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Energy Regulatory Update (Q4, 2024)

Happy New Year! We’re excited to bring you the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a comprehensive quarterly summary of the incredibly busy period in Ontario’s energy sector. This issue highlights the flurry of regulatory activity and significant developments from October to December (and the first few days of January).

If you missed it, don’t forget to explore our special 2024 Year in Review edition, where we reflect on the major trends and milestones that shaped a dynamic and fast-paced year for energy policy and regulation in Ontario.

Ontario Energy Board

The OEB issued several notable decisions over the last few months, including:

In late December, the Minister of Energy and Electrification issued a new Letter of Direction to the Chair of the OEB for the upcoming year. The Letter of Direction sets out the Minister’s expectations and priorities for the OEB. These include, among others:

  • Providing input on the province’s Integrated Energy Plan (as well as plan implementation).
  • Implementing of the Keeping Energy Costs Down Act.
  • Considering how the ‘beneficiary pays’ principle can best be modified or applied to ensure:
    i) transmission/distribution infrastructure decisions account for probable future users, early and later beneficiaries, and other ratepayers, ii) utilities and their shareholders are kept whole, and iii) the potential for wasted costs or under-builds is minimized to protect ratepayers.
  • Work related to conservation and demand management, including: i) collaborating with the IESO and Enbridge to deliver a customer-focused, one-window platform for energy efficiency programs, ii) proposing an appropriate cost-sharing mechanism between the Global Adjustment and distribution rates, to fund the development and operation of new energy efficiency programs that provide both system and local distribution benefits, and iii) reducing barriers to LDC energy efficiency program activities.
  • Advancing work on electricity distributor reliability and resilience, non-wires alternatives, and regulatory efficiency.

The Minister of Energy and Electrification endorsed the recommendations of the OEB’s Report on System Expansion for Housing Developments. The OEB began implementing the most significant recommendation: extending the maximum connection horizon for housing developments from 5 to 15 years, and the revenue horizon for residential connections from 25 to 40 years. This was accomplished through the issuance of a Notice of Proposal to Amend the Distribution System Code (DSC), followed by a Final Notice incorporating stakeholder comments. The OEB also initiated a consultation and established an advisory group to develop a cost allocation model intended to facilitate large developments with multiple customers, or developers requiring system expansions. Additionally, OEB staff issued a Bulletin outlining expectations for distributors regarding the timely connection of new load customers.

The OEB initiated a consultation on Advancing Performance-Based Rate Regulation. In the short term, this consultation will explore adding performance incentives and mandates, while in the long term, it will consider more fundamental changes to the rate-setting approach. As part of the consultation, the OEB released a report to the Minister of Energy and Electrification on Utility Remuneration.

In response to the then Minister of Energy’s 2023 Letter of Direction requesting clear guidance for distributors on the need for publicly available electricity distribution capacity information, the OEB announced the Phase 1 implementation of capacity mapping, to be completed by March 2025. Additionally, OEB Staff issued a Bulletin regarding distributor obligations to provide access to specific forms and information related to the connection of DERs to their systems.

The OEB made progress and completed work as part of its initiatives related to electricity distribution sector resilience and responsiveness, including:

The OEB issued the 2025 Cost of Capital Parameters. However, as a result of the ongoing Generic Hearing on Cost of Capital, they were set on an interim basis. The OEB also issued preliminary 2025 Unconfirmed Transmission Rates (UTRs).

As part of its Review of the Consumer Protection Framework for Customers of Unit Sub-Meter Providers, undertaken in response to the 2022 Auditor General Report, the OEB released its Final Report and issued a Notice of Proposal to Amend the Unit Sub-Metering Code to increase consumer awareness.

The OEB held its annual Policy Day, and both the CEO and Chief Commissioner released their Mid-Year Report.

To help inform the assessment of Enbridge’s next gas DSM program application (filed in late November), the OEB released its 2024 Natural Gas Achievable Potential Study, prepared by Guidehouse.

The OEB issued an updated version of its Ontario Cyber Security Standard that requires distributors and transmitters to complete periodic independent cyber security assessments.

In early January 2025, after considering stakeholder feedback on its proposal for an Electric Vehicle Charging (EVC) Rate, the OEB issued a draft report on it for comment.

Independent Electricity System Operator

In October, the IESO released updated electricity demand forecasts as part of its upcoming 2025 APO. The IESO now forecasts that electricity demand will grow by 2.2% annually, resulting in a 75% increase by 2050. Medium-term peak capacity projections were also adjusted upward, with summer and winter peaks increasing by 700 MW and 900 MW, respectively. By 2025, peak demand is expected to rise by 50–60% compared to previous forecasts for the same year. The IESO attributes these upward revisions to increased electrification in the commercial sector, growth in data centers, and the expansion of EV production and supply chains.

With respect to its procurement activities, the IESO continued consultations regarding the planned Long-Term 2 RFP (LT2 RFP). In mid-December, the Minister of Energy and Electrification issued a procurement directive that, among other things, directed the IESO to proceed with the LT2 RFP using a multiple-window approach. This approach targets a total of 14 TWh through the energy stream and 1,600 MW through the capacity stream. The IESO is targeting 3 TWh of energy and 500 MW of capacity as part of its first window, with a submission deadline in Q3 2025. The Minister also announced an increase in the broader procurement capacity target, raising it from 5,000 MW to 7,500 MW in response to updated demand forecasts included in the upcoming 2025 APO. Additionally, the IESO was directed to report back by the end of April with options for procuring long-lead-time resources, as well as a program to re-contract existing small-scale, distribution-connected generation and acquire new resources. The IESO also completed its annual Capacity Auction, procuring 2,122 MW of capacity for summer 2025 and 1,525 MW for winter 2024/2025.

The IESO Board of Directors approved the final alignment batch of market rule amendments to implement the Market Renewal Program (MRP). However, several non-quick-start natural gas generators filed an application with the OEB seeking a review of these MRP market rule amendments. The Application requests that the amendments be revoked and sent back to the IESO for reconsideration. The statutory deadline for the OEB to decide on the Application is March 6, 2025.

In October, the Minister of Energy and Electrification wrote to the IESO regarding work to ensure a smooth transition from the current 2021-2024 CDM Framework to the new Energy Efficiency Framework, which was under development. The IESO also released the 2023 CDM Results.

The IESO released both a new External Relations Engagement Framework and its first Indigenous Engagement Framework.

The IESO Exemption Panel approved an exemption request from Algoma Steel for sections 2.4A of Chapter 9 of the Market Rules, allowing its new electric arc furnace non-dispatchable load facilities to be settled on a net basis when generation from a self-scheduling co-generation facility is used to offset its load. The Exemption Panel also approved an exemption reconsideration application from Gerdau Steel, regarding several Market Rules due to the variable consumption patterns of its electric arc furnaces.

A settlement agreement was reached between the IESO and Hydro Ottawa regarding the utility’s failure to comply with certain meter-related obligations under the Market Rules.

The January 2025 to June 2026 Reliability Outlook was released.

In early January 2025, the Ontario Government announced a new 2025-2036 Energy Efficiency Framework (Enhanced DSM (eDSM) Framework) to be launched by the IESO. The new 12-year framework budgeted and approved through a procurement directive, will cost a total of $10.9 billion, with each 3-year eDSM plan costing $3.2 billion. The framework includes 12 continuing or expanding programs and 2 new programs, the Home Renovation Savings Program and Small Business Peak Perks. Notably, the framework features an expanded Local Initiative Program and a requirement to deliver residential and low-income programs with Enbridge Gas through a single delivery window. The Ontario Government also directed the IESO to implement beneficial electrification measures to promote electrification and the use of electricity to reduce emissions.

Legislative and Regulatory

The Minister of Energy and Electrification released the government’s energy vision document, Ontario’s Affordable Energy Future: The Pressing Case for More Power, which highlights priorities across three themes: planning for growth, affordable and reliable energy, and becoming an energy superpower. These priorities aim to achieve the vision of an affordable, reliable, and clean energy economy. The Minister also announced the intention to create Ontario’s first integrated energy resource plan, which is set to be developed and released in 2025.

The Ontario Government also introduced and passed Bill 214, the Affordable Energy Act, 2024. The legislation:

Concurrently, the Ministry of Energy and Electrification undertook a consultation regarding its new authority under Bill 214, to amend the DSC and TSC for potential changes to cost responsibility for certain electricity system connection infrastructure in high-growth areas.

The Ministry of Energy and Electrification also conducted several significant public consultations on the following topics and policy areas:

The Ontario Government issued a directive declaring the planned transmission line from Wawa TS to Porcupine TS as a priority project and designating Hydro One as the transmitter. They also announced that it had asked OPG to begin discussions with Indigenous, community, and municipal leaders regarding the potential use of its existing sites (Wesleyville, Nanticoke, and Lambton) for new generation facilities.

The Ministry of Energy and Electrification proposed amendments to Ontario Regulation 328/03 under the Ontario Energy Board Act, broadening the circumstances in which the OEB can determine that leave to construct is not required for pipeline relocation or reconstruction. This includes projects supporting priority transit initiatives and projects by road authorities, provided the remaining conditions set out in section 3 of the regulation are met.

As part of its 2024 Ontario Economic Outlook and Fiscal Review, the Ontario Government announced measures to incent distributor consolidation. It will extend the municipal electricity utilities Transfer Tax reduction and the elimination of capital gains arising from the departure tax to the end of 2028. As part of this extension, they also proposed expanding the eligibility for the zero Transfer Tax rate to all MEUs, regardless of size (currently limited to those with fewer than 30,000 customers). The changes were implemented through amending Ontario Regulations 124/99 and 162/01.

The Ontario Government also introduced Bill 228, the Resource Management and Safety Act, 2024. The legislation would enact a new Geologic Carbon Storage Act, 2024, that would enable regulation of commercial-scale carbon storage.

Federal Government

The Federal Government released its Clean Electricity Strategy, outlining current and planned actions to support a decarbonized and expanded electricity grid. The Wah-ila-toos Indigenous Council also released its final report.

The Ministers of Environment and Climate Change Canada issued the final Clean Electricity Regulation (CER), which included several significant changes. However, the regulations do not appear to address all the concerns previously raised by the IESO regarding their implications for Ontario. Before the CER was finalized, the Minister of Energy and Electrification sent a letter to the relevant federal ministers. The letter cited the IESO’s analyses, which indicated that the regulations would impose steep costs on Ontario ratepayers for the necessary replacement generation and transmission infrastructure.

As part of the Fall Economic Statement, the Federal Government announced the launch of the Canada Indigenous Loan Guarantee Corporation. It also announced that it will soon introduce legislation to deliver the previously announced Clean Electricity Investment Tax Credit, which will be retroactive to April 16, 2024, for projects that did not begin construction before March 28, 2023. For provincial and territorial Crown corporations, access to the tax credit will be available by June 30, 2025, provided they, i) publicly commit to publishing an energy roadmap to achieve net-zero emissions by 2050, inclusive of all energy sources, by the end of 2026, and, ii) publicly request that provincial and territorial Crown corporations pass on the benefits of the Clean Electricity Investment Tax Credit to electricity ratepayers in their province or territory. The Federal Government is also exploring changes to the threshold in the Income Tax Act that currently limits municipally owned utility corporations from attracting more than 10 percent private sector ownership.

