Electricity Conservation and Demand Management
| In May, 2010, the ECO released its first Annual Report on the progress of activities in Ontario to reduce or make more efficient use of electricity, natural gas, propane, oil and transportation fuels. Click here for more information on this report, including videos and communications materials. | |||||
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Ontario’s electricity conservation policy has undergone continual substantive change over the past 20 years . Government policy that incorporates conservation and integrated demand-supply planning, by those responsible for operating the electrical grid and acquiring generation capacity, has been a central feature of electricity for many decades. The period roughly spanning 1998-2003 departed from this approach. In those years, Ontario embarked on a policy to restructure its electricity system.
It introduced a competitive market for electricity supply and restructured the electricity corporations that generated, transmitted and distributed power. In terms of conservation, the restructuring essentially treated it as an activity that would naturally emerge from operation of the competitive market once consumers responded to price signals. The competitive market was effectively ended in late 2002, when the government moved to protect consumers from price swings that naturally occurred in a competitive market.
In December 2004, the Electricity Restructuring Act was passed. The act gave Ontario its current regulatory framework with new electricity agencies and expanded regulation of the sector. The legislative reforms re-instituted the earlier approach begun in the 1980s: an integrated demand-supply plan is developed, and conservation is actively pursued through programs to transform the market to one of greater efficiency. The long-term objective is to build a culture of conservation, and enhance Ontario’s conservation industry capabilities so that ratepayer or taxpayer-funded initiatives will no longer be necessary. Further changes, however, were introduced in 2009 through the GEGEA, and the policy remains in flux. Substantial changes contained in the GEGEA are expected to be implemented in 2010, through supporting regulations and directives.
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The Importance of the Integrated Power System Plan (IPSP)
The only insight on the government’s policy for electricity conservation that currently exists is contained in a proposed document called the Integrated Power System Plan (IPSP) that dates from mid-2006. This is a proposed 20-year plan that describes the role which conservation will play as Ontario responds to its electricity needs during the two-decade planning horizon covered by the IPSP .
The IPSP was developed by the Ontario Power Authority (OPA). In addition to its responsibility for the proposed IPSP , at present the OPA is solely responsible for implementing most of Ontario’s electricity conservation : designing, approving, delivering and evaluating resource acquisition programs.
The IPSP is a critically important document because it contains a central feature of Ontario’s electricity conservation policy: government-established targets that set the specific amounts of electricity reductions to be achieved in certain years. As required by legislation (the Electricity Act, 1998), the IPSP must set out short and long-term conservation targets, and the Plan must be reviewed every three years.
| Conservation Goals of the IPSP |
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| In its June 13, 2006 directive to the OPA, the government stipulated that the IPSP should reduce peak demand by 6,300 megawatts (MW) by 2025 through conservation, with interim demand reduction targets of 1,350 MW by 2007, and an additional 1,350 MW by 2010.
The directive defined conservation broadly to include energy efficiency standards, geothermal heating and cooling, solar heating, fuel switching, and small-scale (10 MW or less) customer-based electricity generation, including co-generation. In September 2008, the government issued revised direction to the OPA, including a request to review the viability of accelerating the achievement of the original conservation targets. |
Preparation of the proposed IPSP began in 2006. The Ontario Energy Board (OEB) – Ontario’s regulator of the energy sector whose duties include approval of the IPSP – began its review of the Plan in 2007. Most recently, approval of the proposed IPSP has moved haltingly; changes to the Plan, requested of the OPA by the Minister of Energy and Infrastructure in September 2008, have been delayed. The OPA was to provide a revised IPSP to the OEB for approval by March 2009. As of May 2010, the revised IPSP had still not been made publicly available. Having no Plan to consider and pending receipt of a revised Plan and targets, the OEB suspended its review.
Minister’s Directive Power – Does it Support or Supplant the IPSP?
The Electricity Act and the Ontario Energy Board Act, which govern the electricity sector, empower the Minister of Energy and Infrastructure to issue a policy instrument known as a directive. The directive power is the method by which the minister guides conservation policy.
The minister has so far used this power in two ways. First, to require the OPA to develop an IPSP that meets specific goals (these are known as Supply Mix Directives and require Cabinet approval). Second, to request that specific conservation activities be undertaken (this second set of directives are known as Transition Directives and are issued by the minister without the need for Cabinet approval).
