ANNUAL REPORT - ONTARIO ENERGY BOARD (fiscal year ended March 31, 1994)

36 Pages·1994·1.9 MB·English

by  ONTARIO ENERGY BOARD

Table of Contents
Message from the Chair 2
Board Membership 4
Ontario's Energy Scene 5
OEB Mandate and Procedures 7
Board Structure and Resources 11
Highlights: Administration and Operations 14
RegulatoryAgenda 18
Gas Integrated Resource Planning 18
OEB to Review 1995 Bulk Hydro Rates 19
Natural Gas Rates Hearings 19
Pipeline Applications 25
Other Reports 26
List ofProceedings (YearEndingMarch31, 1994) 28
Public Participation 30
Glossary ofTerms 31
Minister Ministry of Ministere de 135St. ClairAvenueWest 135, avenueSt. Clairouest
Ministre Environment I'Environnement Suite 100 Bureau 100
TorontoON M4V1P5 TorontoON M4V1P5
and Energy et de I'Energie
The Honourable Henry N.R. Jackman
Lieutenant Governor of the
Province of Ontario
I hereby submit the annual report of the Ontario Energy Board. It reviews the events and
activities of the fiscal year of 1993-1994
Respectfully submitted,
(Jl/jti^
C.J. (Bud) Wildman
Minister
0761G(04/93) 100%UnbleachedPost-ConsumerStock
(.>N I \uiii ENI k>." H< )\itp
C M A
I J
Responding to a
the industry's regulator to beproactive and
Dynamic Energy adapt to change. While the OEB does nothave
an explicit mandate topromote the competi-
Marketplace
tiveness ofthe naturalgas industry, weare well
aware that ouractions mustnotinadvertently
distort marketforces orcreate barriers to the
The
Ontario Energy Board (OEB) plays an
industry'sgrowth.
important part in Ontario's natural gas and In 1993-94, the Boardaddressedthe
electricity sectors, industries which make an indis-
dynamics ofthe changing natural-gas market-
pensable contribution to the province's economic
place in three majorjointproceedings. Infact,
strength and quality of life. *> #> this was one ofthe most challengingyears in
memory in terms ofthe magnitude andcom-
plexity ofour caseload.
In the currenteconomic climate, the ques-
In oneproceeding, we examineda new
tion ofgovernmentsproper role in the economy
approach togas costs which links theprices
is hotly debated. From the Boardsperspective,
paidby utilities to commodityprice indexes.
regulation is requiredwhen allowing the mar-
ketplace to operatefreely wouldresult in out- The emergence ofindexingis an example ofthe
more open andcompetitivegas market thatis
comes thatare unjustor inefficient. Where
developingas deregulationproceeds.
competition canproduce equitable andefficient
Increasingly, naturalgas is tradingas a com-
results that bestserve thepublic, regulation
modity with more transparentpricingmecha-
shouldbe reducedas much,aspossible.
nisms.
This line ofthinkingleads to the conclu-
While indexingobviously complicates the
sion that regulation shoulddiminish as markets
forecastingofgas costs, the utilities consideredit
become more competitive. Clearly, ifthis is the
prudent in 1993-94, whenproducers expected
case, the needforgovernmentintervention will
vary with economic trends, andregulatory tri- prices to rise. The main issuefor the Board, of
bunals mustexercise theirpowers in a way that course, is to determine whether the use of
indexedprices rather thanfixedprices is in the
evolves with changing marketconditions.
public interest.
The Canadian naturalgas industry is
In ourdecision, we approvedthegas-cost
reactingto these changes, as the move towards
consequences ofthe utilities'supplyportfolios on
deregulation begun in the mid-1980s continues
a transitionalbasis. We emphasizedthat we
togather momentum. Recently, naturalgas
expect the utilities to takeallreasonablesteps to
prices have become more volatile anduncer-
manage the risks ofthis new approach through
tain. As the relativepriceadvantage ofnatural
appropriatefinancialinstruments. We also
gas comes underpressure, the industry must
directedthe utilities to notify the Boardwhen
continue to be innovative ifitexpects to keep
actualgas costs varyfromforecastcosts by a
naturalgas consumption efficientandafford-
predeterminedamount, so that the needfora
able.
gas-costadjustment to rates can bepromptly
Undersuch conditions it is incumbenton
assessed.
