04/22/2014

Letter to the Hon. Bob Chiarelli, Minister of Energy from Russ Powers, AMO President

Sent via e-mail: bchiarelli.mpp.co@liberal.ola.org

April 11, 2014

Hon. Bob Chiarelli
Minister of Energy
Hearst Block - 4th Floor
900 Bay Street
Toronto ON M7A 2E1

Dear Minister Chiarelli:

Re: The High Cost of Energy

Since the release of the Long Term Energy Plan (LTEP) last fall, municipalities have been considering how this plan will impact our communities. While the 2013 LTEP has a better grasp on the place of green energy and the importance of conservation, the anticipated cost of energy is simply not acceptable. The projected rise in energy costs by $50 per month per household or $36 per MWh for industry in the next ten years has generated broad based fears that is could have a crippling effect. We believe that there are shared interests among all of us in how we grow and develop our economy.

There are many good ideas in the LTEP about incenting change, promoting conservation and finding improvements in the existing system. However, AMO’s Energy Task Force and the Board are unclear how reliance on conservation, demand response, diversified sources and generation or innovative technologies will have the impact needed to stem the rising cost of energy.

Furthermore, there are a number of circumstances that need to be addressed in order to progress toward a more affordable energy situation across the province. There is clearly a need for more information about costs, savings, projections and assumptions. Too often details about the sources of information, the assumptions upon which they are based and the actual costs of commitments are not spelled out. The full cost of energy is not available from any source; it must be cobbled together and leaves many questions unanswered. Sadly, the numbers become suspect.

To undertake meaningful comparisons of options, to peel away biases and get to the real solutions, it must be made easier to gather accurate information. For example, the Global Adjustment is a black box. What comprises this cost, what percentages can be attributed to what sources, when will those costs increase or decrease? It is our understanding that the monthly IESO calculation of these numbers are not released and that IESO may not always be privy to what comprises the amounts upon which their calculations are based. The notion that all the required information to explain these costs is proprietary seems unjustified. A greater openness makes accountability attainable. It makes looking at alternatives possible. It makes improvements achievable. For any provincial and local politicians, any staff or industry experts to grapple with improving the energy system and the associated costs, greater transparency is essential.

A second area of concern is the governance of large energy agencies. The agencies which oversee energy policy, generation and delivery must all strive toward good governance. As there ought to be transparency about information sources and assumptions, so must there be transparency into why and how energy decisions are made. In particular, there are concerns about the place of Hydro One and Ontario Power Generation in the Ontario energy field. The 2013 Auditor General Report raises important concerns about human resource management, compensation and benefits, to name a few. The non-provincial LDC’s have a much more modest approach to compensation. These differences become issues in this current environment where selling a power company is more attractive than working toward collaboration to reach efficiencies. At present, Hydro One is the only utility in a position to leverage sufficient debt to purchase power companies. One must wonder where this direction will take us; will this result in one Ontario power utility which provides high compensation packages? Where will this level of debt lead?

AMO suggests that the Boards of Ontario Power Generation and Hydro One would benefit by Board restructuring, where the majority of the members bring skill sets and an ethos of customer service and business principles. The provision of energy will be best served if those in oversight look to stimulating the economy within the context of a level playing field for all delivering energy.

Finally, a number of interesting directions and options for energy types, generation and management have been brought forward in the past year. A deeper look into a number of initiatives is also recommended. The Distribution Sector Review Panel Report recommended a shoulder to shoulder approach to energy delivery. This deserves a more profound examination of the implications and potential to better serve the province, bearing in mind the previously mentioned concerns about all utilities being driven to the high compensation rates. It should not be set aside just because the impacts might be significant. If the resulting customer service, costs of energy delivery and potential for innovation are possible benefits, it must be examined.

As well, there is an openness to consider the implications of market based pricing. Naturally, this would need to involve a better definition of those things which comprise the price of energy. The need to focus on the longer view and not just the immediate benefit must be the foundation of energy strategies. To that end, a thoughtful study of how the private sector may become more involved in local distribution and generation should move forward. What would happen if the barriers to private sector investment were removed?

The current potential for expanded access to natural gas is a case in point. Despite recent increases, access to this option would save many households and businesses sufficient funds to positively impact the economy. The Province needs to consider how to support this potential which requires the tools, fiscal capacity and big picture perspective that are held at the provincial level.

Finally, the potential for inter-provincial transmission should be more closely explored. Energy rates in both Manitoba and Quebec are substantially lower than those in Ontario. Is there a way to share in this pricing?

These are not easy times. The delay in maintenance and refurbishing our energy system means that there are increased costs that can no longer be postponed. Paying for energy is a “closed loop”, as one group benefits, another has to make up the difference. While the recent Long Term Energy Plan addresses a number of large questions, there is still a need to re-visit the roles of the various provincial oversight, delivery and generation bodies. It is important that we do not set up a situation that creates either a monopoly or a “race to the bottom” by deferring or off-loading costs.

We are proud to live in a province that has encouraged and explored innovative technologies. We are proud that local service delivery has been customer focused and responsive. Many distribution companies can claim to be leaders in the field. As the parties put together their platforms, we trust that they will consider this advice and build on the local leadership available through municipal participation.

We look forward to working with you on these matters.

Yours truly,



R.F. (Russ) Powers
President

cc: Hon. Kathleen Wynne, Premier of Ontario