Conservation and Demand Management: Role of Electricity Distributors

September 2011

• All licensed electricity distributors in Ontario now have a condition in their licences related to conservation and demand management (CDM) targets for 2014. One is for reduced electricity consumption and the other is each distributor's contribution to a reduction in the province's peak electricity demand.
• The distributors are to achieve the targets through the delivery of CDM programs in their service areas. The programs can be those that are province-wide and made available by the Ontario Power Authority. Distributors can also use CDM programs that it develops specifically for consumers in its service territory but are not duplicative of the OPA's programs.
• The role played by the electricity distributors in the new CDM environment has been spelled out in detail in the Ontario Energy Board's Conservation and Demand Management Code for Electricity Distributors, issued in September 2010.

The provincial government's Green Energy and Green Economy Act, 2009 ushered in a new era in the way conservation and demand management initiatives are managed throughout Ontario. The role played by the electricity distributors in the new CDM environment has been spelled out in the Ontario Energy Board's Conservation and Demand Management Code for Electricity Distributors, issued in September 2010.

Background

In March 2010, the Minister of Energy issued a directive to the Ontario Energy Board (OEB) requiring the regulator to amend the distribution licences of all licensed electricity utilities to include a condition related to CDM targets. The licence condition specifies two CDM targets for each distributor for 2014. The first is the targeted cumulative reduction in electricity consumption to be achieved by the end of the 2011-2014 period. The second is the distributor's contribution to a targeted reduction in peak provincial electricity demand.

The OEB established the CDM targets for the 80 distributors affected by the directive. The targets were based on information received from the OPA, developed in consultation with the distributors. The OEB was directed to ensure that in total, the targets equate to a 2011-2014 net cumulative reduction in electricity consumption of 6,000 GWh and a 2014 net annual peak demand reduction of 1,330 MW for the province.

The distributors are to achieve the targets through the delivery of CDM programs in their service areas. The CDM programs can be those that are province-wide and made available by the Ontario Power Authority (OPA) to distributors under a contract between the OPA and the utility ("OPA-contracted programs"). The OPA programs include initiatives geared to residential and business consumers, and the OPA has developed a budget to cover the implementation of its programs. The distributor can also use CDM programs that it develops specifically for consumers in its service territory, are not duplicative of the OPA's programs and have been approved by the OEB ("OEB-approved programs"). As well, they can employ a combination of the two types of programs.

The CDM Code sets out the obligations and requirements that distributors must comply with in relation to their CDM targets. In addition, it specifies the conditions and rules to be followed if distributors choose to use OEB-approved programs to help meet their targets. The Code applies to CDM programs that start and end between January 1, 2011 and December 31, 2014. All electricity savings, whether consumption or peak demand, must occur within this same time frame.

Key elements of electricity CDM

Each distributor had to file a CDM strategy with the OEB by the start of November 2010. The strategy sets out, year by year, how the utility intends to reach its CDM targets. The programs to be used, whether OPA-contracted or OEB-approved, had to be described, and the program offerings must cover all customer types in the distributor's service area. The distributor is allowed to meet a portion of its CDM targets through programs for low-income customers.

A significant criterion for distributors, who may be planning to offer OEB-approved programs, is that those programs must not duplicate in any way, any of the OPA's province-wide offerings. Also, OEB-approved programs must not be associated with the OPA's Feed-In Tariff projects. But there are also a number of other requirements to be met including being cost effective. When constructing its plan for distributor-specific programs to be approved by the OEB, the utility must look at the costs and benefits of each program. With three exceptions, any programs proposed for OEB approval must be cost effective. The methodology for performing this cost-benefit analysis is based on protocols developed by the OPA.

The three types of programs that are the exceptions are: low-income programs, pilot projects and programs designed for educational purposes. In the case of pilot projects, the initiative must be designed to test or evaluate methodologies or technologies not in general use, but which may serve as a model for other distributors or OPA programs. Educational programs are those that will promote understanding of energy issues and lead to changes in behaviour that will result in an overall reduction in electricity demand, consumption or both.

By the end of September of each year, distributors must file a report with the OEB that provides a review of the utility's CDM activities during the prior calendar year. The information to be provided in the report is very detailed. Among other things, it is to include the participation levels, how much was spent on each program, and the verified electricity and peak demand savings determined according to OPA protocols. Results for OEB-approved programs must be evaluated by an independent third party, selected from an OPA list of vendors for such services.

Performance incentives are available to distributors for their CDM program results, but distributors must apply to the OEB for the incentive and they can only claim incentives for their specific contribution to the programs. The Code sets out criteria to be used to determine if a distributor's role was central to the program as well as how the incentive is to be calculated. The threshold level of performance for an incentive is that the distributor must have reached 80% of each of its CDM targets.

Recovery of CDM costs

Any CDM programs carried out by electricity distributors are done so as part of their activities that are not rate-regulated by the OEB. Therefore, the recovery of CDM program costs is not achieved through a utility's distribution rates. Rather, the costs are recovered as part of the Global Adjustment mechanism, which means all electricity consumers in Ontario pay for CDM initiatives whether they participate in any programs or not.

Electricity CDM under the latest rules and requirements is new territory, and actual experience is very limited. It remains to be seen how successful the distributors will be in achieving their CDM targets under the new framework.

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