Canada: Competition Vs. Control: (Another) Fork In The Winding Road Of Ontario's Electricity Policy

Edited by Paul Harricks

Though it has been more than a decade since the "competitive electricity market" in Ontario opened, and then closed, there are believers who continue to talk about competition as the way forward. The current drivers for such sentiments are strikingly similar to those which prompted the Ontario government of the day to try to open the market in the first place. Competitive market advocates are touting the funding sources, cost disciplines and risk assumption and management benefits that new investors can bring to the Ontario electricity sector.

Michael Nobrega, President and Chief Executive Officer of OMERS Administration Corporation, for one, has consistently advocated a competitive model as a way to move Ontario's electricity sector in the right direction. OMERS Administration Corporation runs Ontario's public service pension plan, and wields significant investment clout both within and outside the province. Mr. Nobrega's publicly expressed view is that the electricity infrastructure renewal challenges currently facing Ontario cry out for participation by private equity, such as that which his organization allocates. The alternative – government funding and centralized control – results in costs higher than they need to be, sub-optimal investment decisions, and ratepayer and/or taxpayer risks.

Whenever a potential investor like Mr. Nobrega describes the features of investment capital friendly markets, figuring prominently on the list of "must haves" are:  transparency, regulatory independence and government restraint.

For those like Mr. Nobrega, there is a glimmer of hope in Ontario. After years of discussions, indeed urgings, by electricity industry experts, Ontario's relatively new Minister of Energy, Chris Bentley, has convened a "blue ribbon" panel to review Ontario's electricity distribution sector.

Ontario's electricity distribution sector is somewhat unique. It is composed of no less than 80 individual "local distribution companies", or LDCs. Most of these are municipally owned. While some are large, others are very small. One, Hydro One Networks Inc., is huge, both financially and geographically. Hydro One is owned by the province, and distributes electricity where no one else does – throughout rural Ontario in the gaps between municipally-owned LDCs. To be sure, it also distributes electricity in relatively densely populated regions like parts of the Greater Toronto Area. (Hydro One Networks is also the largest, by far, of a very few electricity transmitters in Ontario. More on that later.)

For many, the plethora of LDCs of various sizes and levels of commercial and operational sophistication is inefficient. Particularly when one considers the infrastructure renewal and "smart grid" costs looming on the horizon, the ability of the current LDC structure in the province to move forward is legitimately questioned.

The Ontario government has struck a panel of three industry experts, and tasked them to examine the savings, operational efficiencies, and risks of LDC consolidation.

It is appropriate to pause here for a moment and note why, in addition to the attraction of much needed investment capital and commercial acumen, LDC consolidation would be important to moving towards a more competitive, less government controlled electricity market. A competitive market needs a number of buyers. In Ontario's current electricity sector structure, there is only one: the government. More accurately, the current buyer is the Ontario Power Authority (OPA). The OPA was created, in part, to contract for, and thus support investment in, new generation facilities. In that respect, the OPA has been exceedingly successful. But at what cost? With only one buyer, market advocates question the economic efficiency of the structure. Further, with the OPA being a creature of statue and effectively an arm of the Ontario Ministry of Energy, the objectives of this one buyer are often not clear, are not necessarily driven by economic efficiency, and are subject to change with the vagaries of the electorate and the challenges of the political opposition. This structure does not give investors much confidence. In such an inherently changeable and risky market, sellers generally require a premium price.

If our 80 plus LDCs were consolidated, down to say five, we could see creditworthy balance sheets in the LDC sector which would enable these entities to contract directly with generators. With five informed, moneyed, independent buyers, we would actually have a market. The provincial government could get out of the procurement business, and economic efficiency rather than government policy would induce decisions to invest in new generation and perhaps other electrical infrastructure. In addition, the stronger balance sheets of these five better resourced LDCs would enable investment in innovation. Consolidation could also result in administrative and regulatory efficiencies, ultimately lowering the cost to consumers of electricity service.

So Ontario's decision to review the LDC sector is potentially good news to market advocates. And they would be well advised to make their voices heard.

There is another glimmer of hope for Ontario's competitive market advocates. In March, 2011 the (then) Ontario Minister of Energy referred a discrete piece of Ontario's transmission infrastructure to an Ontario Energy Board (OEB) process that was designed to be competitive. The OEB's Framework for Transmission Project Development Plans policy is aimed at instilling transmission network infrastructure planning and development with the cost control, innovation and risk assumption benefits of competition. The Minister has recommended that the OEB engage its newly developed process to designate a transmitter to develop the East-West Tie Line. This line is an addition to Ontario's electrical transmission system that would reinforce electricity supply to north-western Ontario as some large coal plants currently feeding that part of the province are shut down.

Interest in the designation process has been strong. A number of new entrant transmitters have registered to participate. While the process has just begun, indications are that, if it stays on course, at least a few robust, competing applications for designation to develop this transmission line will be filed with the OEB by year end.

There is, however, a problem. Hydro One, the Ontario government-owned wires behemoth, has decided to compete for the line. Through a partnership that includes the six First Nations communities located along the most likely route for the new transmission line, Hydro One is gearing up to compete for the one piece of Ontario's electrical transmission infrastructure that the Minister has indicated should be subject to competition. Why the government – Hydro One's shareholder – has permitted this is a puzzle. What is clear, however, is that the move by Hydro One to maintain its virtual monopoly in electrical transmission, utilizing decades of First Nations relationships built through its monopoly position, has caused potential new entrants to question whether Ontario is worth the investment risk. This is not good news for those advocating competition as a salve for Ontario's increasingly cash constrained electricity sector.

