Welcome to the Q1 2023 edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector between January and March (and the first days of April). As always, we scoured the regulatory landscape so that you can stay informed and ahead of the curve in this rapidly changing environment.
Ontario Energy Board
In January, the OEB released its long-awaited report arising from its Framework for Energy Innovation (FEI) consultation on integrating DERs into the distribution planning and operations, as well as the use of third-party owned DERs as non-wire alternatives. The FEI: Setting a Path Forward for DER Integration Report set out some initial OEB guidance, and laid out a multi-year implementation plan. The first part of the implementation plan involved the release of new Filing Requirements for electricity distributors who bring forward incentive mechanism applications for use of third-party DERs as NWAs.
On the innovation front, the OEB announced a call for submissions to its Innovation Sandbox Challenge, and released its Innovation Handbook, a compendium of existing OEB policies and materials related to innovative projects and proposals.
In a notable decision, the OEB approved a municipal franchise agreement between Enbridge and the County of Essex, finding that the previous 1957 agreement had expired as a result of the application of the rule against perpetuities.
In response to the Minister of Energy‘s Letter of Direction, the OEB instituted a consultation Distribution Sector Resilience, Responsiveness & Cost Efficiency, and held a first stakeholder meeting to discuss the contents of a draft report it had commissioned on the topic.
As part of its modernization work, the OEB issued:
- A Standard Issues List for electricity distribution rate applications.
- Revised Filing Requirements for electricity transmission leave to construct applications.
- Amendments to the Rules of Practice and Procedure, and aspects of the Practice Direction on Cost Awards, related to adoption of new intervenor forms.
- Updated performance standards for natural gas Quarterly Rate Adjustment Mechanism (QRAM) applications.
- The 8th edition of its Environmental Guidelines for the Location, Construction and Operation of Hydrocarbon Pipelines and Facilities in Ontario.
The OEB accepted 5 more Assurances of Voluntary Compliance (AVC) from electricity distributors (Alectra, North Bay Hydro, Enova, Newmarket-Tay, and Kingston Hydro), related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. AVCs were also accepted with an electricity retailer (XOOM Energy) regarding price disclosure issues, and two electricity wholesalers (Weyerhaeuser, Dyno Noel Nitrogen) who had been operating without a license.
There were several changes made to OEB’s Reporting and Record-keeping Requirements (RRR) for electricity distributors, including:
- New record-keeping requirements for equipment failure and changes to the definition major events, both arising from the ongoing Reliability and Power Quality Review.
- Reporting requirements to monitor implementation of the Ultra-Low Overnight Price Plan.
- Reporting requirements on non-net metered embedded generation and storage devices arising from the DER Connection Review.
- Other reductions, removals, enhancements, and additions.
Amendments to the Distribution System Code were proposed and finalized to further facilitate DERs through the elimination of certain capital allocation exemptions, capacity allocation deposits, and revised connection cost deposit refund processes and timelines.
As part of its continued work implementing recommendations from the Regional Planning Processes Advisory Group Report, the OEB issued a notice of proposal to amend the DSC and Transmission System Code (TSC), requiring transmission asset owners to provide certain end-of-life asset information to the IESO (via the lead transmitter in the regional planning process) to better facilitate more optimal investment planning.
Enhancements were announced to the OEB’s Activity and Program-based Benchmarking initiative through improvements to certain unit cost formulas.
As part of its Electric Vehicle (EV) Integration initiative, the OEB released the results of the survey of electricity distributors and EV charging service providers, which will be used to help inform the next part of its work in this area.
OEB Staff issued a Bulletin providing its view that electricity customers on the Regulated Price Plan, who are net metered, still have the ability to choose their pricing plans (time-of-use or tiered pricing). It also provided a letter setting out guidance on the calculation of cost apportionment for designated broadband projects under section 5(7) of Ontario Regulation 410/22.
As it relates to the Low-income Energy Assistance Program (LEAP) and Emergency Financial Assistant Program, the OEB extended the previously announced flexibility to two program requirements regarding program eligibility (needed to be in arrears, but no threat or actual disconnection, and can access program more than once a year). At the same time, the OEB returned the maximum annual grant amount back to $500 per household a year.
The Market Surveillance Panel issued its semi-annual monitoring report.
Independent Electricity System Operator
In late March, the IESO launched the Clean Energy Credit program. The Minister of Energy also wrote to the IESO in the lead-up to the launch, providing some guidance regarding his expectations, as well as noting that the Ministry of Energy was finalizing plans on how net revenues from sales of IESO and Ontario Power Generation CECs would benefit Ontario ratepayers and support new clean energy generation.
In early 2023, the Government announced the Hydrogen Innovation Fund and the Minister of Energy directed the IESO to administer it. The IESO has consulted on certain aspects of the program and issued the final documents in advance of the Application window opening at the beginning of April.
With respect to procurement, the IESO’s Expedited Long-Term (E-LT1) RFP submission deadline was February 16, 2023. Before the deadline, the Canadian Infrastructure Bank (CIB) proposed a uniform offer of investment to the Storage Category 2 proponents after the submission deadline. This was supported by the Minister of Energy. As a result, the IESO amended the proposal evaluation portion of the E-LT1 RFP. An announcement of selected proponents is expected in May/June. The IESO also began consultation on its upcoming Long-Term RFP (LT-1 RFP) that it is targeting for Q2 2024.
