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Ontario auditor says standby power program is generating unneeded costs

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Ontario auditor says standby power program is generating unneeded costs

Ontario's Auditor General claims a standby power generation program is racking up millions of dollars in unnecessary costs and incentives to reduce industrial demand have shifted costs to consumers from big companies.

The Independent Electricity Service Operator, or IESO, pays operators of natural gas-fired power plants an average of about C$30 million a year more than necessary under its Real-time Generation Cost Guarantee Plan, the financial watchdog said in its report on a 2017 value-for-money audit of the agency's market oversight and cybersecurity. Between 2006 and 2015, nine gas- and coal-fired generators claimed as much as C$260 million in ineligible costs out of C$600 million in payouts, the audit found. IESO recovered about C$168 million in the ineligible payments.

"The [Ontario Energy Board] panel has recommended for years that the IESO scale back the Real-time Generation Cost Guarantee Program [Standby Cost Recovery Program], but the OEB panel's recommendations have not been fully acted on by the IESO," the auditor's report said. "The program therefore continues to pay gas generators an average of about [C]$30 million more per year than necessary."

The report also found that costs saved by big power consumers under the provincial government's Industrial Conservation Initiative, or ICI, were being shifted to smaller businesses and residential customers. The audit found that in the first 10 months of the program, large industrial bills were lowered C$245 million, which was added to the bills of small consumers.

"Before the ICI launched in January 2011, all ratepayers were paying about 7 [Canadian] cents/kWh," the report said. "After six-and-a-half years [as of June 2017], residential and small-business users were paying 12 cents/kWh and large industrial ratepayers were paying 6 cents/kWh."

Ontario Energy Minister Glenn Thibeault defended the ICI program, claiming it has reduced the need to build new generation.

"The Industrial Conservation Initiative program has been successful at reducing peak electricity demand and helps large consumers lower electricity prices by one-third on average, helping them to remain competitive and focused on creating jobs," Thibeault said in the Dec. 6 statement. "This program helped avoid the need to build costly new generation in the longer term, which is a benefit to all ratepayers across the province, both residential and commercial."

He called abuses of the standby cost recovery program "completely unacceptable" and said the government is considering changes to improve enforcement.

The report also recommends that IESO create a senior executive position dedicated to cybersecurity and expand the ranks of its cybersecurity division. The agency should also staff up its oversight division and give it the resources it needs to enforce the rules of the electricity market. Thibeault said IESO is in the process of recruiting a new chief information officer who would bring "an enhanced focus" on cybersecurity to the agency.