Oiniakio Energy Board
A secondcase arisingfrom the competitive In February 1994, theMinister of
dynamics ofthe marketplace involvedthesup- EnvironmentandEnergy referredto the Board
ply endofthepipeline. Brokers andutilities the question ofthe implications ofOntario
hadreachedan impasse overa numberofissues Hydros restructuring, in addition to asking us
relatedto direct-purchase arrangements in a to conductour usualreview ofHydrosproposed
market where supply was tighteningandprices bulkpower rate changes. In ouradvisory role,
were rising. The Boardispleasedthat the we willassess the utility's restructuringinitia-
workshop, settlement conferenceandjointhear- tives andrateproposals, to determine ifthey are
ingservedtoget theparties back on track in in thepublic interest.
search ofcommonground. In the maingas rates hearings thisyear, as
—
A thirdkey case heardin 1992-93, wellas in the direct-purchase andDSMpro-
—
with the decision issuedthisyear examined ceedings, the Boardcontinuedto use a settle-
demand-side managementaspects ofintegrated mentprocess basedon alternative dispute reso-
resourceplanning (IRP) in the naturalgas lution methods. We believe that usinga settle-
industry. Becausesociety isplacingincreasing mentapproach can decrease the cost ofregula-
emphasis on the environment, the Board tion by minimizingadversarialdebate andby
believes thatoutcomesproducedby the energy utilizingour resources more efficiently.
sectorshouldbe compatible with sustainable The introduction ofsettlements, consulta-
development. tions andcollaborativespromises to create a
Onepossible route to sustainable develop- spirit ofco-operation thathas notalways char-
ment is IRP, in which energy needs are met by acterizedcost-ofservice regulation. Over the
the least-costcombination ofsupply-side and longterm, weare confident the balancedvoice
demand-side measures. However, ifIRPis ofa more co-operative approach willassistthe
expectedtoproducesustainable results, the Boardin enhancing the quality ofregulation,
analysis must be basedon the totalcosts to soci- heighten sensitivity to changing markets, and
ety. With this in mind, the Boardencouraged help to ensure thatconsumers continue to have
thegas industry toform ajointcollaborative safeandreliable access to energy atfairprices.
with otherstakeholders to measure the environ- The Boardlooksforwardto renewedpart-
DSM
mentalcosts andbenefits of programs. nership with its stakeholders to anticipate
Atthesame time, the Boardrecognizedthe change andfostera business climate in which
potentialproblem that woulddevelop ifgas gas andelectric utilities can respondeffectively
rates were requiredto reflectsocialandenvi- to competitive challenges. Together, we must
ronmentalfactors while theprices ofotherfuels searchfor innovativesolutions andbe receptive
were not. In ourReport we directedthe utili- to new directions.
DSM
ties to limit the rate impactto avoidcre-
atingprice differences that wouldinducegas
C
customers to switch to less environmentally
friendlyfuels.
The electricity industry is also undergoing Marie C. Rounding
change driven by rising competitivepressures. Chair
On iaku) Energy Hi>\i<i>
BOARl > Members: Formerly Chartered
1HB Manager, Accountant
/V\l/\\KI KSI [IP
CarlA. Market OrvilleJ.
