kinds of applications for approvals, etc.
Board staff are retaining consultants to assist them in preparing discussion papers on each of the three major areas (investment planning, performance assessment and rate mitigation). The papers will be published in April, and consultation with stakeholders on the issues will gear up in May. Further development of options will take place over the summer, with detailed proposals for change being circulated in fall 2011. Board staff have indicated that the intention is to have the results of this consultative process in place for the 2013 rate year, which would mean the first applications from distributors under the new model would be in 2012. In the end, these RRF proceedings are likely to have a direct bearing on the perpetually relevant questions for the electricity sector: “What gets built when, and who will pay for what?”
For further information, readers may contact the OEB or APPrO.