The much hyped Don Drummond Report released
Wednesday is an appeal for a more sustainable and rational approach
to fiscal policy in Ontario.
Energy features prominently in Drummond's report. Beyond a
general emphasis on maximizing efficiencies across the board, there
are specific recommendations regarding the FIT review, energy
procurement, and the future of Ontario Power Generation (OPG),
Hydro One, and local distribution companies (LDCs). The focus is on
sending more efficient price signals to the marketplace to
encourage more optimal levels of investment in electricity
infrastructure and capitalize on export opportunities for domestic
goods and services.
The Drummond report advocates for the reduction or elimination
of various energy subsidies, most notably the Ontario Clean Energy
Benefit, and takes aim at the above-market-level rates that have
been offered through the feed-in tariff (FIT) program for renewable
Drummond recommends lowering the initial prices offered in the
FIT contract and introducing degression rates that reduce the
tariff over time. He cites the example of Germany's equivalent
tariff program that builds in an annual nine per cent rate
reduction. Beyond mitigating the impact on electricity prices, the
purpose is to encourage innovation and discourage reliance on
The report suggests procuring larger generation facilities
through a request for proposal (RFP) process, and making wholesale
electricity prices inclusive of transmission costs as part of a
comprehensive restructuring of the wholesale electricity market.
Drummond also raises the possibility of locational marginal pricing
when he suggests that consumers located nearer to generation
stations should have the benefit of lower electricity prices.
OPG and Hydro One
Drummond suggests the province consider the full or partial sale
of OPG and Hydro One if net, long-term benefits can be clearly
demonstrated through comprehensive analysis. As well, he tells
government to stay out of rate setting, a practice that often leads
to greater costs down the road. Drummond's report also
recommends public-private partnerships for these government
enterprises as a means of promoting efficiency in order to service
and retire the debt and liabilities of the old Ontario Hydro as
soon as possible.
Drummond singled out the inefficiency of Ontario's 80 LDCs
as an area for improvement. His report recommends consolidating
LDCs along regional lines to create economies of scale and
potentially save $1.35 billion now spent on operations, maintenance
and administrative costs.
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