OSPE's Pre-Budget Submission to the Standing Committee on Finance and Economic Affairs

Introduction
Conservation - Consumers Must Use Less
Conservation - True Cost of Electricity
Investment in Generation
Conclusion
OSPE Recommendations

Introduction

The Ontario Society of Professional Engineers (OSPE) is the voice of engineers and engineering in Ontario. OSPE advances the professional and economic interests of its members by working with governments and others, offering leading edge professional development opportunities and providing valued member services.

The pre-budget consultations give stakeholders the opportunity to offer direction and suggestions as to how the financial future of the province should unfold over the course of the next year. The Ontario Society of Professional Engineers welcomes this opportunity and strongly suggests that funding for electricity infrastructure, generation and conservation be addressed in this budget.

Ontario's engineers know there is no single "technological fix" for the problems affecting Ontario's electricity system. We need a multi-faceted approach to solving the problems. Ontario's engineers believe a significant investment in infrastructure and generation must be implemented hand-in-hand with serious and sustained conservation practices if we are to create a system that fuels Ontario's economy and provides reliable, cost-effective power to consumers.

Conservation - Consumers Must Use Less

Part of the solution is simple - consumers must use less power. As there are really only two ways to reduce the risks of system outages - reduce usage or increase supply - the government must commit to measures that tackle both sides of the equation. Conservation must be the first line of defence. The public showed enormous support and ability to conserve usage during the August 2003 blackout and resulting power shortage. The government needs to provide the necessary funding to generate and sustain a conservation agenda, garnering public support and co-operation. Public education is a good first step, but not enough. Financial incentives to conserve and cost disincentives for "high" consumption must be mandated by the government.

Conservation funding must be put on an equal footing with generation investments. To date, increase of supply has been given prominence. This mentality must change, especially since increased generation by any means carries environmental costs, and will likely make Canada's Kyoto targets more difficult to achieve.

Office of Energy Efficiency

The Ontario Society of Professional Engineers (OSPE) supports section 4.10 of the Electricity Conservation and Supply Task Force Final Report, issued January 9, 2004, which states, "there remains a need for a lead organization to champion conservation and with a mandate to oversee the various conservation activities and to assess the relative benefits of each" (p. 43). This recommendation is repeated in section 3.1 of the Ontario Energy Board report, entitled Demand-Side Management and Demand Response in the Ontario Energy Sectors, issued January 23, 2004. This Office of Energy Efficiency would help make Ontario a leader in efficiency and conservation and help households, municipalities, and businesses reduce their consumption. While such an Office would require a substantial financial commitment, it would be a high-yield investment in Ontario's future. Funding for The Office of Energy Efficiency could be found through a Conservation Levy applied to both residential and industrial electricity consumers. This levy would be based on a simple model: the more you use, the more you pay. Those consumers making efforts to adopt conservation methods should be given grants or tax relief to help offset the cost of implementing such measures. The revenue generated from the Conservation Levy should be dedicated solely to conservation.

PST Rebate Program on Energy Efficient and Renewable Energy Products

Tax rebates on energy efficient appliances and renewable energy equipment should continue. Not only do these provide incentive to manufacture and purchase more efficient appliances, but they are also a tool to further promote the conservation message to consumers.

Other Immediate Actions

The Ontario Government can act immediately to make sure that conservation methods are implemented. A good first step has been taken by the government in promising in their election platform to reduce consumption by five percent. Due to tight time constraints, now is the time put this promise into action by making electricity conservation a priority across the province. The government could start by mandating that energy efficient technologies be adopted by provincial, regional and municipal government offices. As seen in California, consumers are not typically receptive to aggressive conservation measures unless these measures are mandated by government. Our government may need to make some difficult choices in order to deliver the necessary results.

Some examples could include:

• Traffic signals currently use incandescent bulbs. The government could mandate the use of Light Emitting Diode (LED) technology, which uses 80 to 90% less energy. Funding for such an endeavor could come from recently announced infrastructure money committed by the Federal Government in the Speech from the Throne on February 2, or from the Office of Energy Efficiency.
• There are some one million electric water heaters in the Province that have an average demand of 800 watts. Were these all to be fitted with remote load controllers, and time-of-use billing implemented, up to 800 megawatts could be shifted off peak.
• Incentive programs to replace residential and commercial furnace blowers/ circulating pumps with modern, efficient ECMs (Electronically Commutated Motors) will reduce energy consumption by 50% for each conversion.
• Replacing incandescent lighting in industrial and commercial spaces with compact fluorescent lighting (CFL) reduces lighting energy consumption by 75% and also reduces air conditioning loads in summer through reduced lighting waste heat. CFL bulbs should have financial incentives attached to their purchase.
• Research should be undertaken to clearly identify the costs of new generation opportunities versus the lower cost of conservation.

