The electric power system in Ontario is doing remarkably well. Although it faces a variety of challenges in the coming years, it is fully capable of meeting those challenges and delivering reliable, clean and affordable electricity for years to come. The most significant danger on the horizon is the risk of hasty or overly-aggressive change in the structure of the system. For this reason, decision-makers in Ontario need to be very skeptical of any proposals that call for sweeping overhaul of the power system.
This was one of the key messages delivered by APPrO President Dave Butters in a keynote speech to the Toronto Board of Trade on May 29. Addressing an audience of nearly 200 people as part of the Accenture energy series, Mr. Butters used the opportunity to update the Canadian and international business community on the views and concerns of the power generation sector in the context of new legislation, changes to the market, the Feed-in Tariff Program, and other developments. Working to improve the system has always been a crucial priority, he stressed: “Electrical power is the life blood that courses through the body of Ontario. It sustains and gives growth to our small businesses and large manufacturers. It literally lights our lives and livelihoods. The provision of affordable, reliable power is fundamental to all that we do.”
What the power generation industry is looking for can be summed up in three words, he said: Reliability, stability and predictability. These are objectives that the industry is focused on meeting for the benefit of consumers, and they are also the key qualities the industry needs to see, in order to deliver its services at the lowest possible cost.
“We are heading in the right direction.”
Mr. Butters explained why he believes confidence in the current system is warranted: “Generation is abundant and reliable. Supply has become more diversified. And our system is cleaner than ever before. Soon, we will have moved completely away from coal. And importantly, we have invested tens of billions of dollars into the renewal and refurbishment of our electricity system.”
At the same time he acknowledged that there are areas where improvement is needed. For example, the sector will have to address sizable issues in the near future including Surplus Baseload Generation, reducing the uncertainty around the timing of nuclear capacity additions, renewables integration, and the need to re-contract with Non-Utility Generators, if the current level of success is to continue, he noted.
“Policy adjustments. Experience-based improvements. Fine-tuning. Corrections. These are all welcome. And necessary. But stem-to-stern reviews. Sweeping overhauls. Game-changing changes. Let’s have less of that,” Butters said. “A climate of perpetual, disruptive change discourages efficient investment decisions. Which renders achievement of our goals harder. Which places greater, not less burden on taxpayers and ratepayers.”
The power sector has seen a lot of change in recent years. From the opening of the market in 2002, to major pieces of legislation in 2004 and 2009, it has been difficult to look ahead properly when planning long term investments. In recent years the industry has faced challenges dealing with the sudden shutdown of retail competition in 2002, and several pauses in procurement processes. Fortunately, the contracting system for supply that has been in place for the past few years has allowed for good quality new generation to be built, despite the uncertainty in other areas.
Pricing of electricity has been in line with inflation
Mr. Butters challenged his listeners not to shy away from the potentially divisive issue of electricity pricing. He recommends a cautious, analytical approach: “Obviously, no increase to the rates we pay is ever welcome. But the question is whether rates are fair and reasonable. Are increases justifiable and measured? Are we on a path that is manageable for people and businesses – as we work to better reflect the costs of generating, transmitting and distributing power around the province?
“On balance, Ontario is more right than more wrong when it comes to price. Understanding that any increase is a hardship, the increase in the total market cost of electricity has been relatively modest over the past decade – matching the rate of inflation almost exactly. During that time the cost of electricity as a percentage of the overall household basket of goods is virtually unchanged, moving from 1.9% to a still quite low 2.1%. In contrast, the cost of food and gasoline has far outpaced the CPI index.
“At the risk of appearing provocative, I want to take the argument one step further. I don’t believe the electricity sector should be the least bit apologetic about these price increases. We’re refurbishing system-wide infrastructure, delivering a guarantee of virtually unblemished reliability and transforming the system into something far cleaner. That costs money. A lot of it.
“And when you think back to the disruption caused by the August 2003 outages we’re reminded of the enormous toll exacted in economic and human terms. On balance, I don’t believe it is going too far to say that our supply of electricity in Ontario offers outstanding value for the price we pay and service we receive.”
No one has a monopoly on right answers
Political leaders have an important role to play in establishing directions in electricity policy and in communicating with the public. But the focus of political debate and policy development needs to be principled and high-level, Butters stressed: “Let’s work hard to rise above the all-too-common partisanship that often afflicts discussions of this policy area. No one party has or ever will corner the market on correct answers. Let’s keep the focus on common goals and the public good. I would encourage all participants to embrace the principles of reliability, stability and predictability. As we debate, let’s ensure an informed dialogue that is in pursuit of these goals, not in contradiction to them. ... The issue therefore is how can we best work as partners – industry and policymakers – to build upon a good thing?”
Transparency, particularly with respect to planning, is widely acknowledged as a critical condition for productive public discussion and for investment. “What our members feel must be made clear is the respective roles of Government, the OEB, the OESO and stakeholders – for the short, medium and long term. Why? Because investors must understand the pathway when it comes to planning and approvals for the electricity sector. And, to be blunt, given the newly proposed Ministerial directive powers for planning, that clarity is all the more important. The planning process is too important to be opaque.”
Quit fixing us. Please.
Mr. Butters concluded by saying, “I advise pragmatism over grand designs. Small steps over great leaps. Let’s rely on practical experience and the pursuit of gradual improvements. That is how we can best realize the goal of building an even stronger, affordable system. One that offers reliability, stability, predictability – for both power producers and the people of Ontario. And it is for that reason that I finish by saying that our fondest wish is that decision-makers will hear us when we say: Please, quit fixing us.”
For the full text of Mr. Butters’ speech, see this link on the APPrO website: https://www.appro.org/index.php?option=com_content&task=view&id=102&Itemid=137