The Nuclear Waste Management Organization (NWMO) announced its selection of the Township of Ignace and the Wabigoon Lake Ojibway Nation as the site for Canada’s deep geological repository for used nuclear fuel.

The Canadian Nuclear Safety Commission (CNSC) approved OPG’s application to operate Pickering units 5 to 8 until the end of 2026.

Judicial

The Ontario Court of Appeal granted leave to appeal the Divisional Court’s 2022 decision in West Whitby Landowners Group Inc. v. Elexicon Energy Inc., which concerned the availability of judicial review of an OEB opinion on whether a specific project was primarily an expansion or enhancement under the DSC, and the ability to challenge the OEB’s assessment of a complaint. In granting leave to appeal, the Court of Appeal commented that “there is no secret that both the federal and provincial governments are pursuing polices to promote much greater use of electricity in the economy” and the “Ontario government is pursuing an aggressive policy to support the construction of more residential accommodation, including subdivision project.”“ It found that on that basis “the question of whether some decisions of the state actor responsible for regulating the allocation of costs associated with the greater use of electricity are immune from judicial review is one of great public importance.”

Other

Hydro One announced that it (via Hydro One Networks Inc.) has entered into an agreement to purchase the respective interests of OMERS (via OMERS Infrastructure Management Inc.) and Enbridge Inc. (via Enbridge Transmission Holdings Inc.) in the East-West Tie LP,  who own and operate the East-West Tie Line.

The North American Electricity Reliability Corporation (NERC) released its 2024 Long-Term reliability Assessment.

What We Are Reading

Clean Prosperity’s Powering Up: Solutions for Electricity Distribution Finance in Ontario report, Pollution Probe’s Achieving Reliability in a Future Ontario Power System Action Plan (and the companion Power Advisory Net Zero Reliability Initiative Report), Professor Schaufele’s article How Confident Should We Be in Ontario’s Electricity Demand Forecast, and Power Advisory’s From Small to Mighty: Unlocking DERs to Meet Ontario’s Electricity Needs report.

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 mark@shepherdrubenstein.com.

Click here for a pdf version.

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SR Update

2024 Energy Regulatory Year in Review

Happy Holidays! It has been an eventful year for Ontario’s energy sector. With growing demand, new resource procurements, the release of a highly anticipated expert panel report, a government vision document, two major pieces of legislation, and a wave of new policies, consultations, and regulatory decisions, have brought significant change to energy regulation and policy.

As the year winds down, we’re excited to share the key themes and regulatory developments that, in our view, shaped 2024 in this special Year in Review edition of the Shepherd Rubenstein Energy Regulatory Update.

1. Increasing Demand

Almost all the key themes discussed below are fundamentally driven by the forecast increase in electricity demand in Ontario, spurred by electrification, population growth, and commercial load expansion.

In April, the IESO released its 2024 Annual Planning Outlook (APO), forecasting electricity demand to grow by approximately 2% annually, culminating in a 60% increase by 2050. The 2024 APO also indicated a shift from summer-peaking to dual-peaking by 2030, alongside a growing capacity deficit expected to reach approximately 23 GW by 2050.

Those forecasts were revised in October when the IESO released updated forecasts as part of its upcoming 2025 APO. The IESO now forecasts electricity demand will grow by 2.2% annually, resulting in a 75% increase by 2050. Medium-term peak capacity projections were also adjusted upward, with summer and winter peaks increasing by 700 MW and 900 MW, respectively. By 2025, peak demand is expected to rise by 50–60% compared to previous forecasts for the same year. The IESO attributes these upward revisions to increased electrification in the commercial sector, growth in data centers, and the expansion of EV production and supply chains.

2. Resource Procurement

The significant resource procurement activity that began in 2023 intensified in 2024.

As part of the first phase of its Resource Adequacy Framework, the IESO announced the results of its Long-Term 1 RFP (LT1 RFP) procurement process, targeting capacity between 2026 and 2028. The IESO procured 1,784 MW of storage capacity at a weighted average price of $673.32/MW (per business day) and 411 MW of non-storage capacity (almost exclusively natural gas generation).

The IESO engaged stakeholders on its planned Long-Term 2 RFP (LT2 RFP), which will feature both energy and capacity streams, as well as a Long Lead Time (LLT) resources stream. The LT2 RFP energy stream will use the Enhanced Power Purchase Agreement (E-PPA) revenue model. To inform the design of the LLT procurement, the IESO launched a Request for Information (RFI) focused on long lead time resources, specifically long-duration storage and hydroelectric generation. Recognizing the significant impact of the LT2 RFP on potential projects, the then Minister of Energy and the Minister of Agriculture, Food, and Rural Affairs jointly wrote to the IESO outlining policy considerations for energy projects on agricultural land. The Mid-Term 2 (MT2) RFP, targeting existing resources, was accelerated to precede the LT2 RFP, with submissions due in early January 2025.

In mid-December, the Minister of Energy and Electrification issued a procurement directive, that among other things, directs the IESO to move forward with the LT2 RFP with a multiple-window approach, targeting a total of 14 TWh through the energy stream and 1,600 MW through the capacity stream. The IESO is targeting 3 TWh of energy and 500 MW of capacity as part of its first window, with a submission deadline in Q3, 2025.

The Minister also announced an increase in the broader procurement capacity target, raising it from 5,000 MW to 7,500 MW, in response to updated demand forecasts as part of the upcoming 2025 APO. Additionally, the Minister directed the IESO to report back by the end of April with options for procuring long-lead time resources, as well as a program to re-contract existing small-scale distribution-connected generation and acquire new resources.

The IESO is still assessing two pump storage projects in Meaford (TC Energy and Saugeen Ojibway Nation) and Marmora (OPG and Northland Power), which were previously deemed less favorable than other alternatives. In January, the then Minister of Energy directed the IESO to collaborate with other ministries and project proponents to evaluate the broader social and economic benefits of these projects. The Minister also requested the Ministry of Energy to work with the OEB and project proponents on cost recovery mechanisms for his consideration.

Additionally, the IESO was directed to extend the contracts of the Atikokan and Hornepayne biomass generating stations.

Hydroelectric generation also saw notable developments. In addition to the IESO RFI, the Small Hydro Program was modified to allow the aggregation of contracts. At the Minister’s request, the IESO began engaging stakeholders to design a Northern Hydro Program (NHP), focused on re-contacting large existing hydroelectric facilities. The Minister of Energy and Electrification also announced the Government’s support for Ontario Power Generation’s (OPG) plans to refurbish the Sir Adam Beck, R.H. Saunders, and several other Eastern Ontario hydroelectric stations.

3. Planning To Do Integrated Planning

This year may be remembered as the year of planning for integrated planning.

It began with the release of the Electrification and Energy Transition Panel’s (EETP) final report, Ontario’s Clean Energy Opportunity. This comprehensive report outlines a recommended path for Ontario’s transition to a clean economy, guided by seven key principles. It also includes 29 specific recommendations across five areas: planning for electrification and the energy transition, governance and accountability, true partnerships with Indigenous partners, innovation and economic development, and consumer, citizen, and community perspectives.

In the fall, the Government released its energy vision document, Ontario’s Affordable Energy Future: The Pressing Case for More Power, which highlights priorities across three themes: planning for growth, affordable and reliable energy, and becoming an energy superpower, to achieve its vision of an affordable, reliable, and clean energy economy.

The vision document was followed up by the Government’s introduction and passage of Bill 214, the Affordable Energy Act. This legislation amends the Electricity Act, creating a legislative framework for the proposed integrated energy plan and outlining its goals and objectives. Simultaneously, the Minister of Energy and Electrification launched a consultation process for the integrated energy plan, expected to be released in early 2025.

A component of an integrated energy plan is conservation. The IESO was tasked with preparing a new electricity efficiency framework that is more enduring and has a longer timeframe than previous models. The Ministry of Energy and Electrification conduced a consultation on the framework and its delivery model, and then issued a procurement directive approving an Enhanced DSM (eDSM) Framework which will begin in 2025 and run through 2036, and have a budget of $10.9B. The initial 3-year eDSM plan will have a budget of $3.2B. Bill 214 also includes amendments to the Electricity Act that authorize the IESO to administer programs supporting beneficial electrification, aimed at promoting electrification and reducing emissions. Concurrently, the Ministry launched consultations on a proposed beneficial electrification program designed to coordinate with energy efficiency programming. In terms of natural gas conservation, the OEB released its Achievable Potential Study, and Enbridge has filed its proposed 2026-2030 demand-side management plan.

The Federal Government has launched its Clean Electricity Strategy, outlining current and planned actions to support a decarbonized and expanded electricity grid.

4. Role of Natural Gas

The Ontario Government’s response to the OEB’s Phase 1 Decision in Enbridge’s 2024-2028 rate application, as well as the broader question of the role of natural gas in the Ontario energy system, was a major focus of the energy regulatory and policy discussions this year.

Just before the 2023 holidays, the OEB released its Phase 1 Decision. As part of that complex decision, the OEB ordered (with one commissioner dissenting) that, beginning in 2025, all new low volume connecting customers would bear their connection costs upfront. Unhappy with the decision to set the customer connection revenue horizon to zero, on the grounds that it would increase the costs of constructing new homes, the then Minister of Energy announced the day after the decision was released, that the Government would use its authority to pause the decision and introduce legislation to reverse it. Shortly thereafter, in January, Enbridge filed both a motion to review and a notice of appeal regarding the Phase 1 Decision, including with respect to other aspects.

In February, the Government followed through on its promise, introducing and later passing Bill 165, the Keeping Energy Costs Down Act, 2024, which overturned the OEB’s determination on the revenue horizon issue. Among other provisions, authorized the Government to regulate the revenue horizon used by the OEB when setting natural gas distribution rates, at least until the earlier of January 1, 2029, or a generic hearing, which Bill 165 gave the Government authority to mandate. After the legislation received royal assent, the Government issued a regulation maintaining the status quo revenue horizon of 40 years for small volume customers and 20 years for others.

Bill 165 also authorized the Minister to issue directives requiring the OEB, in considering leave to construct applications for natural gas transmission or distribution/transmission pipelines, to mandate that all customers bear the full cost of the line without requiring the payment of any capital contribution or surcharge. The legislation included a specific provision addressing orders made between the introduction of the legislation and the end of 2024, clearly aimed at the Enbridge Panhandle Reinforcement Project proceeding, where several intervenors had raised the issue of capital contributions. Ultimately, the OEB approved the project and rejected (in a split decision) the imposition of capital contributions on new large connecting customers.

The legislation, along with other pronouncements, such as those included in the Affordable Energy Future vision document, has signaled the Ontario Government’s support for the natural gas system. It indicated that it would include a Natural Gas Policy Statement as part of its integrated energy plan to “provide clear direction on the role of natural gas in Ontario’s future energy system” which it is currently consulting on.