Transition directives have been used fairly extensively by the minister to guide conservation activity. During 2006-09, while the proposed IPSP was under development and awaiting OEB approval, the minister issued several transition directives to the OPA to encourage immediate conservation and avoid lost opportunities.
It is important to note that the Electricity Act, which governed the use of transition directives before passage of the GEGEA, originally assigned the minister this authority only until the IPSP was approved, at which point the minister was to relinquish the directive authority and the IPSP would guide implementation of conservation. The directive power has been a powerful policy tool shaping conservation in Ontario and may play an even more prominent role in future because of regulatory framework changes brought by the GEGEA.
| The GEGEA Will Bring Changes to the Minister’s Directive Power |
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| Pursuant to the GEGEA, the minister will assume stronger control over the OEB and OPA in relation to electricity conservation through directive powers. The exercise of this control will make consideration of the transparency, accountability and oversight of ministerial directives even more critical.
For conservation program delivery and implementation of smart grid initiatives, the GEGEA enables the minister to issue policy directives to the OEB. The Board will require Local Distribution Companies (LDCs) to undertake action to comply with their license conditions, and the Board will also monitor LDC progress. To support these responsibilities, the OEB is given new objectives to promote renewable energy, conservation and demand management, and to facilitate the implementation of a smart grid. This is a significant change from the OEB’s traditional role as an economic regulator protecting the economic interests of ratepayers, and it remains to be seen how the changes will affect the Board’s role. The GEGEA enables the minister to direct the OPA to undertake any action related to electricity conservation, demand reduction, or renewable energy. As noted above, this directive power had previously existed in legislation, but was intended to be transitional in nature, effective until the Integrated Power System Plan was in place. The new directive provision in the GEGEA does not have a sunset provision, enabling the minister to continue influencing conservation policy direction. This legislative change raises the issue of whether the proposed IPSP remains relevant and the extent of its influence on conservation. |
Public Input on Electricity Policy and Direction
During 2005-2010, the minister’s directive power has been the only policy-setting mechanism available. Electricity planning policy and almost all programs were developed through the directive power. This is problematic since directives have largely supplanted the government’s original policy approach; it had intended to create an arm’s length, publicly-reviewed planning process when the Electricity Restructuring Act was passed in 2004 to create the OPA, assigning it the function of developing the IPSP .
The extensive use of the directive power to make policy has reduced the opportunity for public input into electricity policy. It has also created a vacuum in accountability and oversight of the OPA’s actions in response to directives. Little discussion of either the government’s direction to its electricity planning agency or agency’s response has occurred in the public domain.
As a prescribed ministry under the EBR, the Ministry of Energy and Infrastructure is legally required to post proposed policies (including “programs, plans or objectives” that could have a significant effect on the environment) on the Environmental Registry for public review and comment.
To date, however, the Minister of Energy and Infrastructure has not sought public input through the Environmental Registry on any directives to the OPA, with the exception of the first Supply Mix Directive. Even for this directive, the public was only allowed to comment, through the Registry, on the OPA’s supply mix advice to the government and not on the substance of the actual directive (which specified the goals to be achieved by the IPSP). The ECO noted this in our 2006/2007 Annual Report. The second Supply Mix Directive that amended the first supply directive was not posted on the Environmental Registry.
Debate over the goals of the IPSP could have occurred during an environmental assessment (EA), but there was no public review because the government exempted the IPSP from an EA. The IPSP has only been subject to review by the OEB. However, the OEB is constrained by legislation to ensure that the IPSP complies with direction issued by the minister, rather than asking the broader question of whether the direction itself is appropriate.
In hindsight, the ECO believes that the government’s decision to avoid a public review of the goals to be achieved by the IPSP was wrong. Clearly, the Minister of Energy and Infrastructure decided in 2008 that the proposed IPSP was inadequate – a flawed document with respect to targets – since the minister requested a review of whether conservation targets could be accelerated and other changes. Public review of the goals to be achieved through the IPSP might well have raised these and other germane issues.
