Who Does What in the Electricity Industry?

January 2011

Ontario's electricity industry involves several players with unique roles to provide electricity to your organization reliably and cost-effectively. Changes to industry structure over the last decade have led to a more diverse composition of players in the industry. Understanding who those players are and what they do will help you understand and manage electricity procurement. At its most essential, Ontario's electricity industry can be divided as follows:

• Generation
• Transmission
• Distribution
• Retailing
• Regulation and Oversight

Generation

At the start of the supply chain are the power generators. A little over two-thirds of Ontario's generation output comes from generators operated and owned by Ontario Power Generation (OPG), a provincial Crown corporation formed from the generating assets of the former Ontario Hydro. The remaining portion is produced by independent or private entities such as Bruce Power, Enbridge Inc., TransCanada Energy and Greenfield Energy Centre LP, and increasingly by private developers of solar and wind farms. Industrial generators for on-site use and some smaller generators that operate district energy systems also fall into this category of independent or private generators.

The first commercial power generation in Ontario was hydroelectric power, and the first provincially- owned power utility was called the Hydro-Electric Power Commission (later, Ontario Hydro). Thus, for many Ontarians, the word "hydro" remains synonymous with electricity.

As Ontario's demand for electricity outstripped the readily available hydroelectric sources, a series of large centralized fossil fuel generating stations (largely coal) were built, followed in the 1970's by a series of large centralized nuclear stations.

Today, Ontario's installed generation capacity currently stands at slightly over 34,000 MW with nuclear power accounting for a third of this capacity. Natural gas is the next largest contributor to the supply mix at 27%, followed by hydroelectric at 23%. Coal-fired generation accounts for 13% while wind or other fuels (e.g. biomass) provide the remaining 3%. These percentages will change over the next few years with the Government of Ontario intending to phase out coal-fired generation by 2014.

The nearly 12,000 MW of generating capacity in nuclear power comes from three locations: the aforementioned complex operated by Bruce Power, and the Darlington and Pickering stations east of Toronto operated by OPG. Generation from other energy sources is more diverse and with generation capacity from a few MW to over a thousand MW. Examples here include TransCanada Energy's natural gas-fired Portlands Energy Centre in Toronto, Enbridge Ontario Wind Farm near Kincardine, Sir Adam Beck Hydroelectric Power Stations in Niagara Falls, and the coal-fired Lambton Generating Station near Sarnia. These last two examples are owned and operated by OPG.

Transmission

Transmission companies move power on high-voltage power lines over long distances from the point of generation to the region where the power is needed.

Hydro One is the largest player in power transmission in Ontario. Hydro One is provincially-owned and was formed from the transmission assets of the former Ontario Hydro. It owns nearly 29,000 kilometres of transmission lines throughout the province and delivers electricity directly to over a hundred large-volume customers, and connects to about 90 local distribution companies. In addition, it is on Hydro One's network that much of the province's power imports and exports occur, using its interconnections with utilities in Manitoba, Minnesota, Michigan, New York and Québec.

There are privately-owned transmission companies in Ontario. These include: Niagara West Transmission Corporation and Canadian Niagara Power Inc. in the Niagara region, Great Lakes Power Transmission, Five Nations Energy and Cat Lake Power Utility Limited in northern Ontario, and Cedar Rapids Transmission near Cornwall in eastern Ontario.

Distribution

The most familiar players in the electricity sector are the local distribution companies. These are the utilities consumers most often come into contact with regarding electricity supply for their homes or businesses. The primary role of distributors is to receive power carried on high-voltage transmission lines and distribute that power to the many points of consumption within their distribution service area.

Transformers for stepping down from transmission voltage to distribution voltage may be owned by the transmission company or the distribution company.

Most distribution companies are municipally-owned, for example, Toronto Hydro or EnWin Utilities in Windsor. Over the last several years, a number of smaller municipal utilities have merged to form larger, more efficient companies, often with the former municipal owner of each utility retaining a stake in the merged company. Examples include Powerstream, formed from several utilities in the region just north of Toronto, and Horizon Utilities Corporation which is ultimately owned by the City of Hamilton and City of St. Catharines.