To speed up the regulatory process of certain natural gas infrastructure, the Government through Bill 165 and subsequent regulations, exempted hydrocarbon pipeline projects from the leave to construct requirements if the project cost is no more than $10 million and the OEB determines that the duty to consult has been adequately discharged. Additionally, the regulation limited when leave to construct approval from the OEB is required for the relocation or reconstruction of hydrocarbon lines and is consulting on further broadening these exemptions.

The OEB approved the Settlement Proposal in Phase 2 of Enbridge Gas’s 2024-2028 rate application, which represented a substantial agreement on the company’s 2025-2028 rate framework.

Regarding electricity generation, the IESO secured 410 MW of additional natural gas generation as part of the LT1 RFP. The Ontario Government has also pushed back against the Federal Government’s draft Clean Energy Regulations (CER), which would impose significant restrictions on natural gas generation. Earlier this year, Environment and Climate Change Canada released a public update report on the draft CER. The report summarized feedback it had received and proposed changes for further comment. The IESO submitted comments on the draft CER, and in late November, the Minister of Energy and Electrification sent an additional letter to the relevant Federal Ministers. The letter cited IESO’s analyses indicating that the regulations would impose a steep cost on Ontario ratepayers for the necessary replacement generation and transmission infrastructure. In mid-December, the Environment and Climate Change Canada issued the final CER, which did include several significant changes. However, they do not appear address all the concerns the IESO had raised regarding the implications for Ontario.

5. Nuclear Renaissance

It has been another big year for nuclear.

The Ontario Government announced its support for OPG’s plan to proceed with the initiation phase of the refurbishment of the Pickering Nuclear Generating Station’s B units (5-8).

 Bruce Power filed its initial project description with the Impact Assessment Agency of Canada (IAAC) for Bruce C, marking the beginning of the federal impact assessment process. Earlier in the year, the then Minister of Energy issued a directive to the IESO to enter into a funding agreement with Bruce Power to support a portion of the IAAC process.

The Nuclear Waste Management Organization (NWMO) announced its selection of the Township of Ignace and the Wabigoon Lake Ojibway Nation as the site for Canada’s deep geological repository for used nuclear fuel.

The Canadian Nuclear Safety Commission (CNSC) determined that OPG’s existing environmental assessment approval for a new nuclear facility applies to its proposed Darlington Small Modular Reactor (SMR) project. The CNSC also began hearings on OPG’s application for a licence to construct the first SMR (BWRX-300) reactor. Additionally, the CNSC approved OPG’s application to operate Pickering units 5 to 8 until the end of 2026. Pickering Unit 1 was shut down earlier this fall, and Unit 4 is expected to be shut down by the end of the year.

In late November, the Ministry of Energy and Electrification announced that the Government had asked OPG to begin discussions with Indigenous, community, and municipal leaders regarding the potential use of its existing sites (Wesleyville, Nanticoke, and Lambton) for new generation facilities, including potentially for new nuclear.

Nuclear power is also expected to play a major role in the Ontario Government’s upcoming integrated energy plan. As part of Bill 214, the Government explicitly required that one of the plan’s goals and objectives is “the prioritization of nuclear power generation to meet future increases in the demand for electricity”.

6. Evolving Distribution Sector

New technologies, the energy transition, and electrification are driving an evolution in the distribution sector.

Each was front and center in Toronto Hydro’s 2025-2029 Custom IR applications, which resulted in an OEB approved comprehensive settlement.

The OEB continued its efforts to encourage the use of non-wires solutions (NWS) by distributors as cost-effective alternatives to traditional infrastructure investments. It issued its Non-Wires Solutions Guidelines for Electricity Distributors (NWS Guidelines), replacing the existing CDM Guidelines for electricity distributors. The new guidelines reflect developments since 2021 and acknowledge that NWS addressing system needs can include a broader range of solutions beyond traditional CDM. Additionally, the OEB finalized Phase 1 of its Benefit-Cost Analysis (BCA) Framework for Addressing Electricity System Needs. Starting with applications filed in 2026, the BCA Framework will apply to all electricity distribution capital investments greater than $2 million.

The OEB is also considering changes to its rate-setting framework, starting with distributors. In response to last year’s Letter of Direction, it submitted a report to the Minister of Energy and Electrification, concluding that utilities’ remuneration based on traditional capital infrastructure deployment remains the most cost-effective model. Following this report, the OEB launched its Advancing Performance-Based Rate Regulation consultation. In the short term, this consultation will explore adding performance incentives and mandates, with the long-term goal of considering more fundamental changes to the rate-setting approach. Additionally, the OEB initiated a review of its Incremental Capital Module (ICM) Policy.

As part of its broader Distribution Sector Resiliency, Responsiveness, and Cost Efficiency (DRRCE) initiative, the OEB launched its Vulnerability Assessment and System Hardening (VASH) project. The VASH project aims to incorporate climate resiliency into asset and investment planning, regularly assess system vulnerabilities during severe weather events, and prioritize value for customers when investing in resilience-focused system enhancements.

With the increased use of electric vehicles (EVs), the OEB finalized amendments to the Distribution System Code (DSC) to facilitate the connection of EV infrastructure. These changes included the creation of standardized Electric Vehicle Charging Connection Procedures and a requirement for distributors to include a separate index for EV connections in their Conditions of Service. OEB Staff also released a discussion paper for comment, proposing a reduced Retail Transmission Service Rate (RTSR) for public EV charging stations with low load factors.

To facilitate DER adoption, the OEB amended the DSC to enable electricity distributors to provide flexible hosting capacity arrangements and provided guidance for the phased implementation of new requirements for distributors to publish capacity information maps.

On the innovation front, the OEB updated its Innovation Handbook and approved, with modifications, Essex Powerlines’ request to establish a new deferral account for recording costs related to energy and capacity payments for participants in its PowerShare Distribution System Operator pilot project. However, the OEB also rejected Toronto Hydro’s proposed Innovation Fund citing a number of deficiencies. The IESO issued the final Evaluation Report for the York Region Non-Wires Alternatives Demonstration Project.

7. Indigenous Participation and Engagement

There was increased recognition of the importance of Indigenous economic participation and engagement in the energy sector.

A significant portion of the EETP’s Report focused on advancing meaningful Indigenous participation and partnerships in the energy sector, including several specific recommendations. The Affordable Energy Future vision document also highlighted the importance of Indigenous leadership and participation in energy planning. Similar emphasis was reflected in the work of the Federal Ministerial Working Group on Regulatory Efficiency for Clean Growth Projects, the Canada Electricity Advisory Council, and in the Federal Government’s Powering Canada’s Future: A Clean Electricity Strategy.

As part of the IESO’s development of a Transmission Selection Framework, it proposed requiring proponents to demonstrate Indigenous participation. The Ontario Government also announced that, as part of OPG’s discussions with Indigenous leaders regarding the potential for new generation facilities at three of its existing sites, it would include considerations for how those communities could be supported through equity participation.

There were high levels of Indigenous participation in the LT1 RFP, with 9 of the 10 successful storage projects involving at least 50% First Nations equity participation. LT2 RFP will similarly include rated criteria for projects with Indigenous participation.

In its 2024 Budget, the Federal Government announced up to $5 billion for a new Indigenous Loan Guarantee Program to support energy and natural resource projects. As part of the Fall Economic Statement, the Federal Government followed up with an announcement the launch of the Canada Indigenous Loan Guarantee Corporation. Barriers to Indigenous participation were also raised in the context of the OEB’s generic hearing on the cost of capital.

In terms of Indigenous engagement and consultation, the IESO issued its first Indigenous Engagement Framework. The OEB sought feedback from Indigenous communities and organizations, as well as natural gas utilities and other stakeholders, on proposed revisions to its Environmental Guidelines for the Location, Construction, and Operation of Hydrocarbon Projects and Facilities in Ontario regarding Indigenous consultation requirements. Additionally, the Federal Government’s 2024 Budget announced the establishment of a Crown Consultation Coordinator.

8. Intersection Between Energy and Housing Policy

Over the past year, the Ontario Government has implemented energy policy changes to advance its broader goals of increasing housing supply and enhancing affordability.

In response to a request included in the Minister of Energy’s 2023 Letter of Direction, the OEB undertook a consultation to review electricity distribution system expansion policies for housing developments, with a focus on connection and revenue horizons. Each of the resulting recommendations included in the OEB’s report was endorsed by the Minister of Energy and Electrification.

The OEB has begun implementing the most significant recommendation by issuing a Notice to Amend the Distribution System Code. This amendment would extend the maximum connection horizon for housing developments from 5 to 15 years, and extend the revenue horizon for residential connections from 25 to 40 years. Additionally, the OEB initiated a consultation process and established an advisory group to develop a cost allocation model. This model aims to allocate costs in cases where significant initial system expansion into a development area is required, and the associated costs are borne solely by the initial connecting customers.

As part of Bill 214, the Government gained new authority regarding the Transmission System Code (TSC) and the DSC. This includes the ability to issue regulations specifying amendments to the DSC or exempting entities from its application, particularly regarding cost allocation and cost recovery for new infrastructure as part of the distribution system. The Minister of Energy and Electrification’s consultation on these regulations also focused on addressing ‘first mover’ costs on the distribution system. It also examined the assurances distributors need to build certain facilities in anticipation of growth, even when not all capacity has confirmed customers.

9. Transmission

Not as high-profile as many other themes in 2024, but there were important regulatory developments throughout the year regarding the transmission system.

The OEB granted leave to construct Hydro One’s proposed Waasigan Transmission Line and St. Clair Transmission Line (Lambton TS to Chatham SS). The Ministry of Energy and Electrification declared the planned transmission line from Wawa TS to Porcupine TS a priority project and designating Hydro One as the transmitter.

There was significant focus on connection costs. The OEB launched a review of the connection-related sections of the Transmission System Code (TSC) and formed a working group. As part of Bill 214, the Government now has the authority to pass regulations amending the TSC, or exempting entities from its application concerning cost allocation and cost recovery for the construction, expansion, and reinforcement of the transmission system. The Minister of Energy and Electrification consulted on developing these regulations, which aim to reduce costs for ‘first movers’ and provide transmitters (and distributors) with the assurances needed to build certain connection infrastructure.

The OEB also handled several single-asset transmitter rate applications. It approved three settlement proposals (B2M LP, Niagara Reinforcement LP, and Chatham x Lakeshore LP), establishing a new 5-year revenue requirement framework for single-asset transmitters. Additionally, it approved a rate adjustment application brought by Upper Canada Transmission 2, which operates the East-West Tie Line. This approval included a $30 million disallowance related to project cost overruns, primarily due to the COVID-19 pandemic.