Conservation policy has been made through directives in a closed and seemingly ad hoc fashion. Directives with clear environmental significance – like transition directives to procure conservation, electricity from waste, and renewable energy – were not posted for comment on the Environmental Registry. This is particularly troubling for conservation-related directives. Many of these have directed the OPA to procure significant amounts of conservation from specific sectors or initiatives without providing an explanation as to why this is a desirable means of achieving electricity conservation. Such decisions would have benefitted from an informed public discussion.
In future, the ministry should carefully review any new proposed directives to determine whether they are subject to MEI’s statutory responsibility to post for advance notice on the Environmental Registry. This would enhance the ability of Ontario residents and interested stakeholders – including community and public interest groups, industry associations, businesses, and others – to participate in the development of ministerial directives.
| Recommendation :
The ECO recommends that the Ministry of Energy and Infrastructure provide an opportunity for public input in the development of policy directives to electricity sector institutions, as required by the Environmental Bill of Rights, 1993. |
Possible Accountability Mechanisms
In addition to reducing opportunities for public participation in the development of energy policy, the extensive use of transition directives to guide conservation action has removed accountability for ensuring implementation of the desired action. There are several instances where action on a directive has languished and the stipulated electricity savings have not been achieved. This has occurred despite the fact that the OPA has wide latitude to hire staff and contract for services to respond to directives and ensure conservation receives prompt attention.
The Directives that were Issued
From 2005-09, energy ministers issued a total of 35 directives to the OPA: 15 of these directives were conservation-related. The others instructed the OPA to procure renewable and conventional electricity generation. Two of the 15 conservation-related directives were Supply Mix Directives for the IPSP . The first Supply Mix Directive instructed the OPA to create the IPSP; the second Supply Mix Directive amended the first. In the second directive, the minister essentially requested the IPSP be revised to accelerate the timelines for the conservation targets it contained.
Thirteen of the 15 conservation-related directives were transition directives that instructed or enabled the OPA to provide conservation activities. In six of these 13 transition directives, the minister stipulated the conservation savings expected (in megawatts).
Those transition directives that did not request specific programs with associated MW savings requested other OPA action. For example, the OPA was directed to undertake mass media advertising for conservation. These were advertising campaigns developed by the ministry for which the OPA was instructed to assume responsibility and purchase media space. This enabled the government to discretely place funding responsibility on ratepayers rather than taxpayers. Other directives of this group amended or clarified previously-issued transition directives.
The OPA Response to the Directives and Results Achieved
The OPA responded to the first Supply Mix Directive as requested and provided an IPSP to meet the government-established conservation target of 6,300 MW. The process to approve the IPSP was started by the OEB, but suspended when the second Supply Mix Directive was issued. It is not known whether the OPA responded to this second directive. Neither the OPA nor the minister has publicly provided information on the status of completion of the second Supply Mix Directive.
The state of implementation of the transition directives varies and progress on completion is information that is not publicly available. There has been no public scrutiny of the OPA’s response to government direction. Pursuant to its new reporting mandate, using our authority to request information, the ECO sought information on the status of the directives. According to OPA-supplied information, the ECO believes that achievement of the directives and, by extension, government policy has been mixed and in some cases underwhelming.
These directives were issued several years ago in 2005 and 2006. With one exception, the directives that specified programs with attached savings have achieved only part of the specified amounts. In some cases, no verified savings at all are reported.
The OPA advised the ECO of the status, as of the end of 2008, for the six transition directives that specified an associated megawatt amount of conservation.
- June 2005 Demand Management Directive – OPA was instructed to acquire “more than 250 MW” of DR/DSM. In February 2006, an addendum to the original directive re-defined “more than 250 MW” to mean “up to 500 MW” . The OPA stated it acquired 554 MW, even though a cap of 500 MW appears to have been set by the minister.
- October 2005 Low-Income Directive – 3 MW of the 100 MW of savings for low-income and social housing has been achieved, although the ministry has equivocated between assigning responsibility for this sector to the OPA and undertaking the initiative itself.
- October 2005 Eficient Lighting and Appliances Directive – 63 MW of the 100 MW from efficient lighting and appliances has been achieved.
- February 2006 Toronto Demand Management Directive – 141 MW of the 300 MW from conservation in the Toronto region has been achieved.
