On October 26, 2017, the Ministry of Energy released Ontario’s revised 2017 Long-Term Energy Plan (“LTEP”), Delivering Fairness and Choice. The previous LTEP was published in 2013 (“2013 LTEP”).

This blog provides a summary of the resources addressed in the LTEP. An accompanying piece found here provides an analysis of the Directives issued by the government to the IESO and the OEB respecting implementation plans by those agencies.

Renewable Energy

The LTEP highlights that between 2026 and 2035, contracts for over 4,800 MW of wind energy, 2,100 MW of solar energy, and 1,200 MW of hydroelectric generation will expire. In September 2017, Ontario announced the results of the final Feed-in-Tariff (FIT) procurement, totaling 390 contracts for small-scale renewable representing a total capacity of 150 MW.

Currently, there is 4,800 MW of installed wind power capacity. As for solar, Ontario now has about 2,300 MW of capacity online. In 2015, 23% of Ontario’s total generation came from hydroelectric facilities and has about 8,800 MW of installed capacity.

Nuclear Power

In the LTEP, Ontario confirmed its plan to move forward with the refurbishment of ten nuclear units, four at Darlington and six at Bruce, between 2016 and 2033 as previously outlined in the 2013 LTEP. Refurbishing these 10 units will secure more than 9,800 MW of capacity. The refurbishment of Darlington is expected to inject $90 billion to Ontario’s economy and increase employment by an average of 14,200 jobs annually. As for Bruce Power, the first unit’s refurbishment date was pushed back from 2016 to 2020, which saved $1.7 billion for electricity consumers. The refurbishment of Bruce power is expected to contribute up to $4 billion in the economy and increase employment by an average of 22,000 jobs annually.

The Pickering Nuclear Generating Station will continue to be operated until 2024, saving up to $600 million for electricity consumers, at which time it will be decommissioned.

Innovation and Energy Storage

Since the 2013 LTEP, Ontario has procured 50 MW of different types of energy storage and supported energy storage projects through the Smart Grid Fund. An IESO study published in 2016 found that energy storage facilities can provide essential services to ensure that the electricity system operation is reliable. Ontario has also studied and identified market barriers for energy storage technologies. The LTEP notes Ontario’s plan to update regulations, which includes addressing how the global adjustment is charged for energy storage projects. As part of the LTEP, Ontario has directed the OEB and the IESO to review its rules and regulations that may create barriers for the development of energy storage.

Other initiatives include Ontario’s plan to modernize the grid through a digital grid, which allows customers and utilities to make the right decisions related to consumption of electricity. Ontario is also studying projects in several jurisdictions that are piloting transactive energy and blockchains in order to develop projects of such kind in Ontario. Another project aims at ensuring greater reliability and quality of service for transmitters and distributors in order to improve reliability for consumers. The IESO has been directed by Ontario to develop a competitive selection or procurement process for transmission to identify potential pilot projects. In the LTEP, Ontario is also proposing to expand net metering to allow more homeowners to access energy storage technologies.

Although largely unnoticed at the time, the passage of Bill 135 fundamentally changed energy regulation in Ontario. It created a new planning process centered on the creation and implementation of government-drafted Long Term Energy Plans, or LTEPS.  This new process starts with the LTEP and continues on through agency implementation plans that are approved and overseen by the government.  It is the most government-controlled energy planning process in Ontario history.   This managed approach carries potential benefit:  it increases the likelihood that the government may allow plans to be completed, and even followed.  In the past, the government abandoned planning initiatives before they were completed.

On the other hand, it also increases the risk that agency developed planning and evaluative criteria will be exercised entirely by and for political decision-making. In other words, if the agencies do not exercise independent judgment in developing implementation plans, and the only goal of the plans is to obtain the government’s approval, the integrity of long term regulatory or planning principles will be diminished, if not lost all together.

The LTEP Directives – The Role of the Government

The change to the planning process is expressed in the directives to the Ontario Energy Board (OEB) and the Ontario Independent Electricity System Operator (IESO).

