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EDA Distributor Magazine

Frequently Asked Questions

Questions

  1. What is the EDA?
  2. What is a Distributor?
  3. What is the role of the Generators?
  4. Who is the Independant Electricity System Operator (IESO)?
  5. What is Transmission?
  6. Who are Retailers?
  7. Who is the Ontario Energy Board (OEB)?
  8. Who is the Electrical Safety Authority (ESA)?
  9. What is the United States Federal Energy Regulation Commission (FERC)?
  10. What is Bill 35?
  11. What is Bill 58?
  12. What is Bill 210?
  13. What is The Debt Retirement Charge?
  14. What is meant by the Stranded Debt?
  15. What is the Hourly Spot Price?
  16. What is a Kilowatt Hour (kWh)?
  17. What is a Kilovolt?
  18. What is meant by Market Rules?
  19. What is the Market Power Mitigation Agreement (MPMA)?
  20. What is a Megawatt (MW)?
  21. What is The Ontario Electricity Financial Corporation (OEFC)?
  22. What are Payments-in-lieu of Taxes (PILs)?
  23. What is meant by Performance-Based Regulation?
  24. What is the Retail Market?
  25. What is the Spot Market?
  26. What is meant by Standard Supply Service?
  27. What is meant by Unbundling?
  28. What is the Wholesale Market?
  29. What is the Macdonald Report?
  30. What is the Government White Paper?
  31. What is the Energy Competition Act?
  32. What should customers know about signing a contract with an electricity retailer?
  33. Who will protect customers if there is a problem with a retailer?
  34. Where can I learn more about the electricity industry?

For additional consumer information, visit the Ontario Ministry of Energy's Electricity FAQ here.

