My Ontario eyes were shocked.
They have business plans!
Business plans, in responsible jurisdictions, serve a couple of purposes. For one, they assess costs, and benefits, recognize risks, and include cost recovery mechanisms, sometimes meant to spread that risk between the service providers and the customers. A Maryland case is particularly interesting from my perspective in Ontario, and I’d encourage the reader to visit the above two links, plus an essay by Scott Hempling for his explanation in summing up the Maryland’s commission reasons for rejecting the initial BGE proposal as:
· Cost –effectiveness before cost recovery
· The dog that didn’t bark – ‘future sunk costs’
· Not snowed by non-verifiable financial claims
· Just and reasonable decisionmaking
Here, the Ontario Energy Board regulates rates based, in part, on an acceptable Return On Equity. Theoretically, the more our public Hydro One, and Local Distribution Companies (LDCs), can get approved to spend, the more they can make for their bonus plans.
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Our initial plan was presented by Premier Dalton McGuinty in the Ontario Legislature on April 19th, 2004:
“Smart meters, together with more flexible pricing, would allow Ontarians to save money if they run appliances in off-peak hours. That's why we are directing the Ontario Energy Board to develop a plan to install smart electricity meters in 800,000 Ontario homes by 2007 and in each and every Ontario home by 2010.”
I’ve searched for a more developed Smart Business Plan – but I haven’t found one. Having read an alarming article by Parker Gallant, I was really excited about finding a coherent business plan that could explain Hydro One’s rapidly escalating Capital Expenditures during a period of decreasing demand:
Hydro One’s 2007 Annual Report pointed me to The Energy Conservation Responsibility Act, 2006. I’m no lawyer, but the Act seems to repeat a mantra, “consider energy conservation and energy efficiency,” - without consideration of costs.
I was particularly intrigued by; ” Despite subsection 1 (1) of the Ontario Energy Board Act, 1998, for the purpose of a hearing under subsection (4), the Board shall be guided by the objective of promoting energy conservation.”
The referenced subsection refers to ‘rate protection’, but what it means is specified as located under section 79.1 of the Electricity Act, 1998 … I can’t find the phrase “rate protection” in the current version of the Electricity Act.I was particularly intrigued by; ” Despite subsection 1 (1) of the Ontario Energy Board Act, 1998, for the purpose of a hearing under subsection (4), the Board shall be guided by the objective of promoting energy conservation.”
Moving on from the “rate” protection search, Schedule B of the 2006 law defines “smart metering data” as data derived from smart meters (no kiddin’) including data related to “the consumers’ consumption of electricity.” It’s pretty hard for me to see how the old spinning meter didn’t’ do all that smartly.
Regardless, let’s leave the legal to lawyers, and return to Hydro One’s Annual Statements. In 2008’s Annual Report the term “smart grid” appears right up front in the letter from the President and CEO, Laura Formusa:
The Province of Ontario’s smart meter initiative – to have a smart meter in every home and business by 2010 – sparked Hydro One to undertake the largest smart meter deployment initiative in North America. The installation of the meters is just a fraction of the job. The supporting communications network that Hydro One is establishing is an important step in realizing the vision of a smart grid. A smart grid will transform our relationship with our customers, allow our customers to make the smartest use of electricity and enable the connection of renewable sources of power generation like solar, wind and biomass – key to the Province’s goal of increasing the amount of renewables in our system and decreasing our reliance on carbon-based fuels.The grid of the past century was incredibly reliable at delivering power and it has served us well but it wasn’t designed to allow power to flow in a diversity of directions. And in order for Hydro One to connect small, renewable sources of generation, we need the two-way flow capabilities that a smart grid will bring. Hydro One is collaborating with industry peers, universities and research organizations to transform our system.
The lack of a plan is even more apparent in the Outlook section of the Management’s Discussion and Analysis Section, which has a paragraph including all 3 phrases: Smart Meters, Smart Grid, and Business Plan.