- March 2006 Residential and Electrically-Heated Homes Directive – 0 MW of the 150 MW from conservation in the residential sector and electrically-heated homes has been achieved.
- March 2006 Commercial Buildings and MUSH Directive – 0 MW of the150 MW from conservation in commercial buildings and the MUSH sector (municipalities, universities/colleges, schools, hospitals) has been achieved.
The minister has not enforced compliance where the OPA has not completed or made progress on transition directives within a reasonable timeframe. There appears to be no specific mechanism for the minister to enforce directives. In addition, there is a very low likelihood that a third party would succeed in appealing to the courts for a judicial review under the Judicial Review Procedures Act or obtaining other statutory relief related to the OPA’s lack of compliance with a directive.
In practice, the minister’s compliance tool is to place pressure on the OPA Board of Directors, which is appointed by the government. It is left to the minister’s judgement to determine whether to use this tool.
The ECO believes that there are important gaps in transparency and accountability in the current OPA response to directives. To enhance transparency, the Minister of Energy and Infrastructure should require the OPA to make publicly available an annual status update on the progress in achieving ministerial directives. The status update could be a necessary condition for approval of the OPA’s Annual Business Plan; ministerial approval of the business plan, as it currently operates, is not an effective accountability mechanism for the OPA’s response to directives.
The use of directives (in place of the IPSP while awaiting revision to the Plan) has also circumvented oversight that would have been provided by the OEB during its hearings to approve the IPSP . OEB hearings are a public forum to receive public input. Approval of the IPSP would have, thereby, provided Ontario with an official electricity conservation plan that had been discussed in the public domain. The Electricity Act requires the OEB to review the proposed IPSP for compliance with any directions issued by the minister and assure that it is economically prudent and cost-effective. The OPA’s actions in response to the minister’s transition directives, however, are not subject to OEB review, even though these actions involve substantial spending funded through provincial electricity ratepayers.
The ECO believes that the government should consider enhancing the OEB’s role in oversight of the OPA’s conservation actions developed in response to minister’s directives. The GEGEA amendments to the Ontario Energy Board Act (OEBA) give responsibility to the OEB for setting conservation targets for Local Distribution Companies (LDCs), upon receipt of a ministerial directive instructing the OEB to assign LDC targets. As part of this function, the OEB will review LDCs’ Conservation and Demand Management (CDM) plans plans and results. A similar responsibility requiring an annual CDM plan from the OPA for review by the OEB should be implemented.
With passage of the GEGEA, the OEB’s role is changing from an economic regulator to a regulatory authority that also promotes “green energy” (i.e., conservation and electricity generated from renewable sources). Review of an OPA CDM plan would create symmetry, aligning OEB oversight of OPA’s activities with its oversight of the LDCs. This oversight is needed if the minister’s directive power related to conservation planning increasingly supplants the IPSP .
| Recommendation :
The ECO recommends that the Ministry of Energy and Infrastructure develop a reporting mechanism to track progress on directives which ensures accountability and transparency. |
Delivery of Electricity Conservation Programs – Will LDC or OPA Programs Dominate? Who is Accountable?
The role of Local Distribution Companies in delivering electricity conservation programs has varied in recent years.
From 2005 through 2007, individual LDCs were allowed to develop their own conservation programs and recover funds through distribution rates in a process overseen by the OEB.
Direction in 2006 from the-then Minister of Energy chose to not extend this funding model, but instead made the newly created OPA responsible for co-ordinating the delivery and funding of conservation programs by LDCs, and provided 1400 million over three years to fund such programs. Under this framework, LDCs were able to access funding to deliver “province-wide programs” developed by the OPA (e.g., the residential refrigerator removal program), and could also apply to the OPA for funding of custom-designed programs. The OEB plays no role in this process.
With the passage of the GEGEA in 2009, the role of LDCs is changing again.
The GEGEA enables the Minister of Energy and Infrastructure, with Cabinet approval, to issue a directive to the OEB requiring it to set conservation targets for LDCs as a mandatory licence condition. The minister’s directive power also enables the OEB to specify as a licence condition of LDCs that they publicly report their conservation results. It is expected that the directive will: recognize the need for approved program budgets to meet the target; establish mechanisms to compensate LDCs for reduced electricity sales and lower revenues resulting from conservation; provide incentive mechanisms; and require verification of savings to meet targets.
