Greening the natural gas industryAn IndEco article
By: Judy Simon
Over the last three and a half years, the Ontario Energy Board (“OEB” or “Board”) has focussed its efforts to “green” the Ontario natural gas utilities that it regulates in two main ways: through improvements to the Board’s environmental guidelines, and through the initiation of demand-side management (“DSM”) plans by the utilities. Each of these will be discussed in some detail.
What the OEB Does
The Ontario Government established the Ontario Energy Board in 1960 to regulate Ontario’s natural gas utilities. Under the Ontario Energy Board Act, R.S.O. 1990, c.0.13, the Board sets rates for the sale of natural gas, authorizes construction of hydrocarbon transmission lines, recommends the designation of underground storage areas for natural gas, and advises the Minister of Environment and Energy on general matters related to the natural gas industry. Any person or company planning to construct hydrocarbon transmission pipelines or to develop natural gas storage within Ontario, must apply to the Board for authorization. The exceptions are those projects that fall under the jurisdiction of the National Energy Board. In all its activities, the primary objective of the Board is to ensure that the public interest is served and protected.
Gas Industry Initiated Green Actions
Before describing the OEB’s “greening” activities, it is necessary to emphasize that Ontario’s gas utilities carry out a significant amount of “greening” activities on their own, without Board intervention. For illustrative purposes, a few of these activities are presented here.
The three largest Ontario natural gas utilities, Union Gas, Consumers’ Gas and Centra Gas, along with the Ontario Natural Gas Association participate in the Ministry of Environment and Energy’s Green Industry Strategy, and have completed an inventory of green initiatives for that purpose. The first North American high efficiency natural gas furnace, operating at 96% efficiency, was developed in Toronto at the Canadian Gas Research Laboratories. As well, the Ontario natural gas industry led North America in the development of the power-vented gas water heater and gas-fired baseboard heaters. Ontario also leads in the natural gas vehicle industry, with more fleet conversions (41) and more filling stations (60) than any other jurisdiction in North America. In addition, the industry has shown leadership in the development of advanced gas technology homes (e.g. Innova House, Hamilton’s NEAT House, Waterloo Green Home) and in the industrial use of natural gas in steelmaking, metallurgical applications, commercial cooling development and in the cogeneration industry.
The OEB Environmental Guidelines
The OEB first published its environmental guidelines, entitled “Environmental Guidelines for the Location, Construction, and Operation of Hydrocarbon Pipelines and Facilities in Ontario”, (“Environmental Guidelines”), in 1976. They were updated in 1984 and again in 1989. The Guidelines focus on the planning process for the identification and evaluation of routes and sites for hydrocarbon facilities, their mitigation and monitoring and Environmental Report review requirements. The Guidelines do not deal with the need for the facilities or their economic feasibility or design. These are matters that the utilities must cover in their filings to the Board and are reviewed by the Board. However, the Board does have separate guidelines for economic feasibility.
The 1995 version of the Environmental Guidelines will be out shortly. They contain six major changes from the 1989 version. The new Guidelines are broader, covering compressor stations, storage development and system plans. They require a strengthened planning process, including clear criteria to identify and evaluate routes and sites, a net effects analysis, and an explicit evaluation method for evaluating alternative routes and sites. The impact analysis now includes cumulative impacts and social impact assessment. Mitigation measures are more comprehensive; for example, they now cover wetlands protection, agricultural land preservation, mitigation measures specific to urban areas, tree preservation, and archeological surveys. Monitoring report requirements now include effects, effectiveness, and compliance monitoring, as well as complaint tracking and response systems reporting.
It should be pointed out that the Ontario Energy Board has always placed considerable importance on monitoring. The Board appoints a representative to inspect and ensure compliance with the terms and conditions of any Board order. The OEB inspector may consult with property owners to ensure their satisfaction with the construction and will make site visits to deal with landowner concerns or to do a spot check. Board Staff also visit sites one to two yeas after construction, resources permitting, to evaluate site restoration and determine the need for follow up actions by the utility. The Board expects the utility to have an environmental inspector for each construction project, to be well acquainted with the environmental material filed in support of the project, and to adhere to the commitments the utility made and the conditions imposed.
Finally, the new Guidelines contain more opportunities for public involvement including two mandatory points of consultation: one after the utility has identified preliminary routes and sites, and one after the utility has identified the preferred route/site and mitigation measure for it. However, the Board has also provided a third optional point of contact, after the preferred route but before the mitigation measures, and expects the utilities to take advantage of this opportunity depending on public concern and the complexity of the issues.