In its rate decision on the distribution application of our subsidiary Hydro One Networks issued on December 18, 2008, the OEB approved substantially all of our work program expenditures and our Smart Meter Program to the end of 2007. This firmly provides a base funding level to build upon and subsequently reduces the uncertainty of recovery of the Smart Meter Program. The increasing focus on renewable distributed generation, such as wind, solar, hydroelectric and biofuels will require development of the Smart Grid concept, which would leverage the smart meter technology to support continued reliable and safe operation of the distribution system. This technology will allow the same kind of visibility and control to distribution-connected generators that transmission-connected power producers now enjoy.
We are committed to the protection and sustainment of the environment for future generations. We can achieve this goal through distribution of clean and renewable energy by upgrading our transmission grid to support flow reversal of small, clean energy generators connected to the distribution system to the overall load. Investments in distribution and transmission infrastructure to enable major additions of distributed generation and to improve response times to these new connections at all stages will be required. However, transmission upgrades for distributed generation have been excluded from our business plan in the short term due to the uncertainty associated with cost responsibility.
Who do we blame for this boondoggle.
For starters, and in the end, the process started April 19th, 2004 with Mr. McGuinty’s speech in the legislature, and the phase of thoughtless spending on wistful platitudes must end by October of this year. But the co-conspirators shouldn’t be let off here.
The commentary on the Maryland case concluded:
“There’s a form of regulation known as “If you do that again we’ll clobber you—but go ahead this time.” (Thanks to regulatory legend Peter Bradford.) The Maryland Commission did the opposite: “The answer is ‘no,’ until you get it right.” Bradford has a boxing-based metaphor for three levels of regulatory willpower: “Rocky,” “Rope-a-Hope,” and “Canvasback.” Maryland chose Rocky.”
If anybody takes the time to review OEB rulings, I think they’ll see the first case many times. From the recent ruling on Hydro One’s Rate Application, the decision on Page 6 regarding the quirky CDM issues quite specifically notes “the Board is prepared to accept Hydro One's CDM estimates for the purposes of its load forecast” while noting CDM is an imprecise, and quite possible false, science. And in fact, the OEB then suggests spending more money studying it, elsewhere.
In the same OEB document we find the smoking gun on the business plan behind all the smart spending. Page 32:
GREEN ENERGY PLAN
In a letter dated September 21, 2009, the Minister of Energy and Infrastructure instructed Hydro One to “immediately proceed with the planning, development and implementation” of certain transmission projects. The twenty major transmission projects in Schedule A of that letter and five enabling projects in Schedule B were developed by the Ontario Power Authority (“OPA”) and Hydro One to facilitate the connection of “renewable generation likely to be forthcoming through the feed-in tariff program.”Hydro One’s Green Energy Plan (the “GE Plan”) is based entirely on the Minister’s September 2009 letter. That is, all projects and associated timelines identified inSchedule A and B of that letter are included in the GE Plan. The GE plan covers a ten year period from 2010 to 2020. The total gross cost of the GE Plan is $7.7 billion, of which the cost of the Schedule A projects is $6.9 billion and the cost of Schedule B projects is $840 million.
…While the Minister’s letter of September 2009 urged Hydro One to embark on an extremely challenging development process, the letter of May 7, 2010 to the OPA required an updated transmission plan that could significantly change the original instructions to Hydro One.In this case, the development of and approval of a plan that reaches much beyond the test period would seem to be inadvisable. It is clear that the pace at which significant system expansions and enhancements are to be undertaken is a matter of concern to all participants in the Ontario market at this time. This factor was also highlighted in the Board's letter of October 2010. In the Board's view, in the circumstances of this case, it is most appropriate for it to approve what comes before it genuinely connected to the test period, and not much more. Accordingly, in the circumstances of this case, the Board will not approve the overallGreen Energy Plan on a conceptual, or any other basis.I must note this issue is simply appearing in the light of examination of electricity policy. It is not really a different issue than we’ve encountered with diverse items such as the gun registry, and eHealth.
