Electrical power work identifies lawyers whose firms can provide a full range of services, including advising market participants on transactional, regulatory and policy matters ranging from the development of energy projects to the management of existing facilities and to all aspects of the restructuring and deregulation of electricity markets.
Ontario's energy regime has been under considerable public scrutiny lately. In December 2011, Ontario's Auditor-General released his annual report, of which approximately 60 pages are devoted to Ontario's electricity sector. And, in February 2012, the Commission on the Reform of Ontario's Public Services released its own report, widely known as the Don Drummond Report. It also had quite a bit to say about energy.
The Auditor-General focused on three aspects of Ontario's electricity sector, namely the declining influence of the Ontario Energy Board (OEB), the province's renewable energy initiatives, and the stranded debt. Overall, the Auditor General concluded that the energy sector's future wasn't looking good. With regard to the OEB, the Auditor noted that the Board's regulatory oversight was both limited and declining in scope.
“Only about $35 of every $100 in the costs-of-electricity component of a typical bill is subject to rate regulation by the Board,” the Auditor wrote. “The OEB regulates only $190 million of the total of $900 million in regulatory charges.”
More particularly, the OEB had little impact on the Global Adjustment, which responds to changes in spot market prices; is not involved in regulating the Debt Retirement Charge, imposed to address the portion of Ontario Hydro's debt that could not be serviced when the electricity sector was restructured in 1999 to create a competitive market environment; and has no input into Ontario's Long Term Energy Plan.
The Report also criticizes the OEB for not doing enough to educate consumers about electricity costs, particular in relation to retail contracts. In the Auditor's view, these contracts cost consumers anywhere from 35 per cent to 65 per cent more for their electricity than consumers on the regulated price plan pay.
As well, the Auditor criticizes Ontario's regulatory regime for electricity as too costly and complex, particularly for medium and small utilities. The Report notes that the average cost of filing a rate application represents between 15 per cent and 55 per cent of the revenues that small and medium-sized utilities were seeking.
“Regardless of their size, all utilities are expected to meet the same filing guidelines,” the Report states. “We found that this one-size-fits-all approach to rate-setting is a costly exercise and not always in the best interests of consumers.”
On the renewable energy front, the Report is critical of the way the government has implemented its Green Energy Plan, noting that the Auditor could find no economic analysis for most of the Plan's components. The upshot is that the Province has committed billions of dollars under the Green Energy Act without fully evaluating the impact of the legislation.
The criticism of procurement under the Green Energy Plan is particularly notable. Most procurement, the auditor said, was non-competitive, resulting in ballooning costs running into billions. According to the Auditor, moving from the competitive RFP process which characterized the early stages of the Plan to a Feed-In Tariff program added $4.4 billion to the costs of procurement.
The government also failed to consult with the Ontario Power Authority or the OEB regarding its $7 billion renewable energy deal with Samsung and made no business-case or economic analysis of the transaction.
Finally, the fact that stranded debt reduction had been slower than anticipated had not been adequately communicated to consumers.
For its part, the Drummond Report makes specific recommendations regarding the FIT review, energy procurement, and the future of Ontario Power Generation, Hydro One, and local distribution companies.
Overall, the report's focus was on sending more efficient price signals to the marketplace to encourage more optimal levels of investment in electricity infrastructure and to capitalize on export opportunities for domestic goods and services. More particularly, Drummond recommended the elimination of energy subsidies and criticized the above-market rates offered to renewable energy generators through the FIT program. He also recommended a comprehensive restructuring of the wholesale electricity market, the full or partial sale of OPG and Hydro One if analysis proved that this would have long-term benefits, recommended that governments not interfere in rate setting, posited the greater use of public-private partnerships, and focused on the inefficiencies of local distribution companies. The Report also criticized the lack of transparency in explaining the true cost to the end user.
Finally, Drummond questioned the province's rate strategy, suggesting that by keeping rates low in the short term, the government may have delayed necessary infrastructure upgrade work.
Critics of Drummond's report argued that the energy sector's issues would not be solved by what they called a high-level review. Instead, they suggested that the government focus on what they called “specific challenges,” including renewable energy, competitive transmission agreements, conservation and the utilities' role in it, and funding infrastructure renewal