The Wynne government’s top long-term priorities for energy policy were significantly clarified on May 12 when Minister Bob Chiarelli delivered a speech to the Ontario Power Summit in Toronto. Key drivers for the coming period are likely to be ensuring that ratepayers “see benefits via lower cost structures and mitigated rates,” strengthening the Ontario Energy Board, and allocating new powers to Cabinet to ensure the construction of bulk transmission facilities.
Summarizing the three major energy initiatives contained in the provincial budget released a few weeks earlier on April 23, Minister Chiarelli pointed to the following plans already underway:
1. An IPO of approximately 15% of the common shares in Hydro One, with additional share sales in subsequent years, over time totaling up to 60 percent of the Province’s common shares in Hydro One, along with a number of special rules and conditions to reinforce accountability, “to improve long-term performance” and “to unlock billions in value for investment in major infrastructure projects, like roads, highways, bridges and transit infrastructure.”
2. The merger of 4 local distribution companies into one, and
3. The reduction of tax burdens on LDCs in the case of sales or mergers.
In addition to these budget measures and Premier Wynne’s work with other provinces on a Canadian Energy Strategy, Minister Chiarelli outlined, apparently for the first time, the broad thrusts of a set of new legislative initiatives in energy policy. To many observers in the power sector, these statements taken together may well represent the broad outlines of the current administration’s overall priorities for the energy sector, likely summarizing the scope of what will be a relatively ambitious agenda for the term of office that began with the June 2014 provincial election.
Based on the text of Minister Chiarelli’s speech, the Wynne government’s top objectives for energy policy appear to be:
1. Preparation for “rapid paced change” including “moving into a smart grid world” and “a new world of business and economic opportunity.”
2. “(T)o maximize shareholder value and drive real, meaningful and sustained rate mitigation for Ontario consumers.”
3. (To) “strengthen the role of the OEB in several core areas as well as protect and enshrine the Government’s right to prioritize critical transmission infrastructure.”
Expanding on the third item in this set of objectives, Minister Chiarelli said the government’s priorities will be pursued through legislation this spring with five major components:
1. To increase the ability of the Board to levy financial penalties on utilities for non-compliance.
2. To empower the OEB to appoint a supervisor in situations where a distributor or transmitter is unable to meet its financial obligations or reliability standards.
3. To help streamline and clarify the ability of LDCs to expand their business beyond electricity delivery, allowing them greater scope to engage in non-utility activities.
4. To allow the OEB to “establish more nimble structures while enhancing customer advocacy and representation,” noting that in some cases this will “mean a more interactive OEB while in others that might mean more capacity funding for specific consumer advocacy organizations.”
5. To give Cabinet enhanced powers to designate key transmission corridors to expedite their construction.
While not as sweeping as some of the changes proposed by previous provincial administrations, these priorities will be challenging for the energy sector and provincial agencies to meet during the current government’s term of office.
While outlining the government’s approach to managing the energy file, the Minister shared what appears to be a key part of his colleagues’ overall perspective: “Ontario needs to ensure that our local distribution and transmission companies are nimble, entrepreneurial and focused on delivering enhanced services for its customers – residential, commercial and industrial. All in a changing grid scenario.”
He also stressed that before allowing private equity to gain control over key grid companies, the government would impose new rules and standards to protect the public. Ownership of the Ontario Grid Control Centre will be required by law to remain in Ontario, for example. No other shareholder or group of shareholders will be allowed to own more than 10% of the equity in Hydro One. By law, 100% of the net proceeds from the Hydro One share offerings would be dedicated to the Ontario Trillium Trust. Of the anticipated $9 billion that could be raised from selling 60% of the company, $5 billion would be applied to debt and $4 billion dedicated to infrastructure. Denis Desautels, former Auditor General of Canada, has agreed to serve as a Special Advisor to the Government “to support a fair and transparent process for the initial public offering.” Mr. Desautels will oversee the process of imbedding an ombudsperson in Hydro One that “will ensure transparency and accountability,” the government says. In the case of Hydro One, the loss of public ownership will remove the authority of legislative officers like the provincial ombudsman over Hydro One. Additional accountability measures are likely considered necessary at the LDC level as well, because of the potential for private ownership and control of LDCs, along with the effect of expected amalgamations and restructurings.
Minister Chiarelli said, “[T]he electricity sector is indeed well on its way to major repositioning, rapid paced change, and innovation, all signaling a new world of business and economic opportunity."