April 16, 2013

Review of long-term energy plan in the works

By Andrew Reeves

The Ontario Ministry of Energy is set to begin a three-year review of the Long-Term Energy Plan, the province's guiding document on current and future energy needs.

Energy Minister Bob Chiarelli told the Ontario Power Conference in Toronto Tuesday the review is to be completed within six months.

"It's clear we made some real progress but the energy sector is constantly evolving and our long-term energy plan must also evolve," Chiarelli said.

"That is why I have instructed my ministry to work with the Ontario Power Authority, the Independent Electricity System Operator and other stakeholders to update our long-term supply and demand forecasts."

He said the review will have three key prongs: receiving more input from energy stakeholders and the public, making conservation a more prominent part of the energy system, and creating a predictable and stable clean-energy procurement process.

Earlier in the day, the conference heard responses to December's government-commissioned panel review that recommended consolidating the province's 77 local distribution companies (LDCs) into no more than 10.

LDCs with fewer than 20,000 customers are facing a tighter squeeze from the Ontario Energy Board to find efficiencies to cover growing costs, the conference heard.

Energy consultant Andrew Taylor from The Energy Boutique told the gathering of energy sector stakeholders that the OEB has gone easy on LDCs for years while they found their feet after Ontario Hydro was broken up, but that trend is slowing considerably.

Taylor pointed to a January 2013 decision regarding a proposed rate increase for Mississauga utility Enersource in which the energy board confirmed the use of rate increases to cover cost increases will be significantly limited.

"OEB's statement will pave the way for what we can expect from them for all LDCs," Taylor told conference delegates.

"It's not going to be easy to get the rates they are requesting unless they can demonstrate they are finding some efficiencies however they can, internally or externally."

But Elise Herzig, president and CEO of the Ontario Energy Association, told the crowd it is the OEB's mandate to make sure customers get the fairest rate.

"And it's our job in the energy sector to make sure we have the best processes we can have to pass savings on to customers."

 Yet Taylor was adamant that small LDCs with fewer than 20,000 accounts - some have as few as 1,200 - are going to face tough choices about whether they merge or find savings, but the recent pattern from OEB indicates to him that "they just won't survive."

The report from the panel led by former Liberal cabinet minister Murray Elston said drastically scaling back the number of hydro distribution utilities in the province could save the government $1.2 billion in the next 10 years.

But Chiarelli told the Electricity Distributors Association on March 18 that the government would not force LDCs to consolidate, though he did encourage voluntary mergers between companies to find cost savings where it makes sense to do so.

The government's decision not to force mergers came as no surprise to Taylor. "It would be political suicide" to push the issue of forced consolidations, he said, because most LDCs are municipally owned and looked on with municipal pride.

Herzig said her association is strongly opposed to the idea of forced mergers and was  disappointed the report was dismissive of associated costs and their impact in setting electricity rates.

"As most people in this room know, operating costs, maintenance and administrative costs are ultimately critical to what customers pay," she said.

Colin Macdonald, vice-president of regulatory affairs for LDC Powerstream Inc., was also opposed to the idea of forced mergers, though he allowed the idea of voluntary mergers makes sense with some conditions.

"Municipalities are deciding what to do, and if you make consolidation voluntary you have to have incentives since not much has been happening on this front for the past few years," he said, pointing to the panel's recommendation of putting up Hydro One assets as one such incentive to consider.

"But there really have to be more carrots to make this happen."

Chiarelli told reporters after his speech that Hydro One assets will not simply be given away and that if a LDC wants to purchase part of Hydro One to connect to another LDC, it is welcome to negotiate.