As part of implementing last year’s Powering Ontario’s Growth, the IESO completed its engagement to develop a Transmission Selection Framework in preparation for its required report to the Minister of Energy and Electrification in September. The IESO proposed that for certain projects it would conduct an RFP among qualified bidders. The successful proponent would be awarded a partial contract running until shortly after commercial operations begin. This partial contract would cover design, construction, and a fixed level of O&M costs, which would then be included in an OEB cost of service application. Additionally, some or all of the post-commercial revenue would be fixed via contract.

10. Market Renewal Program Implementation

We are now just months away from the scheduled implementation of the Market Renewal Program (MRP) in May 2025.

This past year, the Technical Panel unanimously recommended approval of the final alignment batch of market rule amendments to implement the MRP. This followed the IESO making several substantive changes to the market rules and manuals, including the establishment of a Market Power Mitigation Working Group. The market rules amendments were subsequently approved by the IESO Board of Directors.

The IESO has spent much of the year focusing on market participant readiness. The OEB has also prepared for the implementation of the MRP, issuing a letter outlining expected amendments to various codes, and provided draft accounting guidance related to commodity pass-through accounts.

However, the implementation schedule is now in doubt. In November, several non-quick start natural gas generators filed an application with the OEB seeking a review of the MRP market rule amendments. The application requests that the amendments be revoked and sent back to the IESO for reconsideration. The statutory deadline for the OEB to decide on the application is March 6, 2025.

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 mark@shepherdrubenstein.com.

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SR Update

Energy Regulatory Update (Q3, 2024)

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between July and September.

Ontario Energy Board

The OEB issued a number of notable decisions, including:

A consultation was launched to review and evaluate the Incremental Capital Module (ICM) Policy.

To reflect changes to policies and other guidance documents since its release, the OEB released an update to its Innovation Handbook.

The OEB held a stakeholder session to seek feedback on the implementation of two possible alternative pricing plans for Non-RPP Class B Customers. As part of its Transmission Connection Review, the OEB announced the members of working groups and an issues list.

Final amendments to the Distribution System Code (DSC) and Transmission System Code (TSC) were issued requiring utilities to comply with the new Ontario Cyber Security Standard.

The OEB issued updated Filing Guidelines for Ontario Power Generation payment amount application. They also issued new filing requirements of applications for exemptions from the requirement for leave to construct natural gas (and other hydrocarbon) pipelines contemplated under sections 90(2) and 95(2) of the OEB Act, and the newly amended Ontario Regulation 328/03.

The Market Surveillance Panel (MSP) delivered its State of Market 2023 Report.

The OEB issued a letter outlining several ongoing and new commitments to its data transparency initiatives, including among other open data releases, providing access to RRR data for electricity transmitters.

As part of preparing its report to the Minister of Energy and Electrification, which was delivered in September, the OEB held a stakeholder meeting in August on its Consumer Advocate and Cost Award Process Review to share preliminary findings and recommendations from its expert consultant and to seek feedback.

Seven more Assurances of Voluntary Compliance (AVC) were accepted from electricity distributors (Renfrew Hydro, Lakefront Utilities, Lakeland Power, London Hydro, PUC Distribution, Ottawa River Power, and InnPower Corporation) related to billing errors that resulted in the over-charging of customers through the fixed monthly service charge. Two AVCs were also accepted from electricity wholesalers for operating without a license (Norbord and Northern Tel LP).

Independent Electricity System Operator

During the last quarter, the IESO undertook further consultations on the development of its planned Long-Term 2 RFP (LT2 RFP). In late August, the Minister of Energy and Electrification wrote to the IESO requesting a report by late September on options to accelerate the final targets, timelines, and design elements for the LT2 RFP, with the goal of accelerating and concluding the procurement by the end of February, 2026. The Minister also sought options for procurement of resources requiring longer development lead times. As part of the letter, the Minister outlined expectations regarding additional policies that should be reflected in the IESO’s LT2 design, including, among others, that procurement should be technology-agnostic, require municipal support and access to Crown Land, consideration of rating criteria for new projects in certain Northern Ontario communities, and incentivizing the participation of Indigenous communities

The Minister also noted his support for the IESO’s proposed Enhanced Power Purchase Agreement (E-PPA) revenue model for energy projects, and expressed an expectation, that for capacity projects the contracts will be similar to those used in the LT1 RFP.

The IESO launched a Request for Information (RFI) focused on long lead time resources, specifically long duration energy storage and hydroelectric generation.

As expected, the IESO began consultations on a second Medium Term RFP (MT2-RFP) with an expected proposal deadline of January 2025. The MT2-RFP will have both a capacity and energy stream focused on reacquiring existing resources, whose contracts are ending no later than April, 2029.

The Technical Panel unanimously recommended approval of the final alignment batch of market rule amendments to implement the Market Renewal Program (MRP), This came after the IESO made a number of substantive changes to the market rules (and manuals), including establishing a Market Power Mitigation Working Group. The Technical Panel also recommended approval of market rule amendments related to the Capacity Auction. Those latter amendments were subsequently approved by the IESO’s Board of Directors.

The IESO completed stakeholder engagement on a proposed Transmission Selection Framework in preparation for its required report to the Minister of Energy and Electrification in September. The IESO’s proposed design is that for certain eligible projects, the IESO will undertake an RFQ of qualified transmitters to bid into an RFP. To be selected, a proponent will be required to demonstrate Indigenous participation. The selected proponent would be awarded a partial contract to run until a short period after commercial operations. The partial contract would include the design and construction, as well as a fixed level of O&M costs. The contract amounts would be required to be included in a cost of service application with the OEB, and some or all of the post-commercial operations revenue would be fixed via contract and incorporated into the Uniform Transmission Rates (UTRs).

The IESO released the York Region Non-Wires Alternative Demonstration Project Evaluation Final Report. The IESO also released the latest 18-month Reliability Outlook.

Legislative and Regulatory

The Ministry of Energy and Electrification proposed to declare the planned transmission line from Wawa TS to Porcupine TS as a priority project under section 96.1 of the Ontario Energy Board Act and to designate Hydro One as the transmitter.

Government of Ontario also:

Federal Government

The Government of Canada released its new Canada Green Buildings Strategy. Natural Resources Canada launched a Request For Proposal under its Zero Emission Vehicle Infrastructure Program (ZEVIP) to support development of EV chargers, including fast chargers across the country.

The Impact Assessment Agency of Canada sought feedback on a discussion paper regarding a five-year review of the Physical Activities Regulations (commonly referred to as the Project List) made under the Impact Assessment Act.

The Canadian Energy Regulator (CER) launched a review of its rules of practice and procedure. As part of the review, it issued a discussion paper and is seeking written feedback.

Judicial Decisions

In August, the Ontario Superior Court released its decision in West Whitby Landowners Group Inc. v. Elexicon Energy, dismissing an application as an abuse of process. The application was brought by a group of developers who had a dispute with Elexicon Energy regarding the provisions of an Offer to Connect agreement. They had previously challenged the OEB staff opinion letters on the merits of the dispute (which were requested by the developers and Elexicon), and the escalation to a formal complaint, which the Divisional Court had found was not subject to judicial review. The group of developers now argued that, since the OEB had only provided its views, the underlying dispute had not been decided. In its decision, the Court found that the application was an abuse of process, as the matter had been dealt with by the OEB. Additionally, it found that the core of the issue underlying the initial dispute, the interpretation of the Distribution System Code, falls within the exclusive authority of the OEB

Shepherd Rubenstein News

Both Jay Shepherd and Mark Rubenstein were listed in the 2025 edition of ‘Best Lawyers’. Mark was ranked by Chambers Canada in its 2025 guide.

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 mark@shepherdrubenstein.com.

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SR Update

Energy Regulatory Update (Q2, 2024)

Summer has arrived, and so has the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of important developments in the Ontario energy sector. Below are some of the key regulatory happenings between April and June. This past quarter saw the renaming of the Ministry of Energy to the Ministry of Energy and Electrification and the appointment of a new Minister and an Associate Minister with responsibility over energy-intensive industries

Ontario Energy Board

The OEB released several notable decisions over the past few months, including:

The final Phase 1 Benefit-Cost Analysis (BCA) Framework for Addressing Electricity System Needs was issued. The BCA Framework is required for all electricity distribution capital investments greater than $2M, beginning with applications filed in 2026. However, applications filed in 2024 and 2025 are strongly encouraged to use it.

As part of its ongoing Electric Vehicle Integration (EVI) Initiative, the OEB Staff released for comment a discussion paper that sets out a proposal for an electricity delivery rate for public EV charging stations with a low load factor through a reduced Retail Transmission Service Rate (RTSR).

The OEB concluded its Evaluation of Policy on Utility Consolidations consultation with the release of an updated MAADs Handbook, which reflects the consideration of stakeholder comments on an OEB Staff Discussion Paper.

A Stakeholder meeting was held and written comments were received as part of the OEB’s System Expansion For Housing Developments Consultation.

With the forecasted increase in the connection of new load and supply resources to the transmission system, including energy storage, the OEB launched a review of the connection-related section of the Transmission System Code (TSC).

The OEB issued the 2025 inflation parameters.

As part of its broader Distribution Sector Resiliency, Responsiveness, and Cost Efficiency (DRRCE) initiative, the OEB launched its Vulnerability Assessment and System Hardening (VASH) project. The VASH project is intended to incorporate climate resiliency into asset and investment planning activities, regularly assess the vulnerabilities in the system and operations in the event of severe weather, and prioritize value for customers when investing in system enhancements for resilience purposes.

There were a number of developments regarding application filing requirements. The OEB:

The OEB also made minor modifications to its standard conditions of approval for natural gas leave to construct applications.

In advance of the expected May 2025 implementation of the IESO’s Market Renewal Program (MRP), the OEB issued a letter outlining expected necessary amendments to various codes. It also issued draft accounting guidance related to commodity pass-through accounts.

Both the OEB’s Chief Executive Officer and Chief Commissioner provided their respective 2023-2024 year-end updates

The 2023 Innovation Sandbox Annual Report was released.

Assurances of Voluntary Compliance (AVC) were accepted from Festival Hydro and Rideau St. Lawrence Distribution related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. An AVC was also accepted from Kingston Hydro regarding non-compliant disconnection practices, as well as from Algoma Tubes Inc., who was operating without an electricity wholesale license.

Independent Electricity System Operator

The IESO released the results of its Long-Term 1 RFP (LT1 RFP), which was targeted to provide capacity between 2026 and 2028. The IESO procured 1784.2 MW of storage capacity at a weighted average price of $673.32/MW (per business day) and 410.7 MW of non-storage capacity (almost exclusively natural gas generation) at a weighted average price of $1,681.14/MW (per business day).

IESO stakeholder engagement continued on the Long-Term 2 RFP (LT2 RFP), which is expected to have both an energy and capacity stream, as well as long-lead time resources stream. The engagement included consideration on a wide range of issues including connection guidance and deliverability, changes to its proposed Enhanced PPA (E-PPA) revenue model, contract provisions, and resource eligibility. As part of the engagement, the IESO issued a preliminary connection guidance document. The IESO has also accelerated the timeline for the Mid-Term 2 (MT2) RFP to be held in advance of LT2 RFP.