Answers


  1. The Electrical Distributors Association (EDA) is the voice of Ontario's local electricity distributors, all of whom are EDA members. The EDA provides its members with advocacy and representation in the legislative and regulatory environment and the electricity market of Ontario.
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  2. Distributors are local electrical utilities, also known as local distribution companies (LDC's). They take power from high-voltage transmission lines, "step-down" the electricity to a low-voltage level (50 kv and under), and provide it to local customers of all sorts: homes, schools, stores and factories.
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  3. Generators produce the electricity that we use. The Ontario governement through its energy sector regulator, the Ontario Energy Board, has issued 123 generating licenses. However, approximately 80% of the electricity in the province is produced by Ontario Power Generation (OPG), a successor company to the former Ontario Hydro. Most of the remainder of our electricity is produced by the Bruce nuclear station, which is leased by the provincially owned generator, Ontario Power Generation, to a private consortium called Bruce Power. Other smaller generators are generally renewable energy (e.g., wind) plants, and industrial facilities that produce power on-site for internal use.
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  4. The Independent Electricity System Operator (IESO) manages the province's power system so that Ontarians receive power when and where they need it. Ontario's IESO balances demand for electricity against available supply through the wholesale market and directs the flow of electricity across the transmission system. A not-for-profit entity established by the Government of Ontario, IESO fees and licences to operate are set by the Ontario Energy Board.
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  5. Electricity is transmitted over-high voltage transmission lines between the generating station and the local distribution area where the electricity is to be used. Hydro One, another successor company of the former Ontario Hydro, owns and operates most of the transmission lines in Ontario. This is in addition to its role as a distributor in certain parts of the province.
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  6. Retailers are companies licensed to sell electricity. Retailers do not participate on the actual physical delivery of electricity, but act as financial intermediaries. In the market that operated in Ontario from May to November 2002, retailers allowed customers to shop around for fixed-price electricity contracts and avoid buying electrivity at the prevailing spot market rate. Distributors are permitted to establish affiliated, though separate, retail companies.
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  7. The OEB is an independant government agency. It serves as the electricity market regulator, and also acts as a quasi-judicial decision-making tribunal. The OEB approves the delivery rates that are charged by the distributors and the transmitter (Hydro One) for the distribution and transmission of electricity in the province, and licenses all of the market participants. The OEB also ensures participants are in compliance with all of the laws and regulations that govern the electricity market. The board of the OEB is made up of government appointees. As an economic regulator, the board members are expert, and not industry stakeholder, appointees.
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  8. The ESA is an independent, not-for-profit corporation that is responsible under provincial law for public electrical safety in Ontario. The ESA promotes the safe use of electricity and provides a range of inspections and product approvals in accordance with safety codes. Its board, appointed by the governement, is made up of industry stakeholders.
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  9. The FERC is an independent regulatory agency of the United States Departement of Energy. The FERC is responsible for many of the same regulatory responsibilities as our own OEB. This agency is relevant for Ontarians because of the emergence of an interconnected electricity market in north eastern North America. FERC proposals and standards have an impact on how we can access that market, both for imports and exports.
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  10. Bill 35 is the Energy Competition Act, 1998, which enacted the Electricity Act and the Ontario Energy Board Act. This legislation set the legal framework for restructuring the old Ontario Hydro into successor companies, commercialization of the distribution industry, and the opening of the competitive wholesale market in electricity on May 1, 2002.
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  11. Bill 58 is the Reliable Energy and Consumer Protection Act, 2002. This Act amended the Electricity Act by, among other things, creating an “Energy Consumer’s Bill of Rights”, which sought to protect consumers from the unscrupulous business practices of some retailers.
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  12. Bill 210 is he Electricity Pricing, Conservation and Supply Act, 2002. Most significantly, this legislation froze the price of electricity at 4.3 cents per kWh for small volume and designated consumers (such a hospitals).
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  13. To pay off the residual portion of the former Ontario Hydro’s “stranded debt”, electricity customers all pay a debt retirement charge, which is a separate itemized charge on every electricity bill. The charge for a residential customer is 0.7 cents/kWh (or, for a person who consumes 1,000 kilowatt hours of electricity per month, $7.00 per month).
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  14. This is the term for the total debt and liabilities accumulated by the former Ontario Hydro, less the debt assumed by its successor companies. The stranded debt is held by the Ontario Electricity Financial Corporation, and is to be paid down in several ways – through dividends from Ontario Hydro’s successor companies (Ontario Power Generation and Hydro One), payments in lieu of taxes from distributors, and the debt retirement charge paid by consumers.
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  15. This is the hourly price for electricity in the IESO-administered wholesale electricity market. This price changes from hour to hour, day by day, season to season. Wholesale sellers (generators) submit offers and wholesale buyers (loads) submit bids for electricity in different quantities and prices for each hour. The IESO calculates the spot price by balancing the supply of electricity with demand. As demand increases, or supply decreases, buyers submit higher bids, which raise the spot price. As demand falls, or supply increases, only less expensive offers from sellers are accepted, and prices drop.
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  16. A kilowatt hour is the standard unit for measuring electricity energy. It is equal to 1,000 watt hours. Put another way, that is the energy consumed by ten 100 watt light bulbs in one hour. Most residential customers are currently billed for their electricity in cents per kWh.
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  17. A Kilovolt is 1,000 volts.
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  18. The IESO administers market rules, which set forth the formal terms and conditions for the operation of the power system and electricity market in Ontario.
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  19. When Ontario’s new competitive market opened, the seller side of the market (i.e., generation) was almost entirely controlled by one company - Ontario Power Generation (OPG), a successor company to the old Ontario Hydro. The MPMA is the government’s effort to deal with OPG’s market power. The two salient features of the MPMA are requirements that OPG: a) “decontrol” (i.e., sell-off) a certain proportion of its generation capacity according to a fixed schedule; and b) pay the government the difference between 3.8 cents per kw/h and the spot market price that it receives, for a large portion of its generation.