With OEB approval, LDCs will be able to deliver programs themselves, jointly with other LDCs or in partnership with the OPA. The original policy intent of this directive power was to encourage innovation by enhancing LDCs’ ability to develop custom programs. The extent to which this intent is fulfilled will depend on the terms of the directive, which could either expand or restrict the role of LDCs, depending on its application.
With the LDC target directive, accountability should be enhanced and LDC compliance will be strengthened through the OEB’s authority to enforce licence conditions, especially if the OEB is permitted to suspend a non-complying LDC’s licence. Depending upon the directive’s wording and whether it will require public consultation, it may be possible for third parties to press the OEB to enforce LDC conservation targets. Environmental and other public interest groups routinely participate in OEB proceedings and can file a motion seeking an order from the Board, for example, where an LDC does not meet a licence condition.
Moving forward with the directive, the ECO believes that it will be necessary to closely monitor the division of responsibility for program delivery between the OPA and LDCs, and to assign accountability for performance to the appropriate organization. The OEB currently has limited authority over the OPA, in contrast to its ability to assure LDC compliance with established targets.
The directive is expected to implement a regulatory framework that creates three tiers of conservation programs. Tier 1 programs will be developed by the OPA for delivery by LDCs in meeting their targets. It is unclear who – the OPA or LDCs – will be responsible for meeting the expected savings associated with these programs. Accountability may lie with the OPA through its contractual control of the LDC, and the directive may place responsibility to encourage and enforce program delivery on the OPA. The accountability mechanism for Tier 1 program delivery is problematic, since the OEB has limited authority over the OPA.
Tier 2 programs are jointly designed and delivered by two or more LDCs with no OPA involvement. Tier 3 programs are solely designed and delivered by an LDC with no other LDC or OPA involvement. Accountability in these cases should be clearer. In Tier 2 and 3 cases, LDCs will presumably be accountable to the OEB for meeting the savings expected from these programs.
Stability and Policy Certainty is Needed
The introduction of the GEGEA, and the direction of the Minister of Energy and Infrastructure to the OPA to revisit the IPSP , has changed the rules of the game for energy conservation. However, the ECO believes that it is premature to decide whether the GEGEA will have a positive influence on electricity conservation .
It is important to know whether the IPSP conservation targets will be changed, what the expected savings from the various categories of conservation will be, and how central a role the IPSP will play in guiding conservation activity.
Experience to date suggests that a revised IPSP will recognize that ministerial directives and procurement through a feed-in- tariff (FIT) have, to a considerable degree, replaced OPA planning through the IPSP process. It is essential to know the role that the revised Plan will play in electricity conservation. It may no longer be the definitive plan for supply and conservation as it was when first developed. It may serve more as a roadmap proposing scenarios and possible initiatives to which the OPA, OEB and LDCs could respond through mandates set out in ministerial directives.
The introduction of the GEGEA has added another layer of uncertainty. As discussed further in Section 5.5, the GEGEA is enabling legislation that requires further action by the Ministry of Energy and Infrastructure through regulations and directives to set the rules by which conservation players will operate. Until these rules are in place, action on conservation is stalled.
Once the position of the IPSP is clarified and the GEGEA rules are in place, time will show whether the revised framework is delivering results in line with the government’s original vision. The GEGEA intends that electricity distributors be more centrally involved in delivering conservation programs, thus creating an environment where dozens of distributors can be innovative with programs. A period of stability would facilitate this and enable LDCs to monitor performance and then adjust programs accordingly. It is also necessary to monitor the means of oversight established by the GEGEA, so that its effectiveness can be assessed.