The Ministers of Energy and Agriculture, Food and Rural Affairs also wrote to the IESO outlining policy considerations for developing energy projects on agricultural lands to be part of the development and design of all future procurement

The Minister of Energy also wrote to ask the IESO to continue engaging stakeholders on the development of, and report back with a draft design for, a Northern Hydro Program (NHP) to recontract existing large hydroelectric generation with installed capacity greater than 10 megawatts and whose existing contracts have or will expire before 2043

The Minister of Energy issued a directive to the IESO to extend the contracts of the Atikokan and Hornepayne biomass generating stations, as well as to implement some modifications to the Small Hydro Program to allow participation of aggregated contracts. The Minister of Energy also issued a directive to the IESO to enter into a funding agreement with Bruce Power to fund a portion of the Federal Impact Assessment for new nuclear generation on the existing Bruce site

Work continued on the development of a Transmission Selection Framework and prioritization of future enhancements to the Capacity Auction.

The IESO issued several reports, including the:

The IESO’s Grid Innovation Fund issued a targeted call for innovative projects focused on electrification and demand management.

Posted for review and comment were the final alignment batch of market rule amendments and related market for implementing the Market Renewal Program.

The Technical Panel recommended a number of market rule amendments related to the Market Renewal Program’s (MRP) market and system operations framework and calculation engine design. They were subsequently approved by the IESO Board of Directors. The Board of Directors also approved market rule amendments regarding the Transmission Rights market engagement and platform refresh.

Legislative and Regulatory

Bill 165, the Keeping Energy Costs Down Act, 2024, was passed. The legislation was introduced as the Government of Ontario’s response to the Phase 1 Decision in Enbridge’s 2024-2028 rates application. Bill 165 makes a number of amendments to the Ontario Energy Board Act, to, among other things, allow the Government to set by regulation the revenue horizon to be used by the OEB when setting natural gas distribution rates, and allow the OEB to exempt the requirement for leave to construct approval where it finds the specifics of a particular case require it, or where circumstances set out by regulation have been met (a more detailed summary was included in our Q1 2024 Edition).

Using these new authorities, the Government of Ontario issued Ontario Regulation 273/24, which sets the revenue horizon for natural gas distribution rates for small volume consumers (those using less than 50,000 m³) at 40 years and for all other consumers at 20 years. It also issued Ontario Regulation 274/24,, which exempts the requirements for leave to construct for a hydrocarbon line if the project cost is no more than $10M, and the OEB has determined that the duty to consult has been adequately discharged. The regulation also limits when leave to construct from the OEB is required for the relocation or reconstruction of hydrocarbon lines.

The Government of Ontario also:

  • Updated a proposal to amend Ontario Regulation 429/04 under the Electricity Act, to allow Class A customers under the Industrial Conservation Initiative (ICI) to enter into power purchase agreements (PPAs) with non-emitting generation facilities to allow them to offset their peak demand.
  • Proposal to amend Ontario Regulation 509/18 under the Electricity Act, to update the energy efficiency requirements and standards for 42 products and remove requirements for 3 existing products, to maintain harmonization with federal standards.

The Minister of Energy and Electrification (and previously the then Minister of Energy) announced the Government’s support for Ontario Power Generation’s plan to refurbish its Sir Adam Beck, R.H. Saunders, and number of Eastern Ontario hydroelectric generation stations.

Federal Government

The Federal Government, as part of its 2024 Budget, announced up to $5 billion towards a new Indigenous Loan Guarantee Program for energy and natural resource projects, the launch of work to establish a new Federal Permitting Coordinator, and a Crown Consultation Coordinator, and further details regarding the previously announced Clean Electricity Investment Tax Credit.

Bill C-59 and C-69 received royal assent, implementing the previously announced Clean Technology, Carbon Capture, Utilization and Storage (CCUS), Clean Technology Manufacturing, and Clean Hydrogen Investment Tax Credits (ITC). The CCUS and Clean Technology ITCs are now available for qualified businesses.

Bill C-59 also included amendments to the Competition Act that, among other changes, expands the scope of reviewable civil deceptive marketing practices to include certain environmental and climate change-related product representations that are not based on an adequate and proper test, and business activities that are not based on substantiation in accordance with an internationally recognized methodology. The Competition Bureau has said it will assess these new requirements and expects to issue guidance. Bill C-69 also included amendments to the Impact Assessment Act to address the Supreme Court of Canada’s reference opinion on the unconstitutionality of certain provisions.

Several notable reports were issued, including:

The Canada Growth Fund released its Carbon Contract Strategy.

Judicial Decisions

The Ontario Court of Appeal granted Enbridge’s motion for leave to appeal the Divisional Court’s decision in Essex (County of) v. Enbridge Gas Inc. In that decision, the Divisional Court had determined that the OEB had erred when it determined that a 1957 franchise agreement between the County of Essex and Enbridge had expired because of the application of the rule against perpetuates.

What We Are Reading

C.D. Howe Institute’s Mind the Gap: The Impact of Budget Constraints on Ontario’s Net Zero Plans report and the Ivey Energy Policy and Management Centre’s Corporate Governance Transparency: A Scorecard For Electricity Distribution Utilities In Ontario report.

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 mark@shepherdrubenstein.com.

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SR Update

Energy Regulatory Update (Q1, 2024)

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between January and March.

Ontario Energy Board

The OEB released several notable decisions over the past few months, including:

The OEB announced the next steps in its Evaluation of Policy on Utility Consolidations consultation, with the issuance of an OEB Staff Discussion Paper for comment.

The previously announced generic proceeding on cost of capital has commenced. The proceeding is expected to review the methodology for determining the cost of capital parameters and deemed capital structures for regulated utilities, as well as matters related to the Cloud Computing Deferral Account.

The OEB completed its Consultation on a Policy for Standby Rates. After considering stakeholder feedback at a December stakeholder meeting, the OEB determined that it will not impose or recommend a default approach for pricing load displacement generation at this time. Distributors who believe a (new or modified) standby rate would be appropriate can apply for one at their next rebasing application. Distributors, who are currently operating with interim standby rates, were directed to seek to finalize those rates in either an IRM or their next rebasing application.

The OEB issued Non-Wires Solutions Guidelines for Electricity Distributors (NWS Guidelines). The NWS Guidelines replaces the existing CDM Guidelines for electricity distributors, reflecting new developments since 2021, and the fact that non-wires solutions that address system needs can encompass a broader range of solutions than just traditional CDM. As the NWS Guidelines make reference to the forthcoming BCA Framework, the OEB in its accompanying letter provided details on certain determinations it had made with respect to the BCA Framework, including materiality threshold and implementation.

A number of Notices of Proposal to Amend the Distribution System Code (DSC) were finalized:

The OEB sought comment from Indigenous communities and organizations, as well as natural gas utilities and other stakeholders, regarding proposed revisions to its Environmental Guidelines for the Location, Construction and Operation of Hydrocarbon Projects and Facilities in Ontario related to Indigenous consultation requirements.

The Very Small Utilities Working Group issued its report on the opportunities for reducing regulatory burden associated with the filing and review process of major rate applications for very small electricity distributors (less than 5,000 customers). The OEB subsequently issued a letter providing its response, generally accepting most of the recommendations and suggestions.

The OEB announced changes to the Low-income Energy Assistance Program Emergency Financial Assistance (LEAP EFA) that were recommended as part of its OEB Staff Report. The changes include:

  • Updating the income eligibility threshold to align with the newly expanded OESP income thresholds.
  • Increasing the grant amounts for electricity and natural gas from $500 to $650, and for those heating with electricity from $600 to $780.
  • Requiring that no eligible LEAP EFA be denied assistance due to lack of program funding, and establishing a generic deferral account for electricity and natural gas distributors to record incremental LEAP contributions above those embedded in rates.
  • Allowing intake agencies greater flexibility in which documents to accept from applicants.

An updated OESP and LEAP Manual was also issued to reflect changes to both programs.

The Rules of Practice and Procedure were amended to provide greater clarity regarding establishing and amending issues lists (Rules 28 and 32), as well as the filing of evidence, including from experts (Rule 13 and 13A).

In response to the Minister of Energy’s 2023 Letter of Direction, the OEB launched a consultation to review electricity distribution system expansion policies for housing developments, with a focus on connection and revenue horizons.

As part of the Reliability and Power Quality Review (RPQR), the OEB announced the introduction of voluntary reporting by electricity distributors of feeder level reliability data beginning in 2025 (for the 2024 calendar year). It also released a Guide to Addressing Electricity Distribution Power Quality Issues to assist both customers and distributors in managing and addressing power quality issues and promoting uniform practices.

To improve overall efficiency and right-size requirements of the Reporting and Record-keeping Requirements (RRR), the OEB held a stakeholder meeting and issued a number of updates. Other updates were made to implement the new voluntary feeder level reliability reporting, and Cyber Security requirements.

The OEB updated stakeholders on the activities arising from its June 2023 Improving Distribution Sector Resilience, Responsiveness and Cost Efficiency Report to the Minister of Energy. The RPQR Working Group has been asked to begin the discussion of issues regarding resilience, restoration, and customer communication. In parallel, the OEB Staff will be launching a vulnerability & system hardening initiative to consider how utilities should assess vulnerabilities in their systems and identify which risks can be cost-effectively mitigated. The OEB is also looking at distributor cost efficiency improvements through the use of cloud computing as part of the generic hearing on cost of capital, and will later in the year review distributor spending patterns to assess a need for further changes or incremental incentives.

An Assurances of Voluntary Compliance (AVC) was accepted from ENWIN Utilities, related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge.

Independent Electricity System Operator

The 2024 Annual Planning Outlook (APO) was released. The 2024 APO looks at Ontario’s electricity system needs between 2025 and 2050. The IESO forecast shows demand will increase, on average, by about 2% a year, and that Ontario will transition from a summer-pealing to dual-pealing beginning in 2030

The IESO ramped up its stakeholder engagement on the Long-Term 2 RFP (LT2 RFP) with a number of stakeholder meetings considering issues such as revenue model, DER participation, and sitting and land-use requirements. As part of that process, the IESO announced that it will proceed with an Enhanced PPA (E-PPA) revenue model.

A procurement directive was issued by the Minister of Energy directing the IESO to extend the current contract for Hornepayne biomass generating station to May 14, 2024, while negotiations continue for a new contract.

In early January, the Minister of Energy wrote the IESO regarding two pump storage projects proposals in Meaford (TC Energy and Saugeen Ojibway Nation) and Marmora (OPG and Northland Power) that the IESO had previously been asked to provide an assessment. The Minister noted that the IESO analysis showed that under the current proposals, neither project compared favorably to currently available alternatives and so he was not prepared to make a final determination on either, while recognizing it did not assess broader social and economic benefits. The Minister has asked the Ministry of Energy to work with other ministries and the proponents to assess those broader benefits.   The Minister also asked one of the proponents for further information (Meaford), as well as noted the other was requesting additional time to submit further information (Marmora). The Minister also asked the IESO once it received the information to provide a further analysis and provide recommendations on proceeding with pre-development work. The Minister also said that he has asked the Ministry of Energy to work with the OEB and the project proponents on cost recovery mechanisms for his consideration.