The IESO announced that it has finalized a 20-year agreement with Oneida Energy Storage LP. With the encouragement of the Minister of Energy, the IESO also entered into a new contract for regulation services with Ontario Power Generation’s Niagara Hydrogen Centre.
During the quarter, the IESO issued a number of reports as part of the regional planning process:
- Integrated Regional Resource Plan for the Northwest Region
- Toronto Region Scoping Assessment Outcome Report
- Ottawa Region Scoping Assessment Outcome Report
The Technical Panel recommended market rules amendments related to:
- The revised implementation date for the Replacement of the IESO Settlement System (subsequently approved by the IESO Board of Directors).
- Enabling the co-location of generation and storage facilities behind a single connection point (hybrid model) (subsequently approved by the IESO Board of Directors)
The IESO’s Board of Directors also approved previously recommended market rules amendments related to improving accessibility of operating reserve. They also approved the recommended change to the Technical Panel Terms of Reference.
At the request of the Minister of Energy, including by way of a directive, the IESO continued work and launched the Interruptible Rate Pilot. They undertook further consultation, finalized pilot rules and contracts, and received applications.
The Q1 2023 Reliability Outlook was released.
Legislative and Regulatory
On April 3rd, the Government of Ontario introduced Bill 91, Less Red Tape, Stronger Economy Act, 2023, which among other things would:
- Amend the Ontario Energy Board Act by: i) expanding the types of penalties or fines that are not eligible expenses for inclusion in rates for electricity and gas distributors and transmitters to include all those made under any legislation ii) allowing the OEB to exempt proponents that wish to undertake innovative projects from various license requirements on a time-limited basis.
- Amend the Oil, Gas and Salt Resources Act, by creating a process for the designation of special projects to test, pilot or demonstrate new or innovative activities, such as carbon storage.
In parallel with the introduction of Bill 91, the Government Ontario initiated consultations for each of these three legislative amendments (keeping penalties off rates, advancing innovation on Ontario’s energy sector, proposed changes to OGSRA to regulate test projects)
The Ministry of Energy launched a consultation seeking feedback on the findings of the IESO’s Pathways to Decarbonization Study, and in particular, the “no regrets” recommendations.
Government of Ontario issued, amended or proposed to amend a number of regulations, including:
- Amending Ontario Regulation 24/19 under the Ontario Energy Board Act, adjusting the amount of funding under the Natural Gas Expansion Program for the Hamilton Airport Regional Expansion project.
- Issuing Ontario Regulation 39/23 under the Electricity Act related to the Clean Energy Credits, defining energy sources for the purposes of the definition of environmental attributes, requirements and restrictions on the transfer of environmental attributes. The Government also amended Ontario Regulation 160/99 under the Electricity Act providing certain exemptions for when registration is required for contracts entered into before January 1, 2023.
- Issuing Ontario Regulation 25/23 under the Electricity Act (and revoked Ontario Regulation 507/18), setting out the energy reporting and CDM plans requirement for the broader public sector.
- Amending Ontario Regulation 410/22 under the Ontario Energy Board Act, to shorten timelines for electricity distributors that have to grant internet service providers permission to attach broadband infrastructure to electricity poles.
- Issuing Ontario Regulation 12/23 under the Electricity Act, prescribing rules for the issuance of administrative penalties by the Electricity Safety Authority.
- Proposing changes to regulations and policies under the Environmental Assessment Act, regarding the types of electricity transmission projects eligible to be included in a streamline EA process (Class EA or MTF Class EA).
- Proposing changes to Ontario Regulation 393/07, and if required the Electricity Act, to allow the Smart Metering Entity (SME) to collect and manage bi-directional data from smart meters.
Natural Resource Canada issued a Request for Information seeking input regarding regulatory, policy and market barriers and opportunities for accelerating the pace of electrification and electricity grid modernization.
- New Clean Electricity Investment Tax Credit – A 15% refundable tax credit available to both taxable and non-taxable entities (such as indigenous communities, crown corporations, publicly owned utilities, and pension funds) for eligible investments in non-emitting electricity generation systems (wind, solar, hydro, wave, tidal, and nuclear), abated natural gas-fired generation, stationary non-fossil fuel operation electricity storage systems, and equipment for electricity transmission between provinces/territories. Among other requirements, in order to access the tax credit in each province/territory, there will be a requirement for a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.
- New Investment Tax Credit for Clean Hydrogen – A refundable tax credit between 15-40% of eligible project costs based on the carbon intensity of clean hydrogen projection.
- Expanded eligibility of the Clean Technology Investment Tax Credit to include geothermal energy systems.
- Enhancements to the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit.
- Funding to recapitalize the Smart Renewables and Electrification Pathways Program and renewal of the Smart Grid Program.
- Canadian Infrastructure Bank investment of $20Bn in clean power and infrastructure priority areas.
- Consultation on the development by the Canada Growth Fund of the design of a Contract for Difference mechanism to backstop figure prices of carbon and hydrogen.
Shepherd Rubenstein News
Jay Shepherd will speaking on May 3rd at the 2023 Industrial Gas Users Association Spring Seminar on the role of utilities and regulators in getting industry to net-zero. Mark Rubenstein will speaking on May 10th, at the Electricity Canada 2023 Regulatory Forum on how to ensure that investments needed to be made to the electricity grid to meet net zero commitments are affordable for customers.
As always, if you have any questions, or think we can be of assistance to you or your organization, please do not hesitate to reach out to Mark Rubenstein at email@example.com.