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Exel's
Principles for Ontario Electricity Industry Restructuring
Our principals have developed an
overview of a desired end-state for Ontario’s electricity
industry which will provide sufficient levels of competitively
priced energy to all electricity consumers in the province.
The achievement of this end-state requires substantial
consultation, leading to a number of extensive changes in the
way energy is produced and sold in the province, the manner in
which regulation oversees the market place and the way
consumers will use electricity to meet their energy needs.
Exel Energy has set out key changes that would be required by
governments, regulators, consumers, energy suppliers and
retailers as well as transmitters and distributors, to reach
the desired end-state. These recommendations may seem
formidable but indeed are critical to ensuring that
Ontario’s electricity requirement’s for the next 10-20
years are developed in a way that will result in significant
increases in economic development for the province.
Exel's overview of a framework for the
desired end state is as follows:
- Power
is generated by multiple participants on a competitive
basis, from different sources including nuclear,
hydraulic, fossil fuels, wind power, solar and other green
power sources. Some generators may be publicly owned, but
most will be commercial, privately- owned enterprises.
- Electricity
supply is produced and sold on a contractual basis by
suppliers to five (or fewer) regional electricity
distributors (RDC’s) and other large wholesale market
participants. The five RDC’s contract for the Standard
Supply needs of their customers on a long-term basis and
supplement supply requirements for peaking by purchasing
electricity on a spot basis through an electricity
exchange.
- Power
is transmitted to RDC’s and other large users via Hydro
One and other local transmitters. Rates and other terms
and conditions of service continue to be set by the
Ontario Energy Board (OEB). Hydro One has a commercial
mandate and for the most part, provides transmission
services only. This would enable a combination of
functions with the independent system operator (ISO) and
the achievement of considerable efficiencies overall. Transmitters’
licenses contain requirements to expand inter-tie capacity
with adjacent market areas.
- The
five RDC’s are critical to the successful development of
the producing segment. They are structured in various ways
depending on the evolution of the consolidation process
and are owned by a variety of stakeholders including
municipalities, Hydro One, and private capital. They are
structured as partnerships, trusts or corporations. Rates
and other terms and conditions of service will be set by
the OEB using long term, performance-based measures.
Income taxes or payments-in-lieu of taxes (PILs) will be
reflected in rates, irrespective of whether they are paid
at the corporate level or at the level of the beneficial
owners.
- Direct
marketers and other aggregators also serve customers by
contracting for supply and transportation to the customer
through Hydro One’s transmission and the RDC’s
distribution lines. Customers are free to buy from an
aggregator and the RDC’s supply contracts provide for
supply reductions if customers move to other purchase
options.
- Each
RDC has an approved rate for Standard Supply, which is
based on its supply contracts and estimates of spot supply
costs. Any variation between the approved rate and the
actual cost incurred is deferred and passed on to
customers through quarterly rate adjustments, subject to
prudency tests. As a result, customers experience little
short-term price volatility on their electricity bills.
- Consumers
supply costs transition from the current to
the market price through planned increments (or
decrements) determined by the OEB and the Government.
- Distributors
have a major responsibility for demand- side management
and have invested in the required technology, such as
interval meters to achieve demand management goals. Time-
of- use rates are in place and consumers see substantial
value for managing their demand. Distributors and others
are rewarded or penalized for demand-side management
achievements.
- Hydro
One’s ownership of its distribution assets would be
through an ownership interest in one or more of the five
regional RDC’s. It would remain a distributor of last
resort in some far north communities. Rural rate subsidies
remain in place, and are administered by the OEB.
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