CDM program delivery

Ontario reroutes CDM program delivery

Proposed legislative amendment begins process of abolishing rate-based funding
Friday, March 22, 2019
By Barbara Carss

Ontario electricity customers with monthly bills in the range of $1.6 million have been promised savings of about $15,000 in a first step toward transferring the funding mechanism for conservation and demand management (CDM) from electricity rates to general provincial revenues. Greg Rickford, Minister of Energy, Northern Development and Mines, introduced legislation yesterday to realign CDM program delivery in a phased process that begins with cancellation of eight distinct incentives and consolidation of all administrative oversight under Ontario’s Independent Electricity System Operator (IESO).

“I have directed the Independent Electricity System Operator to discontinue the 2015-2020 Conservation First Framework and establish a scaled down Interim Framework for the balance of 2019 and 2020,” Rickford wrote in a letter to energy management service providers. “I have also directed the Ontario Energy Board and provided it with the authority to amend or revoke conservation related license conditions for electricity distributors.”

No applications will be considered for current programs after April 1, while oversight of approved in-progress contracts will be transferred to the IESO. The IESO will then begin to accept applications — scheduled for May 1 — for a new selection of programs under the Interim Framework.

“It’s a full program reset,” explains Andrew Pride, an engineer and consultant specializing in energy management and strategic conservation planning. “Everything is shutting down. Some things are going to start back up.”

These directives do not require approval of the legislature and are projected to strip as much as $442 million out of electricity costs over a three-year period. The proposed package of hydro-related measures in the associated Bill 87 includes the legislative amendment that would give the government more direct control over CDM budgets.

“Amendments are being proposed to the Electricity Act, 1998, that would enable the IESO to accept government revenues to fund conservation programs and other procurement contracts, should the government decide to do so in the future,” Rickford advised. “The amendments would provide the flexibility to take further costs out of the rate base.”

Centralized administration of fewer programs

Local distribution companies (LDCs) have been the prime drivers of the Conservation First Framework, tasked with collectively attaining 7 million megawatt-hours (MWh) of energy savings in the 2015-2020 period. Each of Ontario’s 68 LDCs has an assigned target and budget for achieving their share of that goal. They serve as the administrators of provincially designed programs and also have the option to offer specially tailored programs of their own.

They’ve now been instructed to wind down their efforts. In doing so, they forego previously promised bonuses for hitting or surpassing their targets, which is presented as a potential $150-million chunk of the cost savings. However, Pride, who was an influential contributor to CDM program design in his previous role as vice president, conservation, with the Ontario Power Authority, questions that assumption.

“LDCs delivered conservation at under 1.7 cents per kilowatt-hour (kWh) in 2017, an efficiency level that has historically never been seen in Ontario or neighbouring jurisdictions,” he adds. “Typically, central or private sector operated programs operate at 3 to 6 cents per kWh.”

The IESO has been instructed to present a plan later this spring for how it will singularly fulfill the CDM program delivery mandate. The Ministry of Energy, Northern Development and Mines’ backgrounder lists eight programs “expected to be discontinued”: Business Refrigeration Incentive; Audit Funding; High Performance New Construction; Existing Building Commissioning; Monitoring and Targeting; Point-of-Purchase Incentives; Heating and Cooling; and Residential New Construction.

It also lists eight programs that will be retained in some form, including some of the most popular with commercial customers such as the Retrofit Program, Energy Manager Program and Energy Performance Program.

“We are thankful for the government’s decision to continue the high-value Retrofit programs that have proven successful. That was something we suggested on our list of policy recommendations to the Ministry,” says Bala Gnanam, vice president, energy, environment and strategic partnerships, with BOMA Toronto. “However, the lack of transparency leading up to the announcement was not desirable. We are all in it together. As an industry association representing commercial real estate, we are committed to work with the government to address our mutual concerns and we are in full agreement that we need to overhaul conservation programs to achieve cost efficiencies and to bring greater value to Ontarians.”

Pledge to reduce electricity bills underpins Provincial action

The Ministerial directives and proposed new legislation are tied to the government’s election campaign pledge of a 12 per cent reduction on electricity bills. (Bill 87 also addresses the Regulated Rate Plan for residential and small business customers — introducing a new structure to replace the previous government’s mechanism for curbing the global adjustment — and the mandate of the Ontario Energy Board.) Current levels of CDM investment are deemed unnecessary.

“Today’s customers understand the value of conservation and require fewer initiatives to realize reductions on their electricity bills,” the Ministry of Energy, Northern Development and Mines backgrounder states. “The proposed changes will have no effect on the environment, will lower system costs and will reduce hydro rates for medium and large employers, increasing competitiveness and opportunities for growth.”

That argument comes with examples of potential savings. Notably, an auto sector company consuming 15,000 megawatt-hours (MWh) per month will now save $15,000 while a mining operator using 50,000 MWh will save $30,000.

Based on the 2018 average price of $111.50 per MWh (11.15 cents/kilowatt-hour), that discount would come on bills that previously could have been as much as $1.67 million for the automotive sector company or $5.75 million for the mining operator for the commodity cost of electricity alone, before adding regulated charges. Even if their bills were lower due to participation in the Industrial Conservation Initiative (ICI), promised new savings are modest in the context of their total costs.

“It has to be expressed in terms of huge, atypical loads to even get a number worthy of a sound bite,” Pride suggests. “The savings will be negligible for almost all commercial buildings.”

The Ontario government projects the pullback on CDM spending will save $442 million over three years, while reducing projected electricity savings by 0.82 terawatt-hours (TWh). That’s 820,000 MWh or 820 million kWh, worth approximately $91.4 million at last year’s average price, that will continue to be embedded in annual electricity system costs.

“Energy efficiency is the best bang for the buck for the people of Ontario. Saving a kilowatt-hour is cheaper than spending to generate one,” maintains Corey Diamond, executive director of Efficiency Canada. “Cuts to energy efficiency means reducing the lowest cost option in our electricity system.”

“Sound energy efficiency policies create jobs and they are very important for our efforts toward curbing greenhouse gas emissions,” Gnanam concurs.

Barbara Carss is editor-in-chief of Canadian Property Management.

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