An important part of any local distribution company’s (LDC) activity is connecting new customers to the local grid. New connections create demands on the existing grid in terms of the utilization of existing capacity. They also provide additional revenue for the LDC. There are a number of existing regulations that help guide LDCs in what and when they can charge for new customer connections, what the timelines should be and what the process should be. In Ontario, each LDC has summarized these regulations into their processes which are documented as their Conditions of Service. A copy of NOTL Hydro’s condition of service can be found here: https://www.notlhydro.com/customer-service/corporate-policies/conditions-of-service/.
The Government of Ontario is reviewing three aspects of how new customers are connected to the grid. I will review each of these.
New Large Loads
The first change relates only to large new loads. Any load that is directly connected to the transmission grid or is over 10 MW, no matter how connected, must get prior approval from the Independent Electricity System Operator (IESO). The IESO reviews these applications from a capacity perspective and from the perspective of the impact on ongoing grid operations. Traditionally, these were on a first-come, first-served basis.
Under Bill 40, the Government of Ontario is creating a new regulatory body that will prioritize new connections. The details around which connections will be reviewed by this body and what their decision criteria will be are still to be announced. The reason for this change is that the Government views the capacity of the transmission system as a scarce good and wants to ensure it is used for good projects, like those that create a lot of jobs, and not for projects considered less beneficial. Data centres and crypto-currency mining centres are the prime targets of this legislation.
Critics of this legislation argue that it politicizes a currently independent process and makes it subject to potential abuse. While this is undoubtably true, I would argue that this industry is already political, as it is largely run by the government, and this new process may be making transparent what might be happening already. I am more concerned with the creation of a new regulatory body. These have a tendency to grow over time (see the Ontario Energy Board (OEB)) creating further regulatory impediments. This legislation is likely to further slowdown the time it takes for approval of a new connection; and this already takes too long. Despite my concerns with their process timelines (separate subject), I would rather this prioritization be built into the IESO processes and not create a new regulatory body.
Customer Connection Costs
Beyond the basic residential or small commercial connection, there is a cost to the customer for connecting. There is some subjectivity in who bears this cost. Some LDCs will charge the customer as much as they are allowed as their view is that existing customers should not have to pay for the new customer connections. This approach helps keep rates down. NOTL Hydro falls into this category. Other LDCs may be willing to contribute more in order to promote growth in that municipality or in order to grow their own asset base and thus their ability to make a higher profit.
With the current focus on trying to reduce the cost of housing, the Government of Ontario has been looking at how these costs are shared. So far, they have largely just tinkered with the formula for how the costs of housing developments are shared between the developer and the LDC. The formulas for housing developments are already quite prescriptive so there is little leeway in these cases. Whether the changes will go beyond this is unknown. As noted, changing the rules just shifts the costs between the new and the existing customers.
Customer Connection Process
The OEB has recently commenced a review of the customer connection process at the request of the Government of Ontario. I have a lot of concerns with this.
Connection processes vary across LDCs. It can also vary across different types of connections within an LDC. This includes how long the process takes, how customer friendly it is and how expensive it is. The Government’s request for a review is being driven by complaints from customers about this process. I am not questioning this. We hear these complaints from customers as well though, thankfully, not in relation to NOTL Hydro. My concern is that instead of identifying what and who is driving these complaints and requiring improvement, the OEB will try to create standards and enforce measurement of each LDC against this standard. This approach has two problems: the standards become the minimum that LDCs must achieve instead of aiming for improvement and the cost of this enforcement is borne by all LDCs regardless of their performance.
There are, unfortunately, a number of recent examples where the costs of the solutions for supposed problems have far exceeded the benefit. To cite three out of many:
Green Button – The complaint was that LDCs all had different customer facing systems so that a business dealing with multiple LDCs had to get their data from each separately. However, instead of just mandating a standard, the Government, through the OEB, mandated the nature of the systems each LDC must employ. The costs were in the millions, and the take-up has been very low; very few businesses actually need this capability. The customer-facing solutions that each LDC uses for their regular online interactions with customers are much more robust, so the Green Button is not a benefit for the vast majority of customers.
In relation to this and other mandated projects like this, the OEB will allow the LDCs to recover the implementation costs in future rates if they exceed a certain threshold. If the costs are lower than the threshold then the LDC is expected to write-off the cost. In other words, LDCs are, in effect, encouraged to spend more on these projects and are penalized if they are efficient. NOTL Hydro recently had to write-off $35k because of this rule.
Cyber-security Audits – The concern is whether LDCs are taking the appropriate steps to protect their IT and OT environments from cyber threats. A very real concern in today’s world. The OEB did a lot of good work developing standards against which LDCs could measure their progress and encouraging LDCs to adopt best practices. Unfortunately, the OEB also decided the LDCs needed to be audited on this. In great bureaucratic double-speak, the OEB stated that as LDCs were performing cyber audits anyway this audit should not be an issue. The cyber audits the LDCs are performing are to test their defenses with phishing tests, penetration tests and operating system reviews. These provide valuable feedback the LDCs can use to improve their defenses. The OEB audits are about policy reviews and will provide no practical benefit to the LDC. They will also cost tens of thousands of dollars for each LDC.
Capacity-mapping – This is the latest. Some potential high-energy use customers have complained that they cannot easily tell where there is capacity on the distribution grids. Instead of promoting more communication between the LDCs and these potential customers, the Government has required the OEB to find a solution. The solution has been to hire a third party, cost unknown, to create one map for all of Ontario using the existing Geographic Information Systems (GIS) of the LDCs. There are three problems with this:
- The first is the cost.
- The second is that there is more to connecting a customer than just having the capacity. Customers of this size are also concerned as to whether there is redundancy. The cost to connect will vary at every location depending on the local configuration. There may also be plans for that capacity that are not yet fully developed. None of these will show up on a capacity map.
- The third is that different LDCs have different GIS systems and even the same system can be used in very different ways by different LDCs. The GIS systems have been configured for internal use to map the LDC infrastructure and not for external use.
Where this will end up and what the final cost will be is unknown.
The pros and cons of each of these examples can be debated though it is obvious where I stand. The problem is the cumulative impact of all of these required expenditures. In the end, the cost of all of them will be borne by ratepayers and the more of these, one-off, requirements there are the higher this cost will be. The result of the customer connection review may be one more costly endeavor for LDCs and their customers.