Ontario Government Directs the IESO to Review Generation Contracts and Large Customer Billing Practices

As indicated in the Ontario government’s 2019 Fall Economic Update (page 66), the Ontario Minister of Energy recently issued two Directives to the Independent Electricity System Operator (IESO). The Generation Contract Review Directive requires the IESO to retain an expert “to undertake a targeted review of existing generation contracts to identify opportunities to lower electricity costs within such generation contracts.” The Billing Practices Directive requires the IESO to “review and report-back to [the Minister] on opportunities to improve billing and settlement processes as well as customer service practices for electricity market participants.”

The Minister’s Directives follow from previously announced goals and initiatives of the Ontario government.

As we have discussed previously, the government has pledged to reduce electricity bills by 12 per cent. The Premier repeated that goal recently (see here). The Generation Contract Review Directive to review existing generation contracts is aimed at that goal, and indicates that lowering the cost of generation is a “central theme” in the feedback received in the recent industrial electricity pricing consultation (described below). In the Directive, the Minister recognizes the role and expertise of the IESO “in identifying opportunities to lower electricity costs within previous generation contracts,” but indicates that the IESO should retain an independent third party to conduct the review “to ensure an objective evaluation of the opportunities identified by IESO.”

The Generation Contract Review Directive stipulates that the third party review shall:

a. identify measures or adjustments that could result in reduced costs for Ontario consumers;

b. place a particular focus on larger gas, wind and solar contracts that expire in the next ten years, including portfolios of contracts held by the same proponent and any other areas where IESO or the third party determine that there is the potential for cost savings; and

c. take into consideration system reliability and potential impacts to Indigenous, municipal, and local partnerships.

Importantly, the Directive indicates that the review will not consider the Bruce Power Refurbishment Agreement or contracts related to conservation and demand management initiatives. The third party’s review is to be provided to the Minister, along with the IESO’s assessment of the findings, by the end of February 2020.

The Billing Practices Directive follows from the Ontario government’s industrial electricity pricing consultation. As discussed in a previous post, that consultation was “looking for input on “electricity rate design, existing tax-based incentives, reducing system costs and regulatory and delivery costs.”” The Directive explains the consultation activities that have been undertaken and indicates that two of the themes raised by industrial consumers related to “regulatory burden and electricity cost-certainty,” and particular concerns related to those items. The Billing Practices Directive requires the IESO to review and report to the Minister on opportunities to improve billing and settlement processes and customer service practices for electricity market participants, indicating that the IESO shall:

1. Review its current bill presentment activities and processes to identify ways that electricity bills can be improved, with a particular focus on simplification ….;

2. Review its customer service processes, with a particular focus on market participants that operate load facilities, in order to identify areas where IESO can improve its customer service activities, processes and practices;

3. Review its current GA [Global Adjustment] estimation processes, in order to determine where there is the potential to improve the manner by which IESO calculates its current estimation of GA or remove the estimation process; and

4. Review its peak demand data publication processes in order to determine where there is potential for improvement and to provide an assessment of the implications of using real-time data for Peak Demand Factor determination.

The IESO is expected to consult with stakeholders to ensure that the interests of “all relevant parties” are considered. The IESO’s report must be provided to the Minister by the end of February 2020.