The Energy Competition Act, 1998
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What the law means
The Energy Competition Act (ECA) will implement a competitive market for the generation and sale of electricity in Ontario. According to “Directions for Change,” a plan on restructuring the electricity market released by MEST in November 1997, a competitive market will be established in Ontario by the year 2000. MEST said that the changes “must be flexible enough to ... spur more efficient and environmentally benign technologies” and that “the government will be considering market-based mechanisms that would favour more environmentally preferred forms of generation.”
The principal goal of the Electricity Act part of the ECA is to promote competition in the electricity sector. The new Electricity Act also creates several new corporations, including the Ontario Power Generation Incorporated (OPGI) and the Ontario Hydro Services Company (OHSC). OPGI will own and operate Ontario Hydro’s electricity generation facilities while OHSC will own and operate transmission and distribution systems. Neither OHSC nor OPGI will be Crown Corporations. When fully implemented, the Electricity Act also repeals the Power Corporation Act, the statute which created Ontario Hydro.
In early 1998, MEST appointed a Market Design Committee (MDC), made up of industry and customer representatives, to assist with the development of new energy policies and to develop recommendations for the design and operation of Ontario’s electricity market. To help achieve the purposes of the new legislation, the Ontario Energy Board (OEB) was given extensive new powers to regulate the electricity sector, including power to “facilitate energy efficiency and the use of cleaner, more environmentally benign energy sources in a manner consistent with the policies of the Government of Ontario.”
In addition, the Ontario Cabinet is provided with new powers to make regulations under the Ontario Energy Board Act and the Environmental Protection Act in the following areas:
- Requiring retailers to residential or small business consumers to obtain electricity retailing licences from the OEB.
- Requiring retailers to make timely disclosure to MOE of contaminants emitted by electricity generation facilities, the nature of the fuels burned, and the process of generation used at the facilities.
- Authorizing MOE to determine whether claims made about contaminant emissions, generation processes
and fuels burned are accurate and in accordance with the regulations.
- Requiring retailers to file reports and evidence on contaminant emissions, generation processes and fuels burned with the Ontario Energy Board.
- Establishing the rules for emissions trading and the manner in which reductions, credits or allowances acquired by a generator under the Environmental Protection Act may be used in determining whether there has been compliance with the standards established in the regulations.
- Requiring retailers to inform consumers about the nature and quantity of the contaminants emitted by generation facilities, the nature of the fuel, and the process of generation used at the facilities.
In addition, MEST claims that the ECA gives Cabinet the power to ensure that coal-burning plants in the United States producing cheap, dirty electricity cannot compete unfairly with Ontario companies such as OPGI. Ontario companies which buy electricity produced in the U.S. will be required to disclose to consumers and regulators how much pollution is caused by the electricity they generate and sell. The minister stated in the legislative hearings on the ECA that these types of generators won’t be able to get a licence to sell electricity in the province if they don’t meet Ontario’s environmental standards. Since then, MOE officials have expressed serious doubts as to whether they will be able to control the licences in this way.
Amendments to the Environmental Protection Act contained in the ECA will also allow Cabinet to establish programs and other measures for the use of economic and financial instruments and market-based approaches, including emissions trading, for the purposes of maintaining or improving existing environmental standards, protecting the environment and achieving environmental quality goals in a cost-effective manner.
MEST claims this initiative also presents an opportunity for reducing air pollution. Provided adequate information is available, these changes will empower many Ontario consumers to buy cleaner electricity, and encourage producers to respond by shifting production to cleaner sources of electricity. However, the proposed regulations, which will contain the important details on how the Ontario government intends to implement this new system for regulating electricity markets, were not released before the end of 1998. The ECO will continue to monitor this.
ECO findings on the Energy Competition Act
Staff at MEST and MOE have made a strong effort to consult with a wide range of stakeholders on options for restructuring of the electricity industry. Both ministries voluntarily posted Registry notices of consultations and provided adequate time as well as multiple opportunities to comment on the options. However, there are a number of important concerns about environmental matters that have yet to be resolved.
Concerns about planning
MOE is reviewing options for applying the Environmental Assessment Act (EAA) to energy projects in Ontario’s restructured electricity sector. Before restructuring, Ontario Hydro was subject to the environmental planning requirements of the EAA if it under took major projects. No explicit provision has been made to ensure that basic environmental planning processes will be followed by the companies that will now operate in Ontario when large new projects such as fossil-fuel burning plants and transmission facilities are initiated and developed.