Conservation - True Cost of Electricity

Implementing a gradual increase in electricity prices to reflect true cost will encourage conservation, while at the same time providing revenue for new generation and distribution systems. Electricity rates in the Province of Ontario need to be re-examined. There can be no sustainability in the system unless the rate is more reflective of the true cost of electricity.

As recommended in the Electricity Conservation and Supply Task Force Report, "Consumers should have access to a reliable default supply of electricity at stable prices that reflect the true cost of power…" (p.6).

Rates for electricity should be increased to be more reflective of the true cost of generation and delivery. Rather than using government revenue to subsidize electricity rates, that revenue would be better spent on conservation and generation initiatives.

Investment in Generation

In order to stimulate investment in generation, Ontario needs to create an economic environment that is conducive to investment in the electricity sector. The Electricity Conservation and Supply Task Force make this recommendation on page 65 of their Final Report, which states, "…new investment requires contracts that provide a clear capability to recover costs and earn a competitive return on that investment."

The Ontario Society of Professional Engineers agrees that legislative and regulatory changes must be addressed now to create an environment of investment. Ontario's electricity infrastructure, both generation and transmission, is in dire need of investment. By addressing issues such as pricing that better reflect the true cost of power, the government will provide an environment for investment and ensure private sector capital will be available. In the short term, government must be willing to provide investment certainty through Power Purchase Agreements, direct investment or loan guarantees for new supply projects.

OSPE believes that a Central Planning Authority responsible for determining the required energy supply and reserve and with authority for its implementation be established. This Authority would be responsible for determining where and how the Province should invest in generation. It would also be in a position to recommend which rules, regulations and pieces of legislation must be amended or adopted to encourage private sector investment in generation infrastructure. Their tasks would also include acting as a "purchasing party," as suggested in the Electricity Conservation and Supply Task Force Final Report. By providing contractual certainty to investors and financiers, the Authority could create a stable market to encourage investment without the need to raise taxes and general revenue.

Conclusion

Difficult decisions regarding electricity production, price and use must be made by the Ontario Government. Prioritizing expenditures will not be an easy task. The most effective decisions to achieve long-term, reliable, cost-efficient and environmentally appropriate electricity production may not be the most popular ones. It is clear, however, that stability needs to be brought to the electricity sector. The economy of Ontario depends on confidence in the electricity generation sector. Generators need predictable economics in order to build the generation that the province so desperately needs. These objectives can only be addressed by thorough long-term planning.

OSPE believes the following measures constitute good first steps toward restoring our electricity system.

Recommendations:

Conservation needs to be promoted intensively. It must receive the same allocation of effort and resources as generation.
• The province should establish a central agency called The Office of Energy Efficiency responsible for coordinating demand-side management and demand response activities.
• Funding for The Office of Energy Efficiency could be found through a Conservation Levy applied to both residential and industrial electricity consumers. This levy would be based on consumption: the more you use, the more you pay. The revenue generated from the Conservation Levy should be dedicated solely to conservation.
• All consumers making efforts to adopt conservation methods should be given grants or tax relief to help offset the cost of implementing such measures.
• Tax rebates on energy efficient appliances and renewable energy equipment should continue.
• The Ontario Government has taken a good first step in promising in their election platform to reduce consumption by five percent. The Provincial Government must make the adoption of energy efficient technology easier and more desirable for consumers, municipalities, industry, commercial enterprises and government. A new standard or new approach to electricity use should be promoted.
• Rates for electricity should be increased to be more reflective of the true cost of generation and delivery. This increase will stimulate conservation and provide needed financial resources for infrastructure investment and stability in the electricity market.
• A Central Planning Authority needs to be established to create a positive environment for investment in generation infrastructure. The Secretariat would also create a system plan that provides adequate supply to meet Ontario's electricity demand, plus some reserve, and act as a "purchasing party," as suggested in the Electricity Conservation and Supply Task Force Final Report.

The Ontario Society of Professional Engineers believes that there are viable, immediate, low-cost steps that can be taken to reduce the risk of outages, manage electricity load growth, and ensure long-term stability in electricity supply and costs in Ontario. Some of these simple solutions can be implemented immediately. We believe that substantial public support for reliable solutions is there.

OSPE is willing and available to act in an advisory capacity to the Government of Ontario. We encourage the government to contact us so that we may help explore conservation, generation and transmission solutions. The answers are here in Ontario. Drawing upon the expertise of our many members, we look forward to working as your partner to provide technically sound solutions to a multi-faceted, multi-stakeholder problem currently straining Ontario - a province with the potential to be a world leader in energy generation and conservation efficiency.

Please continue to consult www.ospe.on.ca for ongoing updates on policy decisions that affect Ontario engineers. For complete details on the 2004 Provincial Budget, visit www.ontariobudget.fin.gov.on.ca.

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