The Minister also wrote the IESO to ask it to examine options for a post-2024 electricity energy efficiency framework and programs, and report back mid-March 15, 2024. In assessing those options, he asked that the IESO should consider as priorities, among others, a more enduring framework that potentially looks beyond a four-year timeframe, expanded program offerings, objectives and targets for beneficial electrification, feasibility and design options for demand flexibility, enhanced involvement of local distribution companies, improving the participant experience through enhanced electricity and natural gas program co-ordination. The Minister also asked the IESO to report back by April 2024 (coordinated with the OEB), on how residential and income-eligible natural gas and electricity energy efficiency programs could be delivered through a one-window approach, beginning as early as 2025.

Natural Resources Canada announced that it has provided up to $16.7M in funding to the IESO to support its Enabling Resource Program.

The Technical Panel recommended Market Rule amendments to implement Transmission Rights

Market Enhancement and Platform Refresh project. The Market Committee of the IESO’s Board of Directors also recommended changes to the Technical Panel Terms of Reference, to provide for additional communication between the Technical Panel and the IESO Board.

The IESO’s Board of Directors proposed amendments to its Governance and Structure By-Law related to Board independence and conflict of interest.

The IESO issued several reports, including:

The Exemption Panel approved Hydro One’s request for exemption from sections 7.1 and 7.2 of the Ontario Resource and Transmission Assessment Criteria (ORTAC), required to incorporate new load before it completes construction of a new Transformer Station.

The IESO announced that it had entered into a settlement with Genset Resource Management Inc. in December, for breaches of several market rules related to dispatch instructions in the operating reserve market.

Legislative and Regulatory

The Electrification and Energy Transition Panel (EETP) issued its report, Ontario‘s Clean Energy Opportunity. The comprehensive Report provides a recommended path to help Ontario navigate the transition to a clean economy in the long term based on 7 key principles. The Report also includes 29 specific recommendations, divided into 5 different key areas, planning for electrification and the energy transition, governance and accountability, true partnerships with Indigenous partners, innovation and economic development, and consumer, citizen and community perspectives.

The Government of Ontario introduced Bill 165, the Keeping Energy Costs Down Act, 2024 in response to the OEB’s Phase 1 decision in Enbridge’s 2024-2028 rates application. The legislation would make a number of amendments to the Ontario Energy Board Act, including:

  • Authorizing the Minister to issue directives requiring the OEB to hold generic hearings on any matter over which the OEB has jurisdiction. The directive may include procedural timelines and requirements, and apply to a matter that is subject to an on-going proceeding, but not a matter that has been determined by a final order of the OEB, if less than two years had passed.
  • Authorizing the Government by regulation to set the revenue horizon to be used by the OEB when setting natural gas distribution rates. The new authority would also allow by regulation the ability to require the OEB to hold a hearing to determine the revenue horizon and specific rules governing that hearing. In such a case that revenue horizon determined by the OEB would apply instead of that set by regulation. This section also has a sunset clause, being the earlier of January 1 2029, or as proclaimed by the Government.
  • Authorizing the Minister to issue directives that would require the OEB in considering leave to construct applications for a natural gas transmission or dual-purpose distribution/transmission lines, to require all customers to bear the full cost of the line and not require the payment of any capital contribution or surcharge. The section also includes a specific provision respecting orders made between the introduction of the legislation and the end of 2024 where the OEB renders a decision either denying leave to construct, or granting with conditions requiring the payment of a capital contribution. In such a situation, the Minister can issue a directive requiring a new hearing consistent with its new authorities. This is clearly aimed at the on-going Enbridge Panhandle Reinforcement Project proceeding where the issue of capital contributions has been raised by several intervenors.
  • Providing the authority for the OEB to exempt the requirement for a person to require leave to construct approvals where either it finds specifics of a particular case require, or circumstances set out by regulation have been met.

The Government of Ontario announced that it will support Ontario Power Generation’s plan to proceed with the initiation phase of the refurbishment of Pickering Nuclear Generation Station’s B units (5-8).

A number of new regulations and amendments to existing regulations were issued, including:

  • Amending Ontario Regulation 610/98, under the Electricity Act, defining which classes of persons cannot act as an officer or director of the IESO
  • Amending Ontario Regulation 160/99, under the Electricity Act, specifying that certain provisions of the Act with respect to Clean Energy Credits do not apply to the transfer of environmental attributes that are generated before January 1, 2027, if their transfer is the subject of a contract entered into before January 1, 2023.
  • Issuing Ontario Regulation 1/24, under the Ontario Underground Infrastructure Notification Act, increasing the time lime to respond from 5 to 10 days for standard locate requests made with regard to a large excavation or dig site.

The increased income eligibility threshold for the Ontario Electricity Support Program (OESP) takes effect on May 1, 2024.

Federal Government

Environment and Climate Change Canada released a public update report on the draft Clean Energy Regulations (CER). The public update report summarized feedback it had heard on the draft CER and provided changes that it was considering for comment. The IESO provided comments on the proposed changes, although noting that there was a lack of specificity necessary to assess their effectiveness in meeting Ontario’s needs.

Judicial Decisions

The Divisional Court in Leamington v. Enbridge Gas Inc. dismissed an appeal brought by the Municipality of Leamington regarding the terms of the OEB’s approval of a renewal of a franchise between Leamington and Enbridge. The Divisional Court disagreed with Leamington that the OEB lacked the authority to approve the terms and conditions based on the Model Franchise Agreement, and specifically the cost sharing provisions for gas relocation costs, over a party”s objection to their inclusion.

The Supreme Court of Canada released its decision in Yatar v. TD Insurance Meloche Monnex. The decision confirms that even if a statutory right of appeal is limited to a question of law, that does not prevent a judicial review from being brought to challenge other aspects of the decision that would not fall within the scope of the right of appeal. The decision is important, as many energy regulators’ governing statutes have limited rights of appeal. For example, section 33(2) of the Ontario Energy Board Act limits appeals to questions of law and jurisdiction. Yatar confirms that notwithstanding the limited right of appeal, a party could bring a judicial review for an alleged error in fact or mixed fact and law. Like any other judicial review, however, a judge may still exercise discretion to grant relief, for example if there is an adequate alternative remedy.

In New Brunswick Power Corporation v. New Brunswick Energy and Utilities Board, the New Brunswick Court of Appeal dismissed a judicial review brought by NB Power regarding a decision of the New Brunswick Energy and Utilities Board (NBEUB). NB Power had argued that the NBEUB decision on its 2023-2024 general rates application was unreasonable. The NB Court of Appeal ruled that the decision by the NBEUB to reduce the proposed revenue requirements based on updated evidence, including loss in the prior years, was not unreasonable.

Shepherd Rubenstein News

Both Mark Rubenstein and Jay Shepherd were recognized in the 2024 Canadian Lexpert Legal Directory.  Mark was ranked by Chambers in its 2024 Global Legal Guide

What We Are Reading

There are a lot of interesting developments across the country. In Nova Scotia, the Clean Electricity Solutions Task Force released its Final Report, which included a proposal for an independent system operator model and standalone energy regulator. The Nova Scotia Government announced it will implement those recommendations, at least in part, but other recommendations will require further consideration. In Alberta, the government requested the Alberta Electric System Operator (AESO) to work with stakeholders to work on a restructured energy market based on an AESO’s recommendation report.  The Alberta Government, as part of its renewable energy sitting policy changes, released the Alberta Utilities Commission (AUC) Module A report. The AUC also released a report authored by Guidehouse, analyzing the incremental distribution costs in Alberta from increasing DER pentation related to the transition to net-zero.

We have also been reading the Regulatory Assistance Project’s Elevating the Priority of Decarbonization in Energy Regulators’ Decision Making Report.

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 mark@shepherdrubenstein.com.

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Energy Regulatory Update (Q4, 2023)

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between October and December.

If you have not already, check out our special 2023 Year in Review edition which explores some of the most important themes and regulatory developments in the Ontario energy sector in 2023.

Ontario Energy Board

The OEB released several notable decisions over the past few months, including:

The Minister of Energy issued a new Letter of Direction to the Chair of the OEB. The Minister highlighted a lengthy list of near-term initiatives that he expects the OEB to advance, including among others:

  • Powering Ontario Growth: Working with Ministry of Energy on initiatives to support the Powering Ontario Growth
  • Housing, Transportation, Job Creation: In the context of the Government’s goals for new homes, transportation, and job creation, review and report back by June 2024 on: i) electricity infrastructure unit costs in the electricity sector and potential models for cost recovery that could help to ensure infrastructure costs are kept low and are not a barrier to growth, ii) electricity distribution system expansion connection horizon and revenue horizon to ensure that the balance of growth and ratepayer costs remain appropriate.
  • Facilitating Innovation within Ontario’s Regulatory Framework: Report back by September 2024, through its existing work on the Benefit-Cost Analysis Framework for Addressing Electricity System Needs, or another report by September 2024 on what changes may be required to utility remuneration to ensure timely investment is being made, to support the right outcome, to enable low-carbon investments while protecting customers interests to deliver on the government’s vision.
  • DER’s and Future Utility Business Models: Working with the Ministry of Energy and IESO to develop and assess local and market opportunities for DERs, including consideration of the future regulatory landscape for alternative utility business models.
  • Electricity and Natural Gas Conservation: Consult with IESO and Enbridge and report back by April 2024 in how gas and electricity low-income and residential programs could be delivered through a single window.
  • Intervenor Process: Continue to review current intervenor processes and identify opportunities to improve efficiency and reduce regulatory burden. The Minister asked the OEB to report back by September 2024 with a plan to implement reforms, including but not limited to, consideration around a designated consumer advocate and capping costs.
  • The Minister of Energy also highlighted initiatives regarding Electric Vehicles, Performance Measurement Framework Review, Red Tape Reduction, Distribution Sector Resiliency, Responsiveness, and Cost Efficiency, and the Electrification and Energy Transition Panel.

The OEB released its updated RPP Price Report for the Regulated Price Plan and set RPP prices as of November 1st. It also issued its cost of capital parameters for 2024 rate applications. As part of the accompanying letter, the OEB noted that it plans to hold a generic hearing to review the deemed capital structure and ROE formula early in the 2024-2025 fiscal year.

An industry guidance letter was issued regarding its intended approach to capital funding requests related to DER integration between rebasing applications from distributors on Custom IR.

The OEB released two reports to the Minister of Energy regarding defining Ontario’s typical residential electricity consumer, and improving distribution sector resilience, responsiveness, and cost efficiency (and the Minister’s response to the latter report was then included in his 2023 Letter of Direction).

The DER Connections Review work on system readiness for EV charger connection resulted in the OEB issuing a Notice of Proposal to Amend the Distribution System Code (DSC) to facilitate connection of EV charging infrastructure. The Notice creates Electric Vehicle Charging Connection Procedures, which standardize many elements of the connection requirements and process.

