Law Times

Law Times • march 26, 2012 FOCUS PAGE 9 BY JULIUS MELNITZER For Law Times the last few months. In December 2011, Ontario O Auditor General Jim McCarter released his annual report with approximately 60 pages devot- ed to the province's electricity sector. Then in February, the Commission on the Reform of Ontario's Public Services released its report. It also had quite a bit to say about energy. The auditor general focused on three aspects of Ontario's electricity sector: the declin- ing influence of Energy Board, the Ontario the province's renewable energy efforts, and the stranded debt. "Overall, the auditor gen- eral's report indicates that the energy sector's future isn't look- ing good," says Mark Rodger of Borden Ladner Gervais LLP. With regard to the energy board, the auditor general noted its regulatory oversight was both limited and declining in scope. "Only about $35 of every $100 in the costs-of-electricity compo- nent of a typical bill is subject to rate regulation by the board," the auditor general wrote. The board, he noted, "regulates only $190 million of the total of $900 mil- lion in regulatory charges." More particularly, the board had little impact on the global adjustment, which responds to changes in spot market prices; isn't involved in regulating the debt retirement charge imposed to address the portion of Ontario Hydro's debt that couldn't be serviced following the restruc- turing of the electricity sector in 1999 to create a competitive market environment; and has no input into Ontario's long-term energy plan. The report also criticizes the board for not doing enough to educate consumers about electric- ity costs, particularly in relation to retail contracts. In the auditor general's view, these contracts cost consumers anywhere from 35 to 65 per cent more for their elec- tricity than those on the regulated price plan pay. As well, the report criticizes Ontario's regulatory regime for electricity as too costly and com- plex, particularly for medium and small utilities. It notes, for exam- ple, that the average cost of filing a rate application represented 15 to 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-set- ting 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 www.lawtimesnews.com 'By keeping the rates low in the short term, the government may have delayed the infrastructure upgrade work that is necessary,' says Patrick Duffy. its green energy plan. The audi- tor general, it noted, could find no economic analysis for most of the energy plan's components. The upshot is that the province has committed billions of dollars under the Green Energy Act with- out fully evaluating the impact of the legislation. The criticism of procurement under the green energy plan is particularly notable. Most pro- curement, it found, was non- competitive, resulting in balloon- ing costs running into billions of dollars. According to the calcula- tions, moving from a competitive process through requests for pro- posals that characterized the early stages of the plan to a feed-in tariff program added $4.4 billion to the costs of procurement. ntario's energy regime has been under considerable public scrutiny in The government also failed to consult with the Ontario Power Authority or the board on its $7-billion renewable energy deal with Samsung C&T Corp. and offered no business case or economic analysis of the transaction. Finally, the report found the government hadn't adequately communicated the fact that the reduction of stranded debt has been slower than antici- pated to consumers. For its part, the report from the commission headed by economist Don Drummond makes specific recommenda- tions regarding the review of the feed-in tariff, energy pro- curement, and the future of Ontario Power Generation Inc., Hydro One Inc., and local distribution companies. "The focus is 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," says Patrick Duffy of Stikeman Elliott LLP. More particularly, Drummond recommends the elimination of energy subsidies and criticizes the above-market rates offered to renewable energy generators through the feed-in tariff pro- gram. He also suggests a com- prehensive restructuring of the wholesale electricity market and the full or partial sale of Ontario Power Generation and Hydro One if the analysis shows it'll have long-term benefits. In addition, he advises governments against interfering in setting rates; posits the greater use of public-private partnerships; and focuses on the inefficiencies of local distribution companies. "Another real sticking point in the report is the lack of transpar- ency in explaining the true cost to the end user," says Duffy. "That's important because custom- ers who don't understand what they're paying and why they're paying it don't have much incen- tive to reduce consumption." Drummond also questions the province's rate strategy. "By keeping the rates low in the short term, the government may have delayed the infrastructure upgrade work that is necessary," Duffy says. According to Rodger, however, what he refers to as Drummond's high-level review won't solve the energy sector's issues. "If the province wants to tackle the issue in a serious way, the gov- ernment needs to drill down and work through the specific chal- lenges facing the sector," he says. "These include renewable energy and competitive trans- mission agreements; the whole conservation file and the utili- ties' role in it; and funding infra- structure renewal, which is the most pressing challenge of our generation." LT Search. Find. Customize. Print. Easily access a large collection of fillable forms and expert precedents at an affordable price Solicitor's Core on Westlaw® Canada Find your single, specific form faster in Solicitor's Core on Westlaw® Canada. This essential collection of fillable forms, checklists and precedents is designed for the Ontario practitioner. You'll find current, authoritative documents in the practice areas most relevant to you. All written by lawyers for lawyers, so you'll always be confident that you're working with expertly-drafted, up-to-date documents. Available as a stand-alone subscription or as an add-on to a Westlaw® Canada subscription. Solicitor's Core offers a cost-effective way to increase your bottom line. Maximize your productivity with Solicitor's Core Call 1-866-609-5811 or visit www.westlawcanada.com Ontario electricity sector under scrutiny McCarter , Drummond both criticize structure of province' s energy regime

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