The Electricity Distributors Association (EDA) has done its own analysis of restructuring options and prepared recommendations. It has found that the continued ownership of distribution assets within the larger Hydro One organization creates problems that can best be addressed through a form of divestiture: “Our association has called for the separation of transmission and distribution for a long time,” says EDA CEO Charlie Macaluso. “We have also concluded that provincial participation in distribution, in its current form, is a major barrier to efficiency improvement for the benefit of consumers.”
The EDA welcomed the advisory council`s recommendations to date, which “aligned well with its own ongoing assessment of distribution sector re-structuring options.” The association supports the transfer, at fair value, of provincially owned electricity distribution assets from Hydro One to local electrical utilities.
“It would create a much more rational distribution system and greatly benefit energy consumers,” Macaluso says. “And it will better ensure the efficient and sustainable management of the assets we all rely on to power our homes and businesses.” The EDA says its proposal would address the fragmentation and many anomalies in the current structure of Ontario’s distribution system. This includes large pockets of customers who are served by the provincial distributor, rather than by the local electrical utility that serves most of the rest of their municipality. Large swaths of provincially serviced areas around and between urban municipalities have also been a barrier to creating more efficient and easier-to-serve service territories.
The proposal has attracted formal stakeholder support. “Municipalities are the principal shareholders of the electricity distribution assets that most Ontarians rely on,” notes Gary McNamara, President of the Association of Municipalities of Ontario. “We want to see these strategically important assets remain in trusted, local hands. We therefore support the EDA’s proposal, which we also see as a basis for local responsiveness and other customer benefits.”
Implementation of the EDA proposal would include expansion of existing local distribution service territories to municipal boundaries, and further consolidation among local utilities. Adjacent Hydro One territories, including rural areas, would be allocated to local electrical utilities. Hydro One would continue to operate the provincial transmission system, thus focusing on the side of its business where its operational performance has been stronger.
The efficiencies associated with service territory rationalization would include: improved system planning, better utilization of existing infrastructure and equipment, enhanced ability to attract capital, and improved potential for innovation and implementation of new technologies. Such efficiencies would position utilities to better manage cost pressures impacting customer bills, and to improve customer service.
“Our proposal would result in widely shared benefits,” says Macaluso. “We would have more robust and better-resourced distribution companies, operating in easier-to-serve territories. But we would also retain the benefits of multiple utilities, a key to ensuring benchmark competition and innovation. Customers would ultimately be the main beneficiaries.”
The EDA policy proposal has been detailed in a formal submission to the Premier`s Advisory Council on Government Assets, and also presented to the government. While the provincial government has expressed general support for the advisory council’s recommendations to date, the EDA now awaits a more specific indication of government intentions with respect to its distribution assets, anticipated in the spring budget.