Smart technology refers to components that can communicate, the communication protocols and networks, the servers, the software, the security protocols, the network architecture controlling access. Our governments seem to lack the technical expertise in information technology and the bureaucratic backbone to face down poor direction.
In Germany Chancellor Merkel declared an “e-energy” project at a National IT Summit, which the German Energy Blog describes; “E-Energy – ICT-based Energy Systems of the Future” is a joint support program sponsored by the Federal Ministry of Economics and Technology (BMWi) and the Federal Ministry for the Environment, Nature Protection and Nuclear Safety (BMU). Under the program, pilot projects in six test region all over Germany develop and test key technologies and business models for an “energy internet” (“Internet der Energie”). It is complex, and worth the effort of treating it as such.
I’ve noted before there was an office in the Ontario government, the Conservation Bureau, that documented Ontario’s performance with energy. Shortly before their files were buried in the incorporation into the OPA, they showed Ontario’s per capita consumption declining far quicker, since 1990, than a number of jurisdictions, including California.
Let’s revisit that day in the legislature, nearly 7 years ago, shortly after Mr. McGuinty scribbled a strategy that would cost Ontario billions without ever having a coherent plan attached to it, and give the last words to a man who deserved better than the citizens of Ontario gave him.
Mr Howard Hampton (Kenora-Rainy River): I listened intently to what I believe was an attempt to announce an energy efficiency and energy conservation strategy, and I want to make the following response.First of all, I want to remind the Premier that in 1992, the government of the day brought forward an aggressive energy efficiency strategy, and the then Liberal energy critic from Ottawa South, Mr McGuinty, said he was opposed to it because he said Ontario couldn't afford an energy efficiency strategy. I wonder where we would be today if the Liberals had supported the government of the day and we had implemented all of those energy-efficient fridges and all of those energy efficiency measures. The Premier should remember that. The Premier should also remember that when the Conservatives brought forward their strategy to privatize Ontario's hydroelectricity system, part and parcel of that was to do away with all of the energy efficiency strategies that were then in place. Why? We know why: because private sector companies that are more interested in selling than conserving wanted all of those energy efficiency strategies done away with. The Premier should remember that he and every Liberal in the House voted with the Conservatives, not only on the privatization, but to get rid of the energy efficiency strategies which today he wants to promote. I see a lot of public relations here, I see a lot of spin, but I looked very carefully for the substance. The reality is this: For most of us in our homes, we can't turn off our refrigerator. If you turn off the refrigerator, you can't eat the food. Similarly, if you have an electric water heater, you can't turn it off. If you turn it off, you don't have hot water, and similarly with a number of other appliances. So I was looking for something from the government which indicated that they are prepared to put forward money, incentives, so that people who have an old refrigerator, one that uses too much electricity, can afford to buy a new energy-efficient refrigerator, can save electricity, can save on their hydro bill, and perhaps over three or four years can pay back the loan. Did I see such an incentive strategy? No, Speaker; none. In his remarks, the Premier talks about how people should have an energy audit of their home. Well, part of what he was opposed to in 1992 and 1993 was the green community strategy, which provided funding so that people could actually get an audit of their home; they could have experts come in and look at how much electricity they were using and provide them with some ideas and some incentives on how they could reduce their electricity consumption and save money. The Premier then was opposed to that. The government wants to place a lot of emphasis on so-called smart meters. They say that by using smart meters, you can in effect lower the on-peak consumption, and he cites California. I just want him to know the results from California. California thought that by bringing in so-called smart meters, they could reduce electricity consumption by 500 megawatts. In fact, they were only able to reduce electricity consumption by 31 megawatts. The reason is that people can't turn off the fridge; they can't turn off many of these electrical appliances that they have to have every day to keep their food safe. This is a PR announcement, but it's terribly lacking in substance that will lead to real electricity efficiency in the province.
