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Ontario FIT Price Determination Summary–How Did They Do It? Lessons for Indiana? March 9, 2011

Posted by Laura Arnold in Uncategorized.
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Editor’s Note: Recently, I asked my friend and esteemed colleague, Paul Gipe, about how Ontario, Canada determined the pricing levels for their feed-in tariffs (FIT). I wasn’t asking about what formula they used but what the process they used as a government. As IDEA works with parties in proceedings before the Indiana Utility Regulatory Commission (IURC) to determine the FIT prices and the process or procedure to arrive at the right answers, we wanted to know how our neighbors to the north approached this task. The article below is the result. Hopefully, here in Indiana we can learn from our Canadian friends and not re-invent the wheel.

I would like to know what you think. There has been some informal discussion amongst renewable energy and distributed generation advocates that the IURC should initiate a generic proceeding on feed-in tariffs naming all five investor-owned electric utilities as respondents, i.e. IPL, NIPSCO, Duke Energy, I&M (AEP) and Vectren (SIGECO). Our Commission now has two cases pending involving feed-in tariffs for IPL and NIPSCO. Both are pilot projects. IPL’s program called Rate REP became effective March 30, 2010 but IPL has already proposed  temporarily suspending the program to rework it. NIPSCO proposed their own three year feed-in tariff program and IDEA and others are working to iron out the details in a proposed Settlement Agreement. The question is where do we go from here.

I would like to hear what you think. Laura Ann Arnold

The article below was originally posted at http://wind-works.org/FeedLaws/Canada/OntarioFITPriceDeterminationSummary–HowDidTheyDoIt.html

Ver. 03

February 4, 2011

By Paul Gipe

Several people have asked how the province of Ontario, Canada determined the price of each individual tariff in its Feed-in Tariff program and how were stakeholders involved.

While I was not privy to the Ontario government’s internal discussions, the summary below is what can be reasonably inferred from the way the program developed and my personal observations as a participant in the stakeholder workshops.

This is a summary of the process.

Ontario’s Feed-in Tariff program is administered by the Ontario Power Authority (OPA).

OPA’s Prior Experience

OPA was not new to feed-in tariffs in the winter of 2009 when it was charged by the Minister of Energy to create a new program. OPA had created and managed the Standard Offer Contract (SOC) program from 2006 to 2008.There were only two tariffs in the SOC program: One for solar photovoltaics (PV), and one for all other technologies. In the SOC program, OPA calculated the tariffs based on OPA’s perceived “value” of the generation to the system. They arrived at a value and they applied this value to wind, biogas, and hydro. The PV tariff was politically set as the value formulation could not expand to cover solar PV.The SOC program failed, and the new Minister of Energy set about creating a new program modeled more directly on successful programs elsewhere. These programs base the tariff not on the “value” of the generation to the system, but on the “cost of the generation plus a reasonable profit”.Thus, the new Feed-in Tariff program departed from the previous SOC program in the way the tariffs were determined.

FIT Price Setting

The Minister of Energy introduced a bill (the Green Energy Act) into the provincial parliament that would enable the use of feed-in tariffs. Simultaneously he instructed OPA to begin preparing a program.OPA undertook a multi-step process for determining the tariffs that would be used. These can be characterized as

  • Research,
  • Verification,
  • Calculation,
  • Engagement, and
  • Refinement.

Research

OPA collected information on feed-in tariff polices, prices, and assumptions from numerous sources. Importantly, they assembled information on the various factors that affect the cost of various renewable energy technologies. Some of this data they had internally from the previous SOC program and from contracts awarded under earlier Requests for Proposals.Internally, OPA made decisions about how many tranches of each technology would be evaluated.As part of this process, OPA hired various consultants to collect data on cost and performance.

Verification

Subsequently, OPA or their consultants confidentially sought verification that the data they had collected on cost and performance were reasonable, that is, in line with what others knew about the industry.

Calculation

OPA also contracted with a private consultant to either create or use an existing financial model (spreadsheet) to calculate tariffs for specific technologies and specific sizes of each technology. The consultant entered the cost and performance data, and financial data into the spreadsheet model and calculated a set of draft tariffs.The Ontario government then announced a set of draft tariffs and that a public consultation would begin in the spring.

Engagement

Beginning in the spring 2009, OPA held a series of weekly “stakeholder engagement workshops” to discuss various aspects of the program, including the prices and how they were determined.The first session began on March 17, 2009 and continued throughout the summer.The workshops were not legal proceedings, or quasi-legal proceedings. There was no cross examination, service lists, or the other trappings of formal regulatory proceedings.Because of space constraints, reservations were required, but the workshops were open to the public and anyone could address OPA’s staff and consultants. At the initial meeting there may have been more than 100 participants in attendance.OPA’s staff included engineers and attorneys. Its consultants included attorneys and engineers.The workshops were managed by a senior OPA economist.OPA created a web sited specifically for the Feed-in Tariff program, and for the workshops.Prior to each workshop, the working documents were posted and could be read on line or downloaded and read offline.The first or opening day’s documents were among the most thorough and concise documents on feed-in tariffs that I’ve seen-and I’ve seen a lot of them. See Archive: March 17 Session Info – Objectives of FIT Program for the opening documents.All assumptions were made public in the consultation documents. See Archive: April 7 Session Info – FIT price schedule (i.e., technologies, size, and prices) of the session on Tuesday, April 7, 2009.The only document that was kept proprietary was the spreadsheet financial model. This was widely criticized, but OPA would not release the model, probably because it was the consultant’s proprietary property.Each workshop was broadcast on the web and people could participate via a conference call-in feature.During each workshop, OPA would present the topic of the day, which was then followed by discussion.While attorneys were present, they did not dominate the discussion.The tone of the meetings was civil, polite, and oriented toward problem solving. There was very little grandstanding. Considering the big egos of some of the participants, this alone was surprising.Everyone who wished to speak had an opportunity to speak.Because the workshops were being broadcast, anyone who wished to speak had to wait their turn at a lectern with a microphone. There were two or three lecterns in the hall.Though there was no cross-examination, OPA and its consultants did ask questions of speakers for clarification.OPA’s staff and consultants took notes and the sessions were recorded.

Refinement

OPA took feedback from the stakeholder engagement workshops and revised various portions of the program as the workshops continued. To participants, this was evidence that the OPA workshops were being taken seriously and were not window dressing.Several key elements of the program were refined and reintroduced before the workshops were completed. These included the number of and size of tranches for several technologies, the length of contracts for hydro, the specific prices for many tariffs, and so on.An early indication that OPA and stakeholders were at the workshops to find solutions was OPA’s flexibility in adding groundmounted installations to the microFIT program. Stakeholders argued that some homeowners could not use the microFIT because it was restricted to rooftop installations and rooftops could be problematic. OPA then revised the program rules shortly after the workshop to add groundmounted systems to the microFIT tariff.By the end of August, the details of the program were in place, prices and terms fixed and other critical elements were shored up.Refinements continued into September and the program was formally launched in October.From the beginning of the stakeholder engagement to the program launch was about eights months.

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