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  20. A Megawatt is 1,000 kilowatts.
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  21. The Ontario Electricity Financial Corporation. This corporation was established by the government to hold the stranded debt belonging to the old Ontario Hydro. It also fulfills a financing role in the new competitive electricity market. For example, small consumers currently (post Bill 210) pay a fixed price of 4.3 cents per kw/h. The government finances the difference between the fixed price paid by small consumers and the price paid for that electricity on the competitive wholesale market through payments from the OEFC (that is, by adding to the publicly funded debt).
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  22. These are forms of proxy taxes paid by government-owned bodies. Among the new PILs that have been imposed by the 1998 Electricity Act, some are approximately equal to federal and provincial corporate income and capital taxes. This money goes toward paying down the stranded debt, which is 100% held by the province of Ontario through the OEFC.
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  23. This is the form of regulation the Ontario Energy Board has chosen to use for setting distribution and transmission rates. It focuses on performance, rather than the cost of providing service.
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  24. This encompasses those consumers, such as residential and small volume consumers (those who use less than 150,000 kWh), who do not participate directly in the wholesale market – meaning those who do not purchase electricity directly from the IMO, or through a bilateral financial contract with a generator.
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  25. This is the real-time market in which the Independent Market Operator matches supply and demand at five minute intervals, setting a strike (spot) price for the electricity sold in that hour. The spot market, as with any commodity, is distinguished from a forward market, in which future rights to a commodity are purchased. The difference between the electricity spot market and that for other commodities is that with electricity, the commodity is also consumed right away.
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  26. This is the default electricity supply and billing relationship between distributors and local customers that exists when customers do not choose to contract with electricity retailers.
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  27. This is the separation of the details of all charges that go into a customer’s electricity bill, including the transmission charge, distribution charge, the charge for the commodity of electricity itself, the debt retirement charge, etc. In Ontario’s new competitive market, each piece is calculated separately.
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  28. The market in which electricity is sold to retail companies or provided to distributors, who pass through the price to their customers. If a company uses a very large amount of electricity, it may wish to participate in the wholesale market directly. This requires IMO registration and OEB licensing.
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  29. In 1995 the Ontario government established a committee (the Advisory Committee on Competition in Ontario’s Electricity System), chaired by the former federal finance minister, the Honourable Donald S. Macdonald, to investigate and assess the options for phasing in competition in the province’s electricity system. The report of the Macdonald Committee identified problems with the existing system, concluded that indicated a competitive market was needed, and made several recommendations on how this market should be introduced.
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  30. In 1997 the government set the direction of future electricity policy in its white paper entitled “Direction for Change: Charting a Course for Competitive Electricity and Jobs in Ontario”. This paper adopted the general thrust of the Macdonald report. It advocated the creation of a competitive wholesale market with an Independent Market Operator, the transfer of Ontario Hydro’s generating assets to a separate company, and the geographical consolidation of distributors. Unlike the Macdonald report, the white paper recommended opening the retail market at the same time as the wholesale market. Also, the paper did not recommend the immediate separation of Ontario Hydro’s transmission system from its distribution business.
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  31. In November 1998 the government passed the Electricity Act and the Ontario Energy Board Act, collectively known as Bill 35, the Energy Competition Act. The Electricity Act established the framework for a competitive market by:
    • creating an independent, not-for-profit corporation called the Independent Market Operator, which would also create the rules for the operation of the electricity market;
    • establishing that access to the province’s transmission grid must be non-discriminatory;
    • dividing Ontario Hydro into two crown corporations – one owning generation assets (now called Ontario Power Generation), and another owning the transmission system and distribution assets (now called Hydro One);
    • transforming the remainder of Ontario Hydro into a financial corporation of the province (now called the Ontario Electricity Financial Corporation) to hold the debt that cannot be serviced and retired by the two new operating companies;
    • requiring the two new Ontario Hydro businesses and all municipal electric utilities to make payments-in-lieu of taxes to the provincial government;
    • requiring all municipal electric utilities which transfer property (i.e., consolidate with one another) to pay a transfer tax equal to a portion of the fair market value of the property transferred; and
    • requiring all municipalities to transfer the assets of their electric utilities to for-profit corporations (i.e., incorporated under the Ontario Business Corporations Act), eligible to earn commercial rates of return on capital, and whose shares would initially be owned entirely by the municipal corporations themselves. The Ontario Energy Board Act gave the OEB the power to licence and regulate all market participants, and set transmission and distribution rates.
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  32. All electricity retailers are required by law to be licensed by the Ontario Energy Board. They must also enter an agreement with the local distributor before their electricity can be delivered to you. In Ontario. there are already a number of retailers that are licensed, but until many rules and regulations are settled the price of Standard Supply Service won't be known, so it is very difficult to comparison shop for electricity. If you are approached by a retailer, ask for their sales literature. Remember, you don't have to sign a contract now; you can wait until you can compare prices from all retailers. Here are some suggested questions for electricity retailers:
    • Ask for proof of license
    • Ask for literature and read it carefully
    • Ask what the length of the contract is, and if there is a penalty for canceling it
    • Ask when service begins
    • Ask how savings are calculated
    • Ask what the price per kilowatt hour is, and whether it will vary
    • Ask what other charges are included in the rate
    • Remember, you dont' have to sign a contract now - you may wait until you can compare prices from all retailers
    • Don't be led to compare a 'bundled' electricity rate with an unbundled commodity (electricity) price. On top of the price quoted by the retailer - you will also have to pay for the distribution, transmission, the IMO and the dept retirement charge - not just the commodity portion
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  33. The Ontario Energy Board is responsible for issuing retailer licenses and for investigating complaints from customers. Call the OEB's Customer Information Center at 1-877-632-2727.
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  34. Your local utility can help you learn more about the changes in the electricity industry. Other sources include:

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