1. Understand the landscape
The Ontario electrical-power sector took shape in 1906, when the provincial government created the Hydro-Electric Power Commission of Ontario, a publicly owned utility that would later become Ontario Hydro, one of largest integrated vertical utilities in North America. In 1998, though, the Energy Competition Act authorized the establishment of a market in electricity and reorganized Ontario Hydro into five companies.
“We went from a big monopoly to many different players,” says Dave Butters, president and CEO of the Association of Power Producers of Ontario (APPrO), the trade association for Ontario’s electricity generators. “All of our members are big manufacturers of electricity, so they’re making the same product, but there are many different ways to do it, with different business models and technologies, and complexity brings contention. Sometimes it’s a challenge to find consensus around issues.”
2. Accept that there will be change
Since the breakup of Ontario Hydro, the province’s electrical-power sector has been in a constant, sometimes disruptive state of change. In May 2002, the market opened to competition, and a little more than a year later, in August 2003, blackouts hit Ontario and much of the northeastern United States, leaving 55 million people without power. Since then, the industry has passed many milestones, including the Electricity Restructuring Act and the Green Energy Act. All have inspired review and reflection and forced change—change that has impacted APPrO members. “We seek to understand the issues that will affect the business success of our members and to help them be as profitable as they can be in a complex, changing environment,” Butters says.
3. Define the biggest issues
Managing change is important, Butters says. His industry needs to attract the capital to support efficient, sustainable development, but its climate of perpetual evolution discourages heavy investment activity. APPrO is working to define the top issues that make its market so volatile. “We look for the ones that have the largest impact across the largest number of [our] members and are ones we can do something about,” says Butters, pointing to natural gas rate increases as an example. “If you’re a gas-fired electricity generator, you’re very concerned about natural-gas rate increases because they cut into your bottom line.” When such upticks happen, it’s APPrO that appeals to the Ontario Energy Board on behalf of the gas-fired electricity generators to ensure that their rate increase is as low as possible.
4. Support and promote
“Part of me runs the [APPrO] to ensure we’re financially healthy, but a large part of what I do is advocacy work,” Butters says, pointing to a recent Independent Electricity System Operator (IESO) rule change as an example. The IESO is Ontario’s electrical-system operator; its role is to balance the supply of and demand for electricity in Ontario and then direct its flow across the province’s transmission lines. Electricity producers operate under many rules established by the IESO, and in September 2013, it introduced a new rule on market-participant conduct. “It essentially said that if the IESO thinks a market participant is in violation of a ‘general conduct’ standard, or even thinking about it, it may sanction the market participant,” Butters says. “The rule was draconian, very broad, and it could have had potentially large consequences. But what do you do?”
What APPrO did, after discussions, was hire outside legal counsel and propose some alternatives. “At the end of the day, we got some significant changes to the rule,” Butters says.
5. Keep abreast of the changing landscape
“We won’t ever totally move away from big power plants, but as more and more players enter the market, I expect more distributed generation—people installing solar panels on their roofs, for example—and these things have an impact on power flows,” Butters says.
Other rising issues he’s watching are climate change and the mitigation of the carbon footprint, the introduction of smart grids (electrical-supply networks that use digital-communications technology to detect and react to local changes in usage), time-of-use pricing, and increasingly limited sites for infrastructure such as power plants and transmission lines. “All of these things are making our members’ lives complex,” Butters says.