The LTEP directives require the agencies to prepare implementation plans that cover dozens of issues (16 for the OEB and 15 for the IESO) addressed in the LTEP.

The directives require the agencies to prepare a plan to “include steps that clearly demonstrate” how each of the agencies will “implement the policy reviews, processes and other initiatives enumerated below.” The government emphasizes that it will be in charge of the process:

“The implementation plan should comprehensively detail the key implementation milestones for each initiative, provide sufficient detail on process and timing, and articulate intended outcomes.”

The government will review, approve and amend implementation plans and the agencies are required to follow them.

The LTEP Directives – the Tasks of the Agencies.

The actual list of reviews, etc. in the LTEP directives does not contain too many surprises. They are topics that have been debated in regulatory proceedings and consultations over the last few years.

Some of the issues are ripe for review. For example, there is a requirement for the IESO to review its regional planning to “identify barriers to the implementation of cost effective non-wires solutions such as conservation and demand management and distributed energy resources…”   Given the IESO’s preference for transmission solutions, a consideration of whether its approach contains any inherent biases towards those outcomes is a useful exercise.

Other initiatives seem to go over well-trodden ground. For example, the OEB is to identify opportunities for distribution investments and, in doing so, “the Board shall consider the issue of the diffusion of benefits that may arise from these and other distribution-system investments.”

The “diffusion of benefits” argument has traditionally been made by project proponents who claim that the benefits of their proposed products or services are lost on the market place and unappreciated by regulators. Under this theory, both markets and regulation fail to reward good projects because the benefits of a project are too “diffuse” to be captured by either.  The Board should therefore correct those market and regulatory failures by requiring consumers to fund these projects through distribution rates.

The OEB has reviewed the “diffuse” benefits of distributed generation on previous occasions, finding that the problems with the benefits are not that they are “diffuse” but that they do not outweigh the costs.

The LTEP directives require the OEB to review this again. It will be interesting to see if the OEB’s answer to the government is the same as it has determined in more formal proceedings.  This will be an important test in the new planning process:  will the agencies approach the issues by reference to principles that try to represent objective criteria, or will they produce results that the government wants to see?  A high degree of transparency will be required to demonstrate integrity in the process.  As a start, and at a minimum, all communications between the government and the agencies in developing these plans should be on the public record.

The directives also define problems in a way that avoids more fundamental but politically inconvenient problems. For example, one glaring issue in the sector is the massive over-capacity in resources (both on the supply and conservation side). The LTEP not only fails to address this issue; it denies that the problem exists.  One of the oddest components of the LTEP is that, instead of recognizing a surplus, it claims that Ontario’s peak electricity demand for 2017 is 30,000 MW an overstatement of 23% over actual peak demand of 23,000 MW.   Because this forecast demand also presented as equaling equal current supply, there is no surplus:  supply and demand are in synch.  As a result, the problem of over-supply doesn’t exist.

This is also unfortunate because this problem is not being addressed. A good question for consideration is whether centralized decision making is one of the main reasons for over-supply and whether that can be creatively addressed by decentralizing decision making and making resource adequacy a function of load serving entities.  But this is not the type of problem that qualifies for a solution under the LTEP.

Another directive requirement is for the IESO and the OEB are to focus on “Innovation in the Sector.”

It would take a level of courage (not to mention self-awareness) of the agencies to advise the government that true innovation would require the sector operating more like a business than a set of government programs. Innovation is likely to occur if customers get to exercise real choice, as opposed to the contrived choices identified by governments and regulators.  In other words, there is no room to prescribe an environment where innovation would fail or succeed based on customer’s perception of value instead or regulatory or political arbitrage.

Conclusion

It will be interesting to see how this first post Bill 135 planning process will work. It has the opportunity of bringing some new perspectives on old problems.  On the other hand, it brings the risk that the agencies will use their powers in a more political way, favouring a communications narrative over deliberate and transparent decision-making.