(asofMarch31. 1994) Wolf,Jr.,a Analysis Cookwas in
chemist, I and publicprac-
joinedthe \V | Forecasts tice before
Chair: Boardin atTrans- joiningthe
September Canada PipeLines Limited, OEB staffin 1961. Hehas
MarieC. 1986after Judith C.Allanwas helda numberofsenior
Rounding,a a varied29-yearcareer appointedtotheOEB in positions atthe OEB
lawyerand with Union Carbide, September 1990. She includingManager,
former whereheadministered holds a bachelor's degree FinancialAnalysis,
teacher, has thecompany'senergy in mathematicsandmas- DirectorofOperationsand
| I f^ been Chair affairs. Priortohis ter's degrees ineconomics EnergyReturns Officer,
ofthe appointment, he wasalso andbusiness administra- andbecameafull-time
OntarioEnergyBoard Vice-Chairman ofthe tion. BoardMemberinJanuary
sinceJanuary 1992. She IndustrialGas Users 1985. Heservedas
has helda numberof Association anda member EdwardJ. Acting ChairfromJuly 1
seniorpositions with the ofa numberofindustry Robertson toDecember31, 1991,
OntarioMinistryofthe associationsandgovern- !**,*• becamea andwas namedVice-
AttorneyGeneral, with a mentenergy-policy J^* Board Chairin Novemberofthat
focuson administrative groups. IfflI Memberin year. Mr. Cookwas
aImnmdedreigautlealtyorpryiloarwt.ojoin- C. William III I MHeaxjoiln9e?d aBpopaoridnMteedmbaepraritn-tMiamey
ing the Boardas Chair, W. Darling theOntario 1993.
she was Directorofthe was MinistryofIndustryand
Crown LawOffice—Civil appointed Tourism in 1977. In 1983 An environ-
Law. Ms. Roundingis to the he was appointedDeputy mentalsci-
Chairofthe Regulatory Boardin MinisterofEconomic entist, Judith
Affairs Committeeofthe February Developmentin the B. Simon
was named
CanadianAssociation of 1990followingan Manitobagovernment.
Members ofPublic Utility extendedcareerwith C-l-L Heservedas Chairman of apart-time
Tribunalsanda Directorof Inc., a majorconsumerof theManitobaPublic Board
theCouncilofCanadian energyin heating,process Utilities Boardfrom 1988 MemberinMay 1992.
Administrative Tribunals. andfeedstockapplica- to 1992. Hehasexten- She formerlyheldman-
tions. His last 10yearsat siveprivatesectorexperi- agerialpositions with the
C-l-Lwerespentinpur- encein the United Ministries ofIndustry,
Vice-Chair: chasingandpolicydevel- Kingdom, includingser- Trade& Technologyand
opmentposts relatedto vicefrom 1972to 1977as the Environment, andwas
Appointed energyandfeedstocks. aDirectorofthe an energyplannerwith
Vice-Chair Heholdsamasterofsci- Confederation ofBritish theMinistryofEnergy.
inJune encedegreein chemical Industries in London. Sheiscurrentlyaconsul-
1993, engineering from Queen's tantspecializinginenvi-
GeorgeA. University. Lawyer ronmentalassessmentand
Dominyhas " CherylL strategicplanning.
extensive Pamela W. Cottlewas
Anne
experiencein theenergy Hardie,a formerlya F.
fieldin both theprivate lawyerfor- SeniorLegal Drozdisa
andpublicsectors. Prior merlywith Counsel fellowof
tojoining theBoard, he the Ontario with the the Institute
servedas Directorofthe Securities MinistryoftheAttorney of
Electricity, OilandGas Commission, General, assignedto the Chartered
Branch attheMinistryof joinedtheBoardinJuly AutomobileInsurance Accountants
EnvironmentandEnergy. 1990. She hashadexpe- ReviewProject. She ofOntario. SheisSenior
Mr. Dominyholds amas- riencewithotherboards servedas BoardSolicitor Managing DirectorPartner
ter'sdegreein mathemat- andwith theOfficeofthe attheOEB from 1985 to andChiefExecutive
iUcnsivferrosimtyC.ambridge Ombudsman. a19B8o8aradndMewmabsearppinoiMnatyed OCefrftiicfeiredofMFarnaangdseemne:nt
1992. Consultants. Ms. Drozd
haspracticedasa
CertifiedManagement
Consultantsince 1982and
hasextensiveexperience
in theregulatoryenviron-
ment. She was appointed
apart-time OEBMember
inApril 1993.
