Don't underestimate how easily a regulated industry can be disrupted by a little technology and a better price. Referencing Uber and the regulated taxi industry, that was one of the key messages that Peter Fraser, Vice President, Industry Operations and Performance, Ontario Energy Board (OEB), left his audience with at the Future of Canada's Utilities Summit in Toronto. Those are strong words from a senior executive at the organization responsible for regulating the electric power and natural gas industries in Ontario, a province with ten million people and the largest economy in Canada.
He went on to say that the electricity sector in Ontario is undergoing a profound change, an even bigger change than the introduction of the wholesale electricity market in the 1990s. He mentioned low carbon economy, new technologies to generate, transmit and distribute electricity, and the changing needs of their customers as the major drivers of this change that will reshape utilities. He said that regulators such as the OEB need to adapt regulation to this new world, including the way electricity is priced. Electricity needs to be priced in a way that increases system efficiency, gives customers the control they want including greener energy, and encourages innovation in an industry that has traditionally been focused on keeping the lights on with 100 year old technology.
New technology that is driving change includes solar PV, smart meters and other smart devices, and electric power storage. But the “secret sauce” behind all of this is the penetration of modern communications technologies such as wireless and packet switched networks into the electric power grid. Together these technologies are enabling microgrids, which Peter sees as an important part of the future for utilities.
Consumers, whose relationship with their power utility in the past has been a monthly bill, now expect a much more complex relationship with their utility. They expect to sell power to the utility, want to install their own power technology, want less fossil fuel generated power and will most likely use less power from the utility. Distributed renewable generation and a non-traditional demand curve are directly impacting utility revenue and forcing a change in the utility business model. Nearly every speaker at the event referred to the "duck curve" (graphic from CAISO) which shows demand dropping during the day as a result of customers generating their own power during the day, but which represents falling revenues for utilities who continue the traditional utility business model of selling electricity.
To begin to address the changing landscape of power generation and demand, the OEB has several initiatives underway. A OEB report released last November concluded that the Regulated Price Plan (RPP) in Ontario had been moderately effective in shifting residential load, but ineffective in shifting small business load. In response to the report the OEB is laying out a five-point plan to be implemented over the course of the next 3 to 5 years. The OEB intends to redesign the RPP roadmap to respond to policy objectives, improve system efficiency, and give consumers greater control. The five components of the new RPP roadmap are focussed on renewing the RPP objectives, empowering consumers by enhancing energy literacy and non-price tools, implementing price pilots, engaging with small business consumers, and working with government to reduce barriers.
The OEB will roll-out new price plans beginning in 12 months. The new RPP will reflect that distribution systems will have to change to accommodate more power coming from customers, that the demand for power demand for power is falling, but that the costs of utilities in maintaining the grid need to be covered.
What this will be mean for residential customers in Ontario is a fixed monthly charge for distribution services. This is similar to what other utilities such as Sacramento Municipal Utilities District (SMUD) are doing. For commercial and industrial customers the price of electric power will be determined by peak consumption, but price signals will allow customers to choose to shift their load to off-peak times. This potentially will be a win-win situation where customers reduce their electric bill and the utility benefits from a reduced peak load. The new price plan will also aim to encourage innovation. One of the areas where the OEB sees innovation occurring is behind the meter, where microgrids are expected to proliferate in the future.
As I have blogged about before, in the new world of electric power sometimes referred to as Grid 3.0, location will play a strategic role, as an essential component of "nowcasting" generation from intermittent sources such as solar and wind as well as increasingly granular demand estimation. It also provides the foundation for integrating data from smart devices, operational systems, and external data sources for real-time situational assessment.
In Ontario nearly all electricity customers have smart meters. Ontario is unique in North America in that all of the usage data from smart meters for the entire province, about 4.9 million residential and small business consumers, are stored in a central repository called the Smart Meter Entity (SME). To date little has been done to take advantage of this valuable repository of electricity usage data. The current database lacks some important information that would help make this data more useful. For example, currently it can't distinguish between residential and small business customers and it lacks location information. The OEB has asked the SME to collect postal code, type of consumer, and some other useful information. It also is being asked to anonymize that data so that it can be made available to third parties.
Attracting young people especially digital natives to the electric power has been challenging because in the past the power industry was not perceived as an exciting industry to be involved in. That is changing. Not only has new technology, especially digital technology, made electric power one of the most rapidly changing and exciting industries to be in, but it also means that utility employees are becoming agents of change with the potential to deliver social good. Power employees once again will be the good guys, as they were 100 years ago.
It looks like big changes are coming to the Ontario energy retail market, and they may be coming sooner that we expect.