Retailing

Retailers offer electricity pricing programs primarily to residential and small business consumers, in addition to selling green attributes. However retailers do not perform physical delivery of power and instead act as financial intermediaries.

Examples of electricity retailers in Ontario include Bullfrog Power Inc., Direct Energy Marketing Limited, Just Energy Ontario L.P. and Superior Energy Management Electricity LP.

Regulation and Oversight

The basic structure of the power sector is easy to visualize: electricity is generated at a large generating station (hydro, coal, nuclear or natural gas), transmitted from that point to where the electricity load is, and distributed to each individual point of consumption.

However, the physics of the electrical system are demanding: electricity supply and demand is instantaneous. The scale (and capital investment) of Ontario's electricity infrastructure is enormous. This requires a lot of co-ordination. The complex aspect of the electricity sector is the plethora of agencies that perform administrative, co-ordination, oversight or regulatory roles.

Market operations

The Independent Electricity System Operator (IESO) is a provincial Crown corporation whose principal task is to manage electricity market operations by monitoring the market continuously and issuing instructions to market participants to keep supply and demand in balance. A major part of its role is to arrive at a market-clearing price and also act like an air traffic controller for loads and large generators, co-ordinating activities to ensure safe and efficient operation. Large generators offer their power into the IESO-administered market at a price of their choosing, and the IESO determines which generators to order to run, based on minimizing costs while meeting demand, operating requirements and system constraints.

The IESO is also responsible for maintaining connection standards, operating reserve margins, and other controls associated with system operation and reliability.

Planning, procurement of supply and conservation

The Ontario Power Authority (OPA) reports to the Ministry of Energy and is charged with long-term planning for electricity supply and demand, procurement of new generating capacity, and the management of certain conservation and demand management programs. While the IESO is largely focused on maintaining the instantaneous supply/demand balance, the OPA is managing the supply/demand balance of the future. It exerts the most influence on the generation, by entering into contracts with generators to build the desired amount and type of power infrastructure. Developing Ontario's supply portfolio is the OPA's job, which it does based on its own technical analysis and also in response to directives issued by the Minister of Energy.

Economic regulation, licensing and consumer protection

The Ontario Energy Board (OEB) is a quasi-judicial regulator charged with approving the rates charged by regulated entities for the services they provide. Transmission companies and distributors file periodic rate applications which are subject to public review before the OEB, and then the OEB approves the rates to be charged. Ontario Power Generation has regulated rates for a portion of its generation output, and these rates are also approved by the OEB. For the most part, other generators do not have rates regulated by the OEB, but the prices they are paid for their output may be affected by the terms of contracts they have with the Ontario Power Authority or may be set under Feed-In Tariffs established by the OPA.

The OEB also licences different classes of market participants. Generators, transmitters, distributors and retailers must all hold licences in order to operate in Ontario's electricity market.

Through this licensing power, the OEB acts to regulate the practices of electricity retailers, and has levied substantial fines to retailers who it has determined have acted outside the prescribed codes of behaviour.

The Ontario Energy Board also establishes the price paid by consumers within the Regulated Price Plan (RPP) and the Smart Meter RPP, where rates vary by time of use. These rates are set to recover the expected price of electricity (spot prices plus Global Adjustment costs) over the period that the rates are to apply. It is important to note that the OEB does not otherwise regulate the spot price of electricity - the price for energy paid by users outside the RPP is determined from the prices bid by generators into the IESO-administered wholesale market, and is not regulated.

Public safety

The independent and non-profit Electrical Safety Authority (ESA) is responsible for matters of electricity safety in Ontario per provincial law with its board consisting of industry stakeholders. It provides inspections and product approvals per safety codes to promote the safe use of electricity.

The composition of Ontario's power sector is a complex mix of investor-owned and publicly-owned corporations, unregulated generators and retailers, regulated utilities and government agencies. It's sometimes hard to tell the players without a program.

Who Does What in the Gas Business Read more »