May 28, 2012 – Ontario Loses Independent Review of Energy Planning and Procurement in Merger of OPA and IESO

Under cover of its Bill 75, designed to implement the merger of the Ontario Power Authority (OPA) and the Independent Electricity System Operator (IESO), the government of Ontario is also making wholesale changes to energy planning and procurement. In so doing, it removes the independent planning and review required by the present regime.

Although the merger to form the Ontario Electricity System Operator (OESO) is an economy recommended by the Drummond report, there are fears that conflicting powers and duties of the two merged organizations will be difficult to integrate.

Changes to Energy Planning and Procurement

Bill 75 removes the OPA’s power and duty to develop an Integrated Power System Plan (IPSP) for approval by the Ontario Energy Board (OEB) and the OEB’s power and duty to review that plan for economic prudence, cost effectiveness and regulatory compliance.

The IPSP is replaced by Ministerial “energy plans”. The Minister must consult with the OEB on the impact of the energy plan on consumers electricity bills and on methods of managing that impact. The Minister must also refer the plan to the OEB for review of the estimated capital costs in the plan in accordance with the referral

This is a far cry from the independent review of the IPSP by the OEB that was previously required. It deprives stakeholders of the abilityto test, in a proceeding before the OEB, the government’s energy and procurement plans and the consequent effect of those plans on rates.

It continues a trend that was already apparent before Bill 75, for government to exert control over the activities of the OPA and the OEB by a combination of policy imperatives and directives.

By involving the OEB explicitly in the energy planning process, Bill 75 blurs the distinction between the functions of the OESO and the OEB.

Integration and the Potential for Conflict

The overlapping functions of the OPAnd the IESO will present their own set of problems in the merged OESO. Although short and long term forecasting functions of the IESO and the OPA should integrate well,  it will be more difficult to integrate the OPA’s planning and procurement functions with IESO’s responsibility to administer and enforce the market rules.

So, for example, the OPA currently has the responsibility to make and implement procurement processes for its IPSP. The IESO’s regulation of market participants includes potential parties to OPA procurement

Bill 75 recognizes and tries to cure the potential for conflict in several ways:

  • The Minister takes back responsibility for procurement decisions
  • The board of directors of the OESO is required to ensure that there is an effective separation of functions and activities of the OESO relating to its market operations and its procurement and contract management activities
  • The OESO is prohibited from conducting itself in a manner that could unduly advantage or disadvantage any market participant or any party to a procurement contract or interfere with, reduce or impede a market participant’s non-discriminatory access to transmission systems or distribution systems
  • The board of directors is required to ensure that confidentiality is maintained

However, the OESO will still have the power and responsibility to implement the Minister’s procurement decisions. It is not immediately clear how the board of directors of OESO will keep these conflicting functions separate without, in effect, keeping the two former organizations separate under one roof.

There is a tension between this obligation and the imperative to cut costs. However, given the recommendations of the Drummond Report, there will likely be strong government pressure to ensure these savings are achieved.

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