| Recommendation :
The ECO recommends that the Ministry of Energy and Infrastructure move quickly to clarify the role of the Integrated Power System Plan and to ffinalize the key conservation regulations and directives under the Green Energy and Green Economy Act, 2009. |
| Recommendation :
The ECO recommends that the Ministry of Energy and Infrastructure commit to a period of policy stability to allow for implementation and evaluation of the Green Energy and Green Economy Act, 2009. |
Smart Meters and Time-of-Use Prices
For the past few years, utility crews have been going house-to-house and business-to-business installing new meters on customers’ properties. At the same time, regulators have been occupied devising a new electricity price structure. Ontario is embarking on one of the largest and most comprehensive electricity metering projects in the world. Advanced metering infrastructure – or more commonly “smart meters” – are electricity meters that record the amount of a consumer’s electricity consumption and the time it is consumed. Smart metering is a means to an end, not a conservation action in itself. It provides the necessary data that allows LDCs to implement time-of-use (TOU) pricing. TOU prices will be phased in by electricity distributors and monitored by the OEB over the next few years. There are three key activities that an LDC must complete: (1) install the meters; (2) enrol their meters in the Meter Data Management/Repository (a service provider that collects the hourly consumption data from LDCs); and (3) activate TOU pricing for their customers.
In 2004, the government established targets that 800,000 smart meters would be installed by the end of 2007, and all Ontario households and businesses (some 4.5 million electricity accounts) would have a smart meter installed by the end of 2010.
In mid-2009, the government announced targets for implementation of TOU pricing for customers that are billed under the current pricing regime (called the Regulated Price Plan). One million consumers are to receive TOU prices by June 2010 and 3.6 million by June 2011.
LDCs are required to file a plan with the OEB that serves as a baseline to measure progress and to report quarterly on their progress against this baseline.
The most recent progress report shows that at the end of 2009, some 3.4 million smart meters were installed. This represents more than 100 per cent of the projected amount for 2009 contained in the baseline plan, and LDCs are comfortably positioned to meet the 2010 meter installation target. Some 347,000 customers were paying for their electricity based on TOU pricing. This represents almost twice the projected 2009 amount contained in the baseline plan.
The 347,000 consumers paying TOU prices are customers served by nine LDCs in Ontario. The overwhelming majority of LDCs are not yet billing on a TOU basis. Toronto Hydro accounts for almost 80 per cent of the 347,000 consumers currently paying TOU rates. As of May 2010, results of the impact on conservation and load shifting were not available. Several LDCs ran pilot projects from 2006-08 and results showed variously that there were declines in consumption for on-peak, mid-peak and critical peak periods.
The ECO intends to monitor the results of this pricing policy for inclusion in future reports to determine the impacts on demand response and, if necessary, suggest policy refinements.
Future reports may address the following issues:
- Confirmation that there are changes in electricity consumption patterns and an indication of the degree of peak period demand response achieved.
- An analysis of the adequacy of the differential between peak, mid-peak and off-peak prices in influencing demand response.
- The amount of the load reduction as opposed to load shifting achieved with TOU rates, particularly for households.
- An assessment of whether additional pricing policies like critical peak pricing (CPP) would help reduce demand during days of expected exceptionally high demand, and how to implement CPP.
- An assessment of whether smart meters will contribute the amount of peak reduction (575 MW) that the OPA projects will be contributed to the IPSP 2025 conservation target.
- The adequacy of consumer education provided to encourage customer acceptance of TOU pricing.
- The need for additional technologies – equipment like in-home displays that show consumption in real time or electricity storage – that can enhance the smart grid.
- The extent to which LDCs are using the information they gather from their customers’ use of electricity to design new conservation programs and refine existing initiatives to enhance their customers’ conservation activity.
The ECO believes that an important gap exists in the smart meter-TOU rate policy that should be addressed immediately. Customers who contract with an energy retailer for their electricity supply (approximately 15 per cent of residential consumers do not participate in TOU rates. These consumers pay the fixed price set out in their retail contract and have no incentive to conserve electricity during peak periods.
Bill 235, the Energy Consumer Protection Act, introduced in December 2009 (and which at the time of writing our report had not been passed by the Legislature), would allow the government to address this gap. The bill recognizes that current retail contracts do not offer products promoting energy conservation, and enables the government to require that time-of-use “products” are made available to consumers. The ECO will report on Bill 235, which also has other elements relevant to energy conservation, in a future report.
Citing This Article:
Environmental Commissioner of Ontario. 2010. Annual Energy Conservation Progress Report, 2009 (Volume One): Rethinking Energy Conservation in Ontario. Toronto, ON : Environmental Commissioner of Ontario. pp. 20-30
