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Canadian Energy Perspectives

The LTEP: A Fundamentally New Planning Approach

Posted in Ontario Independent Electricity System Operator, Ontario Ministry of Energy, Power, Regulation
Ontario
George Vegh

Although largely unnoticed at the time, the passage of Bill 135 fundamentally changed energy regulation in Ontario. It created a new planning process centered on the creation and implementation of government-drafted Long Term Energy Plans, or LTEPS.  This new process starts with the LTEP and continues on through agency implementation plans that are approved and overseen by the government.  It is the most government-controlled energy planning process in Ontario history.   This managed approach carries potential benefit:  it increases the likelihood that the government may allow plans to be completed, and even followed.  In the past, the government abandoned planning initiatives before they were completed.

On the other hand, it also increases the risk that agency developed planning and evaluative criteria will be exercised entirely by and for political decision-making. In other words, if the agencies do not exercise independent judgment in developing implementation plans, and the only goal of the plans is to obtain the government’s approval, the integrity of long term regulatory or planning principles will be diminished, if not lost all together.

The LTEP Directives – The Role of the Government

The change to the planning process is expressed in the directives to the Ontario Energy Board (OEB) and the Ontario Independent Electricity System Operator (IESO).

The LTEP directives require the agencies to prepare implementation plans that cover dozens of issues (16 for the OEB and 15 for the IESO) addressed in the LTEP.

The directives require the agencies to prepare a plan to “include steps that clearly demonstrate” how each of the agencies will “implement the policy reviews, processes and other initiatives enumerated below.” The government emphasizes that it will be in charge of the process:

“The implementation plan should comprehensively detail the key implementation milestones for each initiative, provide sufficient detail on process and timing, and articulate intended outcomes.”

The government will review, approve and amend implementation plans and the agencies are required to follow them.

The LTEP Directives – the Tasks of the Agencies.

The actual list of reviews, etc. in the LTEP directives does not contain too many surprises. They are topics that have been debated in regulatory proceedings and consultations over the last few years.

Some of the issues are ripe for review. For example, there is a requirement for the IESO to review its regional planning to “identify barriers to the implementation of cost effective non-wires solutions such as conservation and demand management and distributed energy resources…”   Given the IESO’s preference for transmission solutions, a consideration of whether its approach contains any inherent biases towards those outcomes is a useful exercise.

Other initiatives seem to go over well-trodden ground. For example, the OEB is to identify opportunities for distribution investments and, in doing so, “the Board shall consider the issue of the diffusion of benefits that may arise from these and other distribution-system investments.”

The “diffusion of benefits” argument has traditionally been made by project proponents who claim that the benefits of their proposed products or services are lost on the market place and unappreciated by regulators. Under this theory, both markets and regulation fail to reward good projects because the benefits of a project are too “diffuse” to be captured by either.  The Board should therefore correct those market and regulatory failures by requiring consumers to fund these projects through distribution rates.

The OEB has reviewed the “diffuse” benefits of distributed generation on previous occasions, finding that the problems with the benefits are not that they are “diffuse” but that they do not outweigh the costs.

The LTEP directives require the OEB to review this again. It will be interesting to see if the OEB’s answer to the government is the same as it has determined in more formal proceedings.  This will be an important test in the new planning process:  will the agencies approach the issues by reference to principles that try to represent objective criteria, or will they produce results that the government wants to see?  A high degree of transparency will be required to demonstrate integrity in the process.  As a start, and at a minimum, all communications between the government and the agencies in developing these plans should be on the public record.

The directives also define problems in a way that avoids more fundamental but politically inconvenient problems. For example, one glaring issue in the sector is the massive over-capacity in resources (both on the supply and conservation side). The LTEP not only fails to address this issue; it denies that the problem exists.  One of the oddest components of the LTEP is that, instead of recognizing a surplus, it claims that Ontario’s peak electricity demand for 2017 is 30,000 MW an overstatement of 23% over actual peak demand of 23,000 MW.   Because this forecast demand also presented as equaling equal current supply, there is no surplus:  supply and demand are in synch.  As a result, the problem of over-supply doesn’t exist.

This is also unfortunate because this problem is not being addressed. A good question for consideration is whether centralized decision making is one of the main reasons for over-supply and whether that can be creatively addressed by decentralizing decision making and making resource adequacy a function of load serving entities.  But this is not the type of problem that qualifies for a solution under the LTEP.

Another directive requirement is for the IESO and the OEB are to focus on “Innovation in the Sector.”

It would take a level of courage (not to mention self-awareness) of the agencies to advise the government that true innovation would require the sector operating more like a business than a set of government programs. Innovation is likely to occur if customers get to exercise real choice, as opposed to the contrived choices identified by governments and regulators.  In other words, there is no room to prescribe an environment where innovation would fail or succeed based on customer’s perception of value instead or regulatory or political arbitrage.

Conclusion

It will be interesting to see how this first post Bill 135 planning process will work. It has the opportunity of bringing some new perspectives on old problems.  On the other hand, it brings the risk that the agencies will use their powers in a more political way, favouring a communications narrative over deliberate and transparent decision-making.