Ontario ENERGY Board
D
Ontario's Energy
The commoditycost ofgas from Western
Canada accounts forabout one third ofthe typical
Scene
residential sales rate. The balance ofthe rate covers
transportation from theWestand the distribution
Of andoperating costs ofthe local distribution company.
all energy consumed in Ontario, about
Since 1985 the Canadian natural gas industry
32 per cent is provided by natural gas. has moved steadily toward a deregulated market.
We use more natural gas than any other Wholesale natural gas prices are no longer set bythe
province, and account for about 40 per cent of Alberta and federal governments. We now have a
total Canadian gas demand. Natural gas much m—ore competitive marketplace where all cus-
is the principal fuel in the residential, industria—l, tomers from the largest ind—ustrial user to the
and commercial and institutional sectors smallest residential consumer can buy gas directly
that is, in all sectors of the economy except from producers. Customers, ofcourse, still have the
option ofpurchasing gas from local distributors at
transportation. *» #>
Board-approved rates, as in the past.
Where gas is purchased directly from the pro-
ducer, the buyer has to make the necessarytrans-
Anotherleadingenergysource is electricity,
which provides about 19 per cent ofOntario's energy portation arrangements to carry the gas to its desti-
nation in Ontario. Small gas users often participate
consumption. Electricity is integral to today's infor-
mation society, and is also a key resource for indus- in direct-purchase arrangements as part ofa large
tries ranging from automobile manufacturing to pulp purchasinggroup. In these cases the broker is
responsible for arranging the transportation require-
and paper and mining.
ments withTransCanada PipeLines Limited and the
The restofOntario's energy needs are met by
oil, coal, wood and natural gas liquids such as local distribution utility in Ontario.
propane.
Natural Gas Franchise
Selling and Distributing
Areas
Natural Gas
Ontario obtains some 94 per cent ofits natural QUEBEC
gas from theWestern provinces bywayofthe
TransCanada Pipelines Limited and associated sys-
tems. In addition, we import about 2 percent of
ourgas from the United States and produce approxi-
mately 3 percentourselves.
Since the distribution ofgas involves a capital-
intensive networkofpipelines and storage facilities, a
monopolyarrangement is necessary to avoid costly
duplication offacilities. Most natural gas in Ontario
is distributed bythree utilities holding franchises and
UNITED
certificates to transport gas in specific areas ofthe fi CONSUMERSGAS
STATES
province. | UNION
I CENTRA
MH..1 Bl
The North American transmission network is Local distribution
becoming more diverse and accessible. Recent regu- systems in most areas of
latorychanges in the United States will permit the province are owned
Canadian purchasers ofU.S. gas to obtain more and operated by309
dependable transmission capacity than in the past. municipal utilities,
As a result, Canadian purchasers should be able to which buy powerwhole-
negotiatebetterpriceswithawiderrangeofgassuppliers. sale from Ontario Hydro
Closer to home, pipeline developments have and then sell it to more
been proposed thatwould provide new links to the than 2.6 million residen- AndrewBarrett,
U.S. transmission network as well as alternate routes tial and business consumers. Ontario Hydro also ProjectCo-ordina-
forWestern Canadian gas to reach Ontario markets. sells directly to some 945,000 retail customers and 104 torand
Ifapproved, these developments should also increase major industrial users. Thewholesale rates that Hydro CynthiaChaplin,
competition in the marketplace. charges municipal utilitiesandlarge industrial cus- SeniorProject
tomers are referredto as bulkpower rates. Manager
Generating and
In 1993 Ontario Hydro undertooka significant
Distributing Electricity cost-reduction and restructuring initiative. The cor-
poration downsized its workforce by24 per cent and
—
Ontario Hydro, a provinciallyowned corpora- reorganized into three business units the
tion, is responsible for most generation and transmis- Electricity Group, the EnergyServices and
sion ofelectricityin Ontario. Hydro's system Environment Group, and the Enterprises Group,
includes 69 hydroelectric stations, eight fossil-fueled which includes Hydro's research and international
stations and five nuclear stations, plus a 135,000- activities. Each ofthe three units has a high degree
kilometre transmission grid. ofoperating responsibilityand accountability.
