the 2005 cert energy roundtable ontario’s electricity sector: the hybrid model takes shape by: ron...

THE 2005 CERT ENERGY ROUNDTABLEOntario’s Electricity Sector:

The Hybrid Model Takes Shape

By: Ron Clark May 31, 2005

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Ontario Quick Facts

• 12 million people

• Energy Sales of 150 TWh; valued at over $12 billion/year

• 30,000 MW installed capacity

• 25,000 MW peak domestic load

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Ontario Quick Facts

• Unbundled industry structure

• ~ 300 IESO registered Market Participants

• Supply mix:

• 40% Nuclear

• 25% Coal

• 25% Hydroelectric

• 8% Natural Gas

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Pre-1999: Ontario Hydro (vertically integrated utility) accumulates $38 billion debt (approximately half represents “stranded debt”)

1999: Ontario Hydro unbundled into OPG, Hydro One and IMO

May 1, 2002: Market opening for both wholesale and retail customers

A Brief History

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A Brief History

December 9, 2002: Price Freeze as political response to high prices

December 20, 2004: Electricity Restructuring Act comes into force (adopted by new government)

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Electricity Restructuring Act, 2004

establishes Ontario Power Authority (“OPA”)

establishes a new Conservation Bureau within OPA

IMO becomes IESO (Independent Electricity System Operator)

amends role of OEB

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OPA Objects and Character

a. Medium to long-term forecasts of electricity demand and adequacy and reliability of electricity resources

b. Integrated power system planning in relation to generation, demand-management, conservation and transmission

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OPA Objects and Character

c. To engage in activities in support of the goal of ensuring adequate reliable and secure electricity supply and resources

d. To facilitate diversification by promoting cleaner energy sources

e. To establish system-wide goals for the amount of electricity to be produced from alternative and renewable energy resources

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OPA Objects and Character

f. To facilitate load management

g. To promote conservation and the efficient use of electricity

h. To assist the OEB by facilitating stability in rates for certain types of consumers

i. To collect and provide to the public and the OEB information relating to medium and long-term electricity needs and adequacy and reliability of the integrated power system to meet those needs

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Powers of the OPA

a. To enter into contracts relating to the adequacy and reliability of electricity supplies

b. To enter into contracts relating to the procurement of electricity supply and capacity in or outside Ontario

c. To enter into contracts relating to the procurement of supply and capacity using alternative or renewable energy sources

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Powers of the OPA

d. To enter into contracts relating to the procurement of reductions in electricity demand and the management of electricity demand

e. To take steps to facilitate the provision of services relating to:

(i) electricity conservation and the efficient use of electricity;

(ii) electricity load management; or

(iii) use of cleaner energy sources

f. To enter into contracts with electricity distribution companies regarding (i), (ii) and (iii) above.

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Powers of the OPA

g. To take steps to ensure adequate transmission capacity

h. To act as settlement agent for payments relating to prescribed generation assets (owned by OPG) – may be outsourced to IESO

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IESO Objects and Character

a. To enter into agreements with transmitters giving the authority to direct the operation of their transmission systems;

b. To direct the operation and maintain the reliability of the IESO-controlled grid;

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IESO Objects and Character

c. To participate in the development of standards and criteria relating to the reliability of transmission systems;

d. To work with the responsible authorities outside Ontario to co-ordinate the IESO’s activities with their activities;

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IESO Objects and Character

e. To collect and provide to the OPA and the public information relating to the current and short-term electricity needs of Ontario and the adequacy and reliability of the integrated power system to meet those needs; and

f. To operate the IESO-administered markets.

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Ontario Energy Board

Objects:

1. To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service.

2. To 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.

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Ontario Energy Board

Market Surveillance - existing Market Surveillance Panel of IMO continued under OEB

Market Rules - OEB reviews and approves amendments

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Ontario Energy Board

Procurement – review OPA’s proposed process (payments under contracts are deemed to be approved by the OEB)

Integrated Plan – review and approve OPA proposed plan

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Regulated Price Plan

Regulated Price Plan (“RPP”) for Small Volume and Designated Customers based on:

Certain OPG generation assets (regulated and price-capped) Legacy generation contracts with non-utility generators (“NUGs”) OPA contracts

a. 300 MW Renewable

b. 2500 MW Clean Energy (gas and other)

c. 1000 MW Renewable

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Regulated Price Plan

OPA variance accounts

Wholesale market price forecast

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Components of Total RPP Supply Cost

OPG Non-Prescribed

(Price-Capped) Generation

24%

OPG Prescribed Generation

37%

Market-Based Generation

26%

NUGs13%

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Other Current Initiatives

Eliminate 7,500 MW of coal-fired generation capacity

5,000 MW of new capacity by 2007

• Renewable and Clean Generation and Demand-Side RFPs

• Expansion of Beck Tunnel at Niagara Falls

• Refurbishment of Nuclear Generation at Pickering and Bruce

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Other Current Initiatives

OPA working on Integrated Power System Plan

• Future of Nuclear

• NIMBY, NOPE, BANANA

e.g. York Region

Transmission Interconnection with neighbouring Provinces

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Other Current Initiatives

Conservation and Demand Management Initiatives

• $160M being spent by electricity distribution companies

Smart Meters and Time-of Use Pricing

• Goal: 8000,000 Smart Meters by December 31, 2007

• Smart Meters for all Ontario consumers by December 31, 2010

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Thank You

Ron Clark

Partner, Fraser Milner Casgrain LLP