While MOE can require individual projects to undergo an environmental assessment (EA) under the EAA, past experience indicates that decision-making on which projects are required to undergo an EA has been inconsistent. Thus, many important projects could escape an EA review if such requirements remain the primary vehicle for environmental planning. Only municipal planning laws would apply to projects that were not designated under the EAA.
In this case, significant gaps in the environmental decision-making process would exist, and it is unclear how the provincial government would coordinate approval to ensure that provincial interests would be adequately taken into account. MOE officials have indicated that they intend to concentrate on those energy projects with significant environmental effects. As well, the Market Design Committee has recommended that OEB, MOE and MMAH create a level playing field for all companies seeking environmental approvals. “Examine the current procedures for environmental, planning and other approvals,” MDC said, “and amend those procedures so that the approval depends on the size and type of project and its potential environmental impacts rather than on its corporate form or ownership . . . . Environmental approvals may create unnecessary barriers to new entry in the competitive market,” MDC added, especially where responsibility for the approvals “straddles more than one government agency.”
Conservation programs
In the past 20 years, Ontario Hydro developed programs to promote energy conservation by consumers, often working in cooperation with other energy companies and stakeholders. For example, Hydro supported Green Communities Initiatives (GCI) in several Ontario municipalities, a program to promote energy and water conservation and waste reduction by homes and businesses across Ontario. Restructuring the electricity market will bring an end to these programs unless specific effor ts are made to reintroduce them, since every electricity generator in Ontario will try to maximize their electricity sales, instead of discouraging electricity use.
MEST has told the ECO that in the summer of 1999 the OEB will be under taking consultations on bench-marking for industry performance, and it expects that recovery of costs for voluntary initiatives on energy conservation will be reviewed as par t of this consultation process.
Cumulative environmental effects
Ontario Hydro is subject to an emission cap for sulphur dioxide and nitrogen oxides and has a voluntary limit on annual carbon dioxide emissions. These limits would not apply to private generators. In my first annual report, I pointed out that cumulative environmental impacts can contribute to the slow deterioration of natural resources and environmental quality.
MOE does not have an emissions inventory for all electricity generators operating in the province. The regulatory requirement promised under the ECA that retailers file repor ts and evidence with the Ontario Energy Board on contaminant emissions, fuels burned, and generation processes provides an excellent opportunity to monitor cumulative environmental effects.
Public participation
At present, neither the OEB Act nor the Electricity Act are prescribed under the EBR, and thus proposals for regulations and amendments to regulations made under these laws will not have to be posted on the Registry, and Ontario residents will not have an opportunity to comment on them. Unless these Acts are prescribed, their regulations will also not be subject to other public participation requirements of the EBR, such as applications for review and applications for investigation. MEST officials have indicated that they are reviewing whether these new laws should be prescribed. As an interim step, they have agreed to post information notices on the Registry of the new OEB regulations on pollution disclosure requirements. (For further discussion of this issue, see Climate Change - Opening the Electricity Grid for Competition). The ECO will continue to monitor this legislation.
Recommendation 27 • MEST should prescribe relevant portions of the Ontario Energy Board Act and the Electricity Act under the EBR for the posting of proposed regulations to ensure that the notice and comment provisions of the EBR apply to environmentally significant regula- tions developed by MEST under these two laws. • MOE, MMAH and MEST should clarify their policies on the types of energy projects that would be subject to provincial approvals and place these policies on the Environmental Registry for public comment. • MOE and MEST should create an emissions inventory for all electricity generators oper- ating in the province. This inventory should be developed in tandem with the regulatory requirements under the revised OEB Act that retailers file reports and evidence on cont- aminant emissions, generation processes and fuels burned with the Ontario Energy Board. • MOE should analyze the data on emissions from electric generators to determine air pol- lution trends, and release an annual report based on its analysis. • MEST should establish measurable goals to encourage reduced consumer energy demand and should clearly support and promote both public and private sector energy efficiency initiatives.
This is an article from the 1998/99 Annual Report to the Legislature from the Environmental Commissioner of Ontario. Click here for more information.