Significant work was undertaken as part of the consultation to develop a Benefit-Cost Analysis (BCA) Framework. The OEB held a stakeholder meeting, provided a draft project plan, and issued the draft BCA Framework Handbook for comment.

As a follow-up to a survey it completed earlier this year amongst distributors, the OEB released a report it had conducted by KPMG on the issues of regulatory treatment of cloud computing costs, and established a generic deferral account effective December 1st, for distributors to record incremental cloud computing implementation costs.

The OEB updated its performance standard for natural gas facilities applications (i.e. certificate of public convenience and necessity, municipal franchise, well drilling and storage).

As part of its Low-Income Energy Assistance Program Emergency Financial Assistance (LEAP EFA) Program Review, OEB Staff issued its Report for comment.

The OEB announced the membership of the second term of the Adjudicative Modernization Committee (AMC) (Note: Mark Rubenstein was once again selected a member).

Both the CEO and Chief Commissioner issued their respective mid-year 2023-2024 updates.

There was considerable compliance activity during the final quarter of 2023. Assurances of Voluntary Compliance (AVC) were accepted from Wellington North Power for a delay in implementing Green Button, and Newmarket-Tay Power distribution for its failure to comply with a number of customer disconnection obligations under the Distribution System Code. AVCs were accepted from three more electricity distributors (Niagara Peninsula Energy, Milton Hydro, and E.L.K. Energy) related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. The OEB also accepted AVCs from a cement production facility conducting business as an electricity wholesaler without a license, and a unit sub-metering company (Priority) who had not correctly delivered the Ontario Electricity Rebate to its customers. The OEB Mid-Year Compliance Report was also issued.

The OEB shared version 1.1. of the Ontario Cyber Security Framework (OCSF) used by electricity transmission and distributors to report on cyber security readiness.

As it committed in its response to the Auditor of General of Ontario’s 2022 audit, the OEB commenced a review of its existing customer protection framework for Unit Sub-Meter Providers (USMPs).

The OEB and the IESO also issued their Innovation Sandbox/Grid Innovation Fund Joint Target Call Interim Report.

The Market Surveillance Panel issued its State of the Market Report 2022.

Independent Electricity System Operator

On the electricity procurement front, the IESO’s Long-Term 1 RFP (LT1 RFP) process is currently underway, which is expected to procure 2,500 MW of dispatchable new build resources. The submission deadline was in mid-December, and contracts are expected to be offered to successful proponents in Q1/Q2 2024.

As part of the LT1 RFP procurement, project proponents must get consent from the host municipal council. In the leadup to the submission deadline, a number of project proponents were facing opposition in various municipalities (primarily on environmental grounds). Recognizing the issue, the Minister asked the IESO to ensure it made itself available to municipal councils to answer questions on Ontario’s electricity system needs. Ultimately, municipal councils in Thorold, Halton Hills and Kingston refused to give the necessary consents for any new natural gas facilities (or expansion of existing facilities), while they were allowed in Napanee, and earlier in Windsor.

The IESO completed its annual Capacity Auction procuring a record 1,867MW of capacity for summer 2024 and 1,310 MW for winter 2024/2025. As previously directed by the Minister of Energy, the IESO also launched the Small Hydro Program, which is to provide new contracts for existing hydroelectric facilities with installed capacities of 10MW and below.

In December, in response to a request earlier that month from the Minister of Energy, the IESO issued a Resource Adequacy Update, focused on Ontario’s system needs beginning in 2029. The Resource Adequacy Update includes a 5000 MW procurement target for energy needs to be met through 3 bi-annual long-term RFPs. The first of these, Long-Term 2 RFP is expected to take place in 2025.   The IESO has begun engagement for it, and is anticipated to target 2,000 MW of new energy producing resources.

The IESO provided its comments on the Federal Government’s proposed Clean Electricity Regulations (CER). In its view the CER as drafted are unachievable in Ontario by 2035 without risking the reliability of the electricity system, electrification of the broader economy and economic growth. The Minister of Energy tasked the IESO to provide a more detailed assessment on the CER’s impacts on Ontario by the end of February.

The Minister of Energy issued a procurement directive to increase annual IESO funding to  indigenous energy support programs.

The January 2024-June 2025 Reliability Outlook was released.

The Minister of Energy approved an amendment to the IESO’s 2023-2025 Business Plan, which includes increases in funding for 2024 and 2025 to carry out initiatives in support of the Powering Ontario’s Growth plan. The IESO has indicated that it will file an application to the OEB for approval for the necessary revenue requirement and fee increases pursuant to its previously approved fees settlement proposal.

The IESO, which was directed to administer the Hydrogen Innovation Fund (HIF), announced 10 projects that had been awarded funding.

As of December 1, 2023, IESO made available for purchase a portion of its available clean energy credits.

The Market Assessment and Compliance Division (MACD) completed two investigations of TransCanada Energy, and found it breached of a number of market rules, levying penalties of $3.72M.

Legislative and Regulatory

The Government of Ontario issued an Order-in-Council declaring three new transmission projects (a new 230 kV transmission line from the Mississagi TS to the Third Line TS, a new 500 kV transmission line from the Mississagi TS to Hanmer TS, and a new 230 kV transmission line from the Dobbin TS to either the Cherrywood TS or Clarington TS) as priority projects under section 96.1 of the Ontario Energy Board Act. The Minister of Energy issued a directive to the OEB requiring it to amend Hydro One’s transmission license to require the company to develop and seek all necessary approvals for the three projects.

The Government of Ontario issued a number of new regulations, amendments to existing regulations, and regulatory proposals, including:

  • Amending Ontario Regulation 160/19 under the Ontario Energy Board Act, 161/99 under the Electricity Act, and 389/10 under the Electricity Consumer Protection Act, implementing recent amendments to the Ontario Energy Board Act that permit the OEB to exempt certain licensing requirements with respect to specified activities for the purposes of participating in a pilot or demonstration project.
  • Issuing Ontario Regulation 373/23 under the Ontario Energy Board Act, that requires the OEB to exclude from rates awards, damages, or penalties required to be paid under the Building Transit Faster Act, or amounts required under section 59 of that Act.
  • Amending Ontario Regulation 39/23 under the Electricity Act, specifying how the IESO and Ontario Power Generation should account for proceeds from transfer of its clean energy credits.
  • Amending Ontario Regulation 506/18 under the Electricity Act, to streamline the exemption process for energy consumption and water use reporting.
  • Amending Ontario Regulations 679/21 under the Ontario Energy Board Act, and 389/10 under the Energy Consumer Protection Act, to clarify regulatory requirements for community net-metering and third-party net-metering ownership.
  • Amending Ontario Regulation 14/18 under the Ontario Energy Board Act, increasing the income threshold for the Ontario Electricity Support Program.
  • Amending Ontario Regulation 363/16 under the Ontario Rebate for Electricity Consumers Act, increasing the Ontario Electricity Rebate (OER) amount from 11.7% to 19.3%.
  • Proposal to amend Ontario Regulations 429/09 under the Electricity Act to allow Class A customers under the Industrial Conservation Initiative (ICI) to enter into power purchase agreements (PPAs) with renewable generation facilities to allow them to offset their peak demand.
  • Proposal to amend Ontario Regulation 160/99 under the Electricity Act to expand the exemption for legacy clean energy credits until they expire in 2027.

The Ministry of Energy launched a consultation on the future of the Natural Gas Expansion Program, issuing a discussion paper, and sought comments. The Ministry of Energy is consulting on potential changes to the Ontario Energy Board Act that would allow it to prescribe certain conditions by regulation to exempt the leave to construct requirements for energy projects. One of those regulations would be exempting projects that cost between $2-$10M from the requirements for leave to construct, subject to an OEB determination that the Crown has satisfied its duty to consult.

The Government of Ontario also introduced Bill 153, Building Infrastructure Safely Act, 2023, which amends the Ontario Underground Notification Systems Act (i.e. the One Call Act), that makes a number of changes, including prohibiting underground infrastructure owners and operators (such as utilities) from charging for locates, and to allow the Minister to make improvements to locates delivery through regulation.

Federal Government

As part of its Fall Economic Statement (FES), the Federal Government announced that the Canada Growth Fund will be allocated $7Bn, on a priority basis, for carbon Contract for Differences (CfD) and offtake agreements. In late December, the Canada Growth Fund announced its first carbon credit offtake agreement.

The FES also provided further information on the delivery timeline for various investment tax credits. Accompanying legislation was introduced implementing the CCUS and Clean Technology Investment Tax Credits.

The Canadian Electricity Advisory Council issued an Interim Report, and launched a consultation. NRCan released a summary of what it heard from its Request for Information regarding regulatory, policy and market barriers and opportunities for accelerating the pace of electrification and electricity grid modernization.

Judicial Decision

 The Alberta Court of Appeal in Alta Link Management Ltd v. Alberta Utilities Commission overturned a decision of the Alberta Utilities Commission (AUC), finding that the AUC breached its duty of procedural fairness when it did not provide adequate notice to electricity utilities that it was considering the issue of whether to allow a fair return that should be earned on customer contributions (from distributors paid to transmitters). The AUC had determined that neither distributor nor transmitters should be permitted to earn a return on those capital contributions, which was a change from the previous policy.

What We Are Reading

The Ontario Energy Association’s Distribution System Operator (DSO) Study. Analysis and commentary on the Minister of Energy’s announcement to overturn the OEB’s decision on Enbridge’s customer connection policy (Power Advisory, Gowlings (Ian Mondrow) and the Ivey Energy Policy and Management Centre). British Columbia Utilities Commission’s Final Report on its Inquiry into the Regulation of Hydrogen Energy Services.

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 mark@shepherdrubenstein.com.

Click here for the pdf version.

 

Categories
SR Update

2023 Energy Regulatory Year in Review

Happy New Year. Before the year kicks into high gear, we thought it would be useful to share with you some of the most important themes and regulatory developments in the Ontario energy sector in 2023, with our annual Year in Review edition of the Shepherd Rubenstein Energy Regulatory Update. Stick around at the end for some thoughts for 2024 from our editor. We will have out detailed Q4, 2023

2023 saw the Ontario Government release its Powering Ontario’s Growth: Ontario’s Plan for a Clean Energy Future, which outlines the actions the province is taking and plans to take to meet the increasing electricity demand over the two decades. It builds on recommendations included as part of the IESO’s Pathways to Decarbonization Report and subsequent public consultation.

Just as we pointed out in last year, the energy transition was present in almost every regulatory discussion and decision over this past year. We all await the report of the Electrification and Energy Transition Panel (EETP), who undertook consultations this year, it is expected to be released  in early 2024.

1.  Electricity Procurement

The biggest development of 2023 was significant resource procurement activity.

Currently underway is the Long-Term 1 RFP (LT1 RFP) process, which is expected to procure 2,500 MW of dispatchable new build resources. The submission deadline was in mid-December, and contracts are expected to be offered to successful proponents in Q1/Q2 2024.