Ontario's Gas Pipeline
System
ONTARIO
LAKESUPERIOR
°°ooooooooooooooooooooooooooo
LEGEND
CCCC
TransCanadaPipeLines
•"•"• CentraGas £
ooooo GreatLakes 1
d<o'dd PanhandleEastern f UNITED
EmpireState f
STATES
^^^"
Iroquois
Ontario Kni i«.,y Board
9" OEB Mandate -a
and approval. Rates are established for each utility
and Procedures followinga public hearing, which typicallylasts three
to fourweeks. Where users purchase gas directly
from producers, the OEB controls the rates that util-
ities maycharge for transporting the gas in Ontario.
Reporting totheMinisterofEnvironmentand
Gas sales rates vary among classes ofcustomers:
Energy, the Ontario Energy Board (OEB) is residential, commercial, industrial and wholesale. In
a regulatory agency of the Ontario government. setting rates, the Board first determines the appropri-
The Board regulates natural gas utilities and ate level ofexpenses incurred by the utilityto meet
reviews changes in Ontario Hydro's bulk power its total system requirements. We then determine
rates. We also advisetheMinisterofEnvironment how these costs should be allocated throughout the
and Energy, the Minister of Natural Resources system based on the varying demands ofdifferent
classes ofcustomers.
and the LieutenantGovernor in Council (LGIC) on
The Board sets rates as lowas possible while
energy matters. e> *>
providing investors in the utilitywith the opportuni-
ty to earn a fair return. Rates should bejustand rea-
The OEB's primary objective is to guarantee sonable for both the customer and the shareholder.
that the public interest is served and protected. In making its decisions, the Board weighs the
When settingor recommending rates, the Board utility's past, present and projected expenses and
considers the competing interests ofconsumers, determines whether the costs are prudent. It also
investors and the environment. considers current and forecast economic conditions
and trends, the earnings expectations for the utility
Legal Authority investors, and the quality ofservice the utility pro-
vides.
Most ofthe OEB's responsibilities are estab- Ifa utility's financial picture changes significant-
lished by the Ontario EnergyBoardAct. In addition, ly between rate hearings, the Board mayhold an
sixother statutes givejurisdiction to the Board: the interim hearing to grant rate reliefto either the com-
MunicipalFranchisesAct, the Petroleum ResourcesAct, panyor its customers. Interim rates are subject to
the Public UtilitiesAct, theAssessmentAct, the revision and are not final until the main rates appli-
Toronto DistrictHeatingCorporationActand the cation has been heard and a decision and rate order
IntervenorFundingProjectAct. issued.
The procedures ofthe Board, as an administra- The Board regulates the rates charged byfour
tive tribunal, are governed by the StatutoryPowers gas utilities in Ontario: The Consumers' Gas
ProcedureAct. The OEB also follows its own Draft Company Ltd. (Consumers Gas), Union Gas
Rules ofPractice and Procedure. The Board is sub- Limited (Union), Centra Gas Ontario Inc. (Centra)
and Natural Resource Gas Limited (NRG).
ject to the financial and administrative policies estab-
lished by Management Board ofCabinet and the Consumers Gasis Canada's largest natural
Minister ofFinance. gas distribution utility servingapproximately
1,176,000 residential, commercial, and industrial
Roles and Responsibilities customers in south, central and eastern Ontario.
