Thursday Thinkpiece: Cass, Clark & Stoll on Ontario’s Electricity Industry

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Ontario Energy Law: Electricity
Fred Cass, Ron Clark and Scott Stoll
Toronto: LexisNexis Canada, 2012

CHAPTER 1 – INTRODUCTION TO ONTARIO’S ELECTRICITY INDUSTRY

Electricity has been an integral element of the province’s development over the past 125 years and it will continue to be a vital part of our success – economic and social – for the foreseeable future. At the close of the 19th century we were just starting to understand and begin to electrify the province. Over the next 100 years the electricity system grew along with the province – supporting the forestry, automotive, mining and manufacturing industries and the accompanying population growth in hundreds of villages, towns, and cities. Today, our economy is shifting from manufacturing to services and the population keeps shifting with many small towns experiencing zero or declining growth while large cities continue to expand. The largest area of growth in the north – the Ring of Fire, which is potentially a source of tremendous wealth for generations – has no integrated infrastructure. The electricity system and regulation has evolved over the past 100 years and continues to evolve at an ever increasing pace to meet these challenges and realize upon the opportunities.

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C. Electricity Restructuring: Round Two

1. A New Government – A New Direction

In the fall of 2003, new legislation was quickly introduced to implement the hybrid model. On December 9, 2004, the Electricity Restructuring Act, 2004 (“ERA”) received Royal Assent and became law.

The ERA provided for a number of significant changes in addition to its creation of the OPA. The legislation empowered the Ontario Energy Board to develop a Regulated Price Plan (“RPP”) for eligible (residential and low volume) consumers, which would account for the true cost of power and provide for smoothing of retail prices (by fixing prices for six months at a time). Base-load hydro-electric and nuclear “heritage” assets of OPG were made subject to rate-regulation by the Ontario Energy Board, while temporary price caps were placed on the corporation’s remaining assets. The cost of Non-Utility Generator contracts were to be borne by rate-payers through a mechanism called the “Global Adjustment” (along with costs associated with the “heritage” and price capped OPG assets). And the Independent Electricity Market Operator was renamed the Independent Electricity System Operator (“IESO”), reflecting a decreased reliance on market forces.

2. The Ontario Power Authority

The ERA created a new entity called the Ontario Power Authority (the “OPA”). The OPA has the obligation to ensure long-term supply adequacy in Ontario. The OPA was tasked with forecasting resource needs and preparing an integrated system plan for conservation, generation and transmission to be approved by the OEB.

The OPA was also tasked with procuring new generation capacity and demand management measures. It was given the power to establish fees and charges to recover from ratepayers all of its costs. These costs included those related to its own administration as well as external obligations under procurement contracts. It was intended that the OPA be a creditworthy counter-party with which generators could enter into contracts without requiring provincial government guarantees.

The Ontario Energy Board

The ERA repealed certain objectives of the OEB, including those relating to the facilitation of competition. In place of these, the OEB’s new objectives are to: (1) “protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service”; and (2) “Promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry”.

The Act also gave the OEB oversight powers over the OPA and the
Independent Electricity System Operator. While the OEB is intended to
be an “independent” regulatory body, the ERA gave the Minister of Energy the ability to issue to the OEB Ministerial directives, especially in areas of policy development and industry evolution, which the OEB is obligated to implement.

The Green Energy and Green Economy Act

During the provincial election in 2003, parties made commitments to eliminate coal, which had approximately 7,560Mws of generation capacity, from the supply mix. While Ontario had made a commitment to eliminating coal from its fuel for electricity generation, the commitment to other renewable resources, in particular wind and solar, was jump-started. The OPA had procured new generation resources through competitive requests for proposals and small renewable projects through the Renewable Energy Standard Offer Program (“RESOP”). The RESOP was intended to encourage smaller projects of less than 10MWs.

The Green Energy and Green Economy Act, 2009 (“GEA”), made significant modifications to the Ontario Energy Board Act, 1998, the Electricity Act, 1998, the Planning Act, and a host of environmental related statutes……The GEA empowered the OPA to develop a feed-in tariff (“FIT”) program for renewable energy sources and created a permitting regime whose stated goal was to streamline development of renewable energy projects.