There is another problem looming on the horizon for potential Ontario electricity investors - Bill 75. Introduced in the Ontario legislature in late April, Bill 75 (provisionally called the Ontario Electricity System Operator Act, 2012) has been broadly reported as a reaction to recent pre-election rhetoric regarding the so called "alphabet soup" of Ontario's electricity agencies. One of the objectives of the legislation is a merger of the OPA and the Ontario Independent Electricity System Operator (IESO). The first thing apparent in this Bill is the removal of the term "independent" from the rubric, which should itself be a troubling sign for competition advocates. More substantively, the inherent conflict of interest in being both an electricity system operator and a generation owner does not bode well for attraction of investment capital to assume some of our electricity infrastructure development risks.

However, there are two largely unreported aspects of the Bill that present even more concern.

If enacted as drafted, the Bill would remove any remaining vestiges of transparent, independent electricity system planning. Currently, one of the three primary functions of the OPA is to develop an Integrated Power System Plan (IPSP). In the current legislation the plan was to be approved through a public review process by the OEB. Refreshed every three years, the approved plan would guide the actions of Ontario's energy agencies, and provide the transparency and predictability that investors seek. Unfortunately, we have never had an approved IPSP. The first plan was filed with the OEB, and the public review was well underway, when the then Minister of Energy issued a directive that effectively halted the process, and pulled the plan back. Years later, a second attempt was made to provide a plan for public review, but that revised plan has been stalled at the Ministry since last summer.

Pending approval of an IPSP, the Ministry has been directing the actions of the OPA and the other sector agencies through formal directives and informal requests or referrals. Those advocating planning transparency and predictability have continued to hope that an IPSP might, one day, be reviewed and approved through a public process, and then become an objective guide for electricity system development in the province.

Bill 75, if enacted as drafted, would kill that hope.

Under Bill 75, the IPSP provisions in the current legislation would be replaced by a discretion for the Minister to develop and, with cabinet approval, issue energy plans. The Minister would be required to consult with the OEB on the impact of the implementation of the plan on consumers' electricity bills. While the plan would also have to be reviewed by the OEB, the scope of that review would be legislatively limited to the estimated capital costs of the plan, unless the Minister decided to expand that scope. Further, the Minister would have free reign to "give such directions and impose such conditions on the referral [of the plan to the OEB] as the Minister considers appropriate".

Many would argue that these new Ministerial authorities over planning would not materially change what has been happening anyway. That may be true. Seeing the change enshrined into law, however, sends what for some is a disturbing message regarding the continued politicization of Ontario's energy sector. It is not a good sign for would-be investors.

The other troubling feature of Bill 75 is the demise of any vestiges of independent procurement of generation. Part of the IPSP public review and approval process was to include OEB approval of an OPA procurement mechanism which would then regularize the way new generation and demand response was contracted. Bill 75 would sweep away these provisions as well. Again, while many would say that nothing would practically change, the new legislation would enshrine the Minister's role in directing the new OESO what to procure, and how and when to do it. The Minister could direct that the procurement be competitive, or not, what the pricing should be, or any other "economic factors" to be used by the OESO in carrying out the Minister's bidding. There could be a role for the OEB, but only if the Minister saw fit. The Minister could (though need not) ask that any procurement (or any specified part thereof) be reviewed by the OEB. Again, however, a tight rein could be held by the Minister on what the Board would review, and how the Board would conduct that review.

Bill 75, if enacted as drafted, would formalize and finalize (until the next change of policy direction) the government's control over the minutiae of energy planning and procurement in the province. The Ministerial authorities proposed in the Bill would cement the ability of the Minister of the day to use the government's agencies – the OESO and the OEB – in politically expedient ways. To be sure, these Ministerial authorities could be exercised "for good", in a manner that preserves agency independence. But the temptation to use these authorities to fend off criticism, or avoid a politically unpleasant situation, would be great.

While the current OPA is not structured as independent of the government, and is expected to carry out the government's program for the sector, that is not the case with the OEB. Throughout, and despite, the vicissitudes of Ontario government energy policy, the OEB has maintained its independence, under the strong leadership of the Board's (then) Chair and the independent judiciousness of its members. The spectre of the government overtly using the Board for its own policy (even political) ends should be truly disturbing to those investors watching our electricity sector and those of us who want those investors to enter our "market" and bring their capital, innovation and risk assumption and management acumen with them.

There are changes afoot in our electricity sector. For those of us who care, now is the time to get engaged, and make our views known. Either speak up, or don't complain later. We are, again, at a crossroads. The paths being laid out lead in opposite directions. It is time, again, to choose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
17 Dec 2016, Other, Ontario, Canada

Podcast summary

In the inaugural episode of Diversonomics, co-hosts Roberto Aburto and Sarah Willis introduce listeners to the podcast and discuss their experiences with diversity and inclusion in the legal industry. They also outline some of the obstacles the profession faces with respect to adopting new strategies and overhauling old practices.

22 Dec 2016, Other, Toronto, Canada

Podcast summary

For episode two of Diversonomics, co-hosts Roberto Aberto and Sarah Willis interview Mark Greenburgh, a partner in Gowling WLG's London office. They discuss the exciting new diversity and inclusion opportunities that have arisen since the combination of Gowlings and Wragge Lawrence Graham, as well at Gowling WLG UK's LGBT OpenHouse initiative.

28 Dec 2016, Webinar, Toronto, Canada

Podcast summary

In episode three of Diversonomics, co-hosts Roberto Aburto and Sarah Willis interview Lorna Gavin, Gowling WLG U.K.’s head of diversity, inclusion and corporate responsibility. In their discussion, they explore the challenges and opportunities of implementing diversity and inclusion strategies across a global firm, while also detailing Gowling WLG U.K.’s various diversity networks.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.