The Environmental Guidelines are just guidelines. They do not have the force of the law. The reason for this approach is that the Board has traditionally recognized the need for the utility to have some flexibility in planning and construction.
Why Natural Gas IRP in Ontario?
Integrated Resource Planning (“IRP”) means assessing together both the demand and supply options for meeting load requirements and choosing the mix of options with the least total cost; that is least societal cost. In 1992, in response to public concerns about the environment, the political will to respond, and in recognition of the high construction costs for new natural gas infrastructure, the OEB decided to take a close look at natural gas IRP through a phased approach. The Board held a hearing on DSM at the end of 1992 and issued guidelines on DSM in the Board’s 1993 report entitled “A Report on Demand-Side Management Aspects of Gas Integrated Resource Planning”.
Of note is that the natural gas utilities were carrying out DSM activities before these Board proceedings, largely as part of their normal marketing efforts. However, as a result of the Board’s DSM Guidelines, the Board expects the utilities to develop and implement formalized, aggressive DSM plans for Board review.
The Board expects the utilities to develop a DSM Plan in the following way: to develop an aggressive set of planning objectives, to carry out a thorough screening of potential DSM programs, to compare different DSM portfolios, and to select the preferred portfolio and submit it for Board review at the utility’s rates case. The screening process includes a Societal Cost Test, a Rate Impact Test, and a detailed examination of programs that have a rate impact, but may have other characteristics that are worthy of preservation in a DSM portfolio such as environmental benefits, breadth of class coverage, or avoidance of lost opportunities.
In 1995 the Board reviewed the introductory DSM plans from Union Gas, Centra Gas and Consumers’ Gas. The Board also reviewed a second DSM plan from Consumers’ Gas at its subsequent rates case. It is too early to tell at this point how successful DSM has been, especially since the utilities were only able to provide limited information on how they intend to monitor and evaluate DSM performance. However, the Board looks forward to the next round of DSM plans and some strong results.
The Externalities Collaborative
The first screen that the Board has adopted for potential DSM programs is the Societal Cost Test. All DSM programs must meet this test. It measures the overall net benefit of the program to society and includes assigning a dollar value to significant environmental and social costs – a process that economists refer to as monetizing externalities. In the OEB’s report on the DSM hearing, the Board asked Union Gas, Consumers’ Gas, and Centra Gas to form a Collaborative on Externalities and to make recommendations on what environmental and social impacts should be monetized and what the values should be. The Board expected the utilities to seek broad representation on the Collaborative, to seek consensus where possible, and to report to the Board in time for the 1995 rates cases.
The Board received the Collaborative Report, entitled “Final Report of the Collaborative on Externalities for Natural Gas Integrated Resource Planning in Ontario”, in September 1995. Active members of the Collaborative included representatives from the three utilities, Ontario Energy Board technical staff, environmental and consumer groups, independent power producers and major natural gas users, and the City of Toronto.
The Collaborative Report presented cost-of-control values for air pollutants such as NOx ($8500-$15000/tonne), VOCs ($3000-$7500/tonne), SO2 ($2100-$4800/tonne) and greenhouse gases (e.g. CO2 at $10-$60/tonne), but complete consensus was not reached on these. One party dissented and presented alternative values ($0/tonne) for greenhouse gases, but could not provide alternative values for the other air pollutants. The Board is now considering how to proceed to decide what, if any monetized values, should be included in the Societal Cost Test at this time.
Next Steps in IRP
The OEB is moving ahead on natural gas IRP. The next phase is underway. The Board is focussing on the supply side, with some limited integration of demand and supply side issues. The Board has developed an issues list in consultation with interested parties. Some key issues related to the environment that the Board intends to address include: determining the appropriate financial, societal and environmental costs and benefits to be included in evaluating gas systems expansions, how gas DSM should be considered in evaluating the need for a given expansion, and deciding whether the Board’s supply tests should be consistent with those that it mandated for DSM. As with DSM, the Board has asked what kind of guidelines it should issue on these matters.
The Ontario Energy Board continues to be committed to seeing Ontario’s natural gas utilities as leaders in and purveyors of energy efficiency and conservation. The Board also continues to be committed to protecting the environment through the approvals of pipelines and related facilities that the Board grants. The Board looks forward to year two of DSM plans and to monitoring the effectiveness of the 1995 Environmental Guidelines.