NEWS

Street and Sentinel Lighting:  Maintaining Ratepayer Protection

 

Issue

The Electrical Distributers Association is again attempting to gain access to the street and sentinel lighting market, through an amendment to O.R. 161/99.

Overview

S.71 of the OEB Act restricts LDCs from providing competitive energy services such as street lighting.  If an LDC wishes to provide such services, it must establish an arms-length affiliate.   There are reasonable exceptions, e.g. where it is financially impractical.

S.71 protects ratepayers and taxpayers from the effects of self-dealing and non-market deals, and protects contractors from the effects of unfair cross-subsidized competition from monopoly LDCs.

Street lighting services are readily procured in Ontario in a competitive energy services market that includes hundreds of contractors.  And in the two cases where LDCs have raised the issue, they have been unable to substantiate claims that suppliers are unavailable in the LDCs’ service areas.[1]

Since the enactment of s.71, a significant and growing proportion of street lighting work has been undertaken by private contractors.  For this reason, both the Ontario Electrical League and the International Brotherhood of Electrical Workers have stated their opposition to proposed changes.

Government has rejected all previous attempts

Several times over the past eight years, LDCs have had the opportunity to make their case before both the Ministry of Energy and the OEB. 

In 2007, and then again in 2010, after extensive consultations, LDCs were unsuccessful in convincing the Government to pass a similar amendment that would provide them access to the street lighting market.

The OEB, in no fewer than five cases, has clearly underscored the risks to ratepayers associated with granting LDCs unrestricted access to street lighting and other non-distribution markets.  And LDCs have repeatedly failed to demonstrate that adherence to these provisions results in any increased costs to ratepayers.

The OEB has also clearly determined that there is no connection between street lighting and electricity distribution, and there is no legal, structural or practical reason for distributors to engage this non-distribution activity.[2]

Effects of Eliminating the Affiliate Rule

Eliminating the separation between LDC and street light services would lead to:

• Loss of transparency:  LDCs can deal directly with municipalities, outside of any competitive tendering process, for providing street light services, resulting in “self-dealing” and non-market related transactions. How will ratepayers and taxpayers know they are getting a good deal and appropriate service standards?
• Unfair competition: LDCs can use ratepayer-financed labour, equipment and overhead to compete for street light work (marginal cost pricing of under-utilized resources) against contractors who must use market rates.
• Transfer of risk: A private contractor carries all the financial risk related to fulfilling their contracts. This risk will be transferred to ratepayers if LDCs perform the work.
• Reduction in competition: Direct dealing will lead to a reduction in the number of firms willing to compete for street light work, driving up prices.
• Loss of employment: The ultimate result of the above will be a net loss of employment as contractors are driven out of the market.

Finally, an amendment for street lighting will undermine the entire intent of s.71 and begin the unravelling of the affiliates relationship code.  This will compound these negative effects across all sectors of electrical construction and maintenance.

Energy Conservation

Recent (although not new) arguments by EDA have focused on the government’s objective of promoting energy conservation and efficiency, e.g. through the installation of LED lighting.

LDCs do not need to own or service street lights in order to provide energy efficiency programs targeting street lights, in the same way that they don’t need to own or service other customer equipment when providing efficiency programs relating to that equipment.  Indeed, there is an explicit provision in the law allowing them to initiate programs to promote energy conservation or efficiency in street lighting.  However, the OEB has made it clear that a street lighting service, in and of itself, is not a service that promotes these objectives.[3]

There is nothing to suggest that LDCs would be more or less inclined to install LED lighting if they could undertake the activity themselves.  The decision to undertake LED conversion is one that is largely removed from the specific delivery agent.