British Gas Holdings (Canada) Limited, which
Setting Natural Gas Rates owned approximately 85 percent ofthe common
shares ofConsumers Gas, entered into an agreement
In Ontario, private gas utilities cannot set their
own sellingprices. Theyare required bylegislation in November 1993 to sell its interest to IPL Energy
to submit their proposed rates to the OEB for review Inc. The sale requires the approval ofthe Lieutenant
Governor in Council and at the end ofthe fiscal year
Uniahio Energy Board
A hearing in tionstotheMinister. Ourroleisanadvisoryoneandour
recommendationsarenotbindingonOntarioHydro.
progress.
References and Generic
Hearings
The Lieutenant Governor in Council, the
MinisterofEnvironment and Energyor the Minister
ofNatural Resources may refer a matter to the Board
the Board's report and recommendations to the LGIC for a public hearing and report. These references
were pending. The remaining 15 percent of normallyconcern energy-related matters ofcurrent
Consumers Gas common shares are publiclytraded. interest and generallyattractwidespread public atten-
Union is thesecond-largestgas distributorin tion. The Board's reports are advisory in nature.
the province, servingcustomers in southwestern The Board mayalso hold generic hearings on its own
Ontario. Italso operates a networkoftransmission, initiative on matters under itsjurisdiction.
storage, andcompression facilities forcustomers and
other utilities in eastern Ontario, Quebecand the Approval of Pipelines
UnitedStates. In all, Unionserves some685,000 resi- Utilities intending to constructa natural-gas
dential, commercial and industrial customers. Union transmission line in Ontario must obtain Board
isownedbyWestcoast EnergyInc. approval. The Board assesses whether the proposed
Centra reaches approximately 160 communi- construction is in the public interest, byconsidering
ties in northern, central and eastern Ontario. The need, safety, economic feasibility, community bene-
Centra system is composed ofaseries oflateral fits, security ofsupplyand environmental impact.
pipelines runningofftheTransCanada Pipelines sys- Before a formal application is filed with the
tem, startingat Kenora and extending to Lake Board, a pipeline-construction proposal is reviewed
Ontario and the St. Lawrence River. Centra serves by the Ontario Pipeline Coordination Committee
approximately 214,300 customers. It is also owned (OPCC). Chaired byan OEB staffmember, the
byWestcoast Energy Inc. OPCC is an interministerial committee that consid-
NRG
is asmall privately-owned utilityserving ers the environmental and safetyaspects ofpipeline
some 3,100 customers in theAylmer area. construction and is comprised ofmembers from the
&
Ontario also has five small gas companies that Ministries ofAgriculture, Food RuralAffairs;
are exempt from rate regulation under the OEB Act Environment & Energy; Consumer & Commercial
&
and two municipally-owned gas utilities that are not Relations; Natural Resources; Culture,Tourism
regulated by the Board. Recreation; MunicipalAffairs; andTransportation.
Regional agencies are also represented as required.
Reviewing Ontario Hydro The OEB's environmental guidelines for locat-
Raxes ing, constructing, and operating pipelines in Ontario
In 1974 the OEB's mandatewas extended to set out the Board's expectations. Revisions to the
include reviews ofchanges in Ontario Hydro's bulk guidelines are in the final stages ofcompletion. As a
power rates, which are set by the utility's board of last step, we plan to organize aworkshop for stake-
directors. The corporation is required to submit any holders and Board staffto discuss the socioeconomic
proposed change in its bulk power rates to the impacts thatwill be covered.
Minister ofEnvironment and Energy, who then
Approval of Franchise
refers the proposal to the Board, alongwith full tech-
Agreements
nical information and financial data.
Afterapublichearing,whichusuallyrunsaboutfour Each municipalitymaygrantagas utilitythe
weeks, theBoardsubmitsitsreportwithrecommenda- right to provide gas service and use roadallowances or