Review of Generation Contracts
November 6, 2019
On the recommendation of the undersigned, the Lieutenant Governor of Ontario, by and with the advice and concurrence of the Executive Council of Ontario, orders that:
WHEREAS the Minister of Energy, Northern Development and Mines ("Minister"), and the Associate Minister of Energy, are committed to ensuring that Ontario has an affordable and reliable electricity system, while continuing to find further cost efficiencies in the electricity sector;
AND WHEREAS it is desirable that the Independent Electricity System Operator ("IESO") assist the Government with identifying viable opportunities to lower electricity prices for Ontario consumers while maintaining system reliability;
AND WHEREAS the Minister may, with the approval of the Lieutenant Governor in Council, issue directives under subsection 25.32(5) of the Electricity Act, 1998 that require IESO to undertake any initiative or activity that relates to, amongst other matters, electricity supply or capacity.
NOW THEREFORE the Directive attached hereto is approved as of the date hereof.
I, Greg Rickford, Minister of Energy, Northern Development and Mines, with the support of Bill Walker, Associate Minister of Energy, hereby direct the Independent Electricity System Operator ("IESO") pursuant to subsection 25.32 (5) of the Electricity Act, 1998 (the "Act"), to retain an independent third party with relevant qualifications and expertise to undertake a targeted review of various existing generation contracts , in order for IESO to provide the Government with its recommendations on any and all viable cost-lowering opportunities identified by the end of February 2020.
The Government recognizes that electricity costs in Ontario have increased over the last decade, following investments in electricity generation, transmission and distribution. The Government is continuing to look for new opportunities to reinforce its commitment to ensuring that Ontario has an affordable and reliable electricity system, while endeavouring to find further efficiencies in the electricity sector.
In April 2019, Energy, Northern Development and Mines ("ENDM") launched an industrial electricity pricing consultation in response to stakeholder concerns. The consultation included nine regional in-person sessions with key sectors including the automotive, mining, steel, forestry, manufacturing, chemical and agriculture sectors, as well as more focused consultations with specific firms and industry associations.
One of the central themes in the feedback received from industrial stakeholders was the need to reduce electricity system costs and, in particular, the cost of generation.
Due to the centrality of its contracting activities relating to various past procurement and standard offer contracting initiatives, IESO is in a unique position to play a crucial role in identifying opportunities to lower electricity costs within previous generation contracts and standard offer programs. In order to ensure an objective evaluation of the opportunities identified by IESO, IESO shall retain the services of a third party to conduct the analysis.
Given that the costs of these contracts are charged to ratepayers in part through the Global Adjustment, it is therefore important to take the opportunity to identify measures or adjustments that are available which would result in reduced costs to consumers.
Therefore, in accordance with my authority under subsection 25.32(5) of the Act, I hereby direct (I ESQ) as follows:
1. To retain the services of an independent third party with relevant qualifications, experience and expertise to undertake a targeted review of existing generation contracts to identify opportunities to lower electricity costs within such generation contracts.
2. The review referred to in paragraph 1 shall:
- identify measures or adjustments that could result in reduced costs for Ontario consumers;
- 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
- take into consideration system reliability and potential impacts to Indigenous, municipal, and local partnerships.
3. The review shall not consider the Bruce Power Refurbishment Agreement or contracts related to conservation and demand-management initiatives.
4. IESO shall provide the third-party report containing its key findings and recommendations, along with IESO'S assessment of the findings, to the Ministry by no later than February 28, 2020.
My expectation is that the IESO shall identify any additional opportunities to lower system costs beyond the scope of the contract review.
This Directive is effective as of the date hereof.