Earlier, in the year, as a result of its Expedited Long-Term LT1 (E-LT1) RFP, the IESO awarded contracts for 882 MW of non-emitting capacity from 15 storage facilities and 295 MW of natural gas capacity from on-site expansion of two existing facilities (about half the target capacity). An additional 286 MW of natural gas capacity was contracted as part of the Same Technology Upgrade process. The annual Capacity Auction procured a record 1,867MW of capacity for summer 2024 and 1,310 MW for winter 2024/2025.

The IESO also finalized a 20-year agreement with Oneida Energy Storage LP 250 MW storage facility, and a contract to extend Brighton Beach Generation Station to 2034 (with incremental capacity), and entered into a Memorandum of Understanding with Hydro-Québec to negotiate a new capacity sharing agreement that would swap a minimum of 600 MW of capacity per season.

At the direction of the Minister of Energy, the IESO developed the Small Hydro Program, to provide new contracts for existing hydroelectric facilities with installed capacities of 10MW and below. Minister of Energy also asked the IESO to assess two proposed pump storage projects to determine if they would provide positive value to the electricity system.  The Minister proposed that,  if they are implemented, they would be OEB rate regulated.

In December, in response to a request from the Minister of Energy, the IESO issued a Resource Adequacy Update, focused on Ontario’s system needs beginning in 2029. Resource Adequacy Update includes a 5000 MW procurement target for energy needs to be met through 3 bi-annual long-term RFPs. The first of these, LT2 RFP is expected to take place in 2025.   The IESO has begun engagement for it, and is anticipated to target 2,000 MW of new energy producing capacity.

To help offset the cost of procurement of these resources (and other programs and infrastructure costs), the Minister of Energy asked the IESO to report back on options for a Future Clean Electricity Fund, funded from proceeds from the sale of Clean Energy Credits held by the IESO and OPG.

2.  The Future of Natural Gas

Over the past year there has been a heated discussion regarding the future of natural gas and natural gas generation.

As discussed earlier, the IESO awarded contracts for 581 MW of natural gas generation as part of the E-LT1 RFP and Same Technology Upgrade process. Additional natural gas generation is expected to be procured as part of the on-going LT1 RFP.

As part of that LT1 RFP procurement, project proponents must get consent from the host municipal council. This created a lively debate between project proponents and opponents (primarily environmental groups). Recognizing the issue, the Minister asked the IESO to ensure it made itself available to municipal councils to answer questions on Ontario’s electricity system needs. Municipal councils in Napanee, and Windsor have provided their consent to potential projects. Those in Thorold, Halton Hills and Kingston have refused to provide that necessary consent, effectively killing some proposed projects that were expected to have made a bid in the LT1 RFP.

The future of natural gas as a fuel and heating source was debated through most of the year as part of Phase 1 of Enbridge Gas’ 2024-2028 rates application. Just before the December holidays, the OEB issued its Phase 1 decision, finding that the energy transition poses a risk that assets used to serve Enbridge’s customers will become stranded, and the company has not provided an adequate assessment of that risk to demonstrate its plan is prudent. One consequence of that finding was an OEB decision (with one commissioner dissenting) that to reduce stranded asset risk, beginning in 2025 all new small volume connecting customers will bear their connection costs upfront (as opposed to spread over 40 years as now). The next day, the Minister of Energy expressed his “extreme disappointment” in that part of the OEB decision, as it could result in added costs of building new homes. He announced that the Government would use its authorities to pause it, and introduce legislation, to reverse it.

Earlier in the fall, the OEB also held an oral hearing on Enbridge’s application to construct the Panhandle Regional Expansion Project, a major transmission pipeline expansion needed for growing greenhouse and natural gas generator demand in Southwest Ontario. A significant part of the debate before the OEB is who should be required to pay for the project, the customers driving the project need, or all customers.

There was also activity regarding natural gas expansion.

The Ministry of Energy launched a consultation on the future of the Natural Gas Expansion Program.

The OEB approved a number of Enbridge’s applications for leave to construct natural gas expansion projects that had received funding through the Natural Gas Expansion Program. Those projects have seen opposition at the OEB by environmental intervenors, and construction was temporarily halted as a result of a motion to review, which was ultimately denied.

3.  Nuclear Renaissance

The Government of Ontario has clearly signaled that nuclear power will remain a significant component of the energy mix well into the future.

The Minister of Energy made two major announcements regarding new nuclear development.

First, he announced the beginning of pre-development work to construct new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of siting up to 4,800 MW of new nuclear generation on the existing site. The Minister has asked the IESO to develop a cost sharing and recovery framework with Bruce Power for the Impact Assessment process.

Second, the Minister announced that the Government is working with Ontario Power Generation to commence planning and licenses for three additional small modular reactors (SMRs) at the Darlington Nuclear site.

The Minister of Energy also asked the IESO to work with OPG and Bruce Power to develop a feasibility study and business for future nuclear generation facilities. In addition, OPG was to send the Ministry of Energy its feasibility assessment for refurbishing Pickering B units by the end of 2023.

4.  Transmission Expansion

Increased electricity demand will require significant transmission system expansion.

The Government of Ontario issued an Order-in-Council declaring three new transmission projects (a new 230 kV transmission line from the Mississagi TS to the Third Line TS, a new 500 kV transmission line from the Mississagi TS to Hanmer TS, and a new 230 kV transmission line from the Dobbin TS to either the Cherrywood Ts or Clarington TS) as priority projects under section 96.1 of the Ontario Energy Board Act. The Minister of Energy issued a directive to the OEB requiring it to amend Hydro One’s transmission license to require the company to develop and seek all necessary approvals for the three projects.

The IESO recommended that the Hydro One construct phase 2 of the Waasigan Transmission Line between Atikokan and Dryden.

There has also been movement on a more competitive process for the development of transmission projects. As requested by the Minister of Energy in implementation of Powering Ontario’s Growth, the IESO initiated an engagement to develop a Transmission Selection Framework. In the summer, the Ministry of Energy said that it would engage with indigenous communities and interested transmitters who have expressed an interested in constructing a new 230 kv line between the Wawa TS and Porcupine TS. There are at least two groups (Transmission Infrastructure Partnerships 9, and Wabun Tribunal Council/Hydro One) seeking to construct and own the line.

The OEB revised the filing requirements for electricity transmission leave to construct applications.

5.  Electric Vehicles

There was a focus at the OEB on facilitating the adoption of electric vehicles (EVs).

As part of its Electric Vehicle Integration initiative, the OEB released the results of the survey of electricity distributors and EV charging service providers, and a consultant’s report on Electricity Delivery Rates for EV Charging.

The OEB also expanded the scope of its DER Connection Review to include system readiness for EV charger connections.  That work resulted in the OEB issuing a Notice of Proposal to Amend the Distribution System Code (DSC) to facilitate connection of EV charging infrastructure. The Notice creates Electric Vehicle Charging Connection Procedures which standardize many elements of the connection requirements and process.

As of May 1st, some electricity distributors started to offer the new EV friendly  Ultra-Low Overnight Electricity Pricing Plan, with all others required to offer the new pricing plan by November 1st

In late December, the Federal Government finalized its new Electric Vehicle Availability Standard, which would set annual sales targets of zero-emission light duty vehicles annually, leading to a requirement of 100% by 2035.

6.  Distributed Energy Resources, and Non-Wires and Non-Pipe Alternatives

A number of big steps were taken to require consideration of non-wires and non-pipes alternatives to meet system needs, and to promote the use of Distributed Energy Resources (DERs).

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 included the issuance of filing guidelines for incentive by electricity distributors to use third-party DERs, as well launching a consultation to develop a Benefit-Cost Analysis (BCA) Framework for addressing electricity system needs. By the end of the year, the OEB had released a draft BCA Framework Handbook for comment.

The IESO released a Guide to Assessing Non-Wires Alternatives as part of the Integrated Regional Resource Plan process. Together with the OEB, the IESO has commissioned a Joint Study of DER Incentives.

Enbridge Gas filed its application with the OEB to implement and recover costs of two Integrated Resource Plan (IRP) pilot projects.

In preparation for the next CDM framework, the Ministry of Energy sought input on the future of electricity conservation programs.  The IESO launched a new stakeholder engagement initiative that explores enhancements to demand-side resource participation in the IESO administered markets and programs.

To better understand DER adoption, the OEB now requires distributors to report on non-net metered embedded generation and storage devices connected to its system. The OEB also amended the Distribution System Code (DSC) to facilitate DERs through the elimination of certain capital allocation exemptions, capacity allocation deposits, and revised connection cost deposit refund processes and timelines.

At the end of the year, the OEB launched a consultation to develop a policy on standby rates.

7.  Federal Investment and Regulation

The Federal Government’s has significantly increased its investment and regulation to promote clean energy.

In August, the Federal Government issued Powering Canada Forward: Building a Clean, Affordable, and Reliable Electricity System for Every Region of Canada, which outlines its vision for the electricity sector.

Soon after, the Federal Government published for comment a draft of its Clean Electricity Regulations (CER) , aimed at achieving a net-zero electricity grid by 2035. The CER would effectively prohibit grid-scale natural gas electricity generation, except for a total of 450 hours a year, by 2035 for all new facilities commissioned after 2025, or the later of 2035 or 20 years after they were commissioned if it was before 2035.

The IESO provided feedback that in its view the CER as drafted are unachievable in Ontario by 2035 without risking the reliability of the electricity system, electrification of the broader economy and economic growth. The Minister of Energy has asked the IESO to provide a detailed assessment on the CER’s impacts in Ontario.

Earlier in the year, the Federal Minister of Energy and Natural Resources announced the creation of the Canada Electricity Advisory Council to provide him with expert advice. In December, it issued an Interim Report, and launched a consultation.  Natural Resource Canada also conducted a Request for Information seeking input regarding regulatory, policy and market barriers and opportunities for accelerating the pace of electrification and electricity grid modernization.

Budget 2024 announced significant new measures to promote clean energy investments.

At its centerpiece, it included the Clean Electricity Investment Tax Credit, a 15% refundable tax credit available for eligible investments, including non-emitting electricity generation systems, electricity storage systems, and equipment for electricity transmission between provinces/territories. This is available to both taxable and non-taxable entities (i.e. indigenous communities, crown corporations, publicly owned utilities, and pension funds). 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.

The Budget also included a new Investment Tax Credit for Clean Hydrogen, 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. It also announced a Canadian Infrastructure Bank investment of $20Bn in clean power and infrastructure priority areas, and that the Canada Growth Fund will design a Contract for Differences mechanism to backstop figure prices of carbon and hydrogen.

The Fall Economic Statement, announced that the Canada Growth Fund will be allocated $7Bn, on a priority basis, for carbon Contract for Differences and offtake agreements. It also provided further information on delivery timeline for the various investment tax credits.  Accompanying legislation was introduced implementing the CCUS and Clean Technology Investment Tax Credits.

There are debates about the limits to the Federal government authority, and several legal battles are coming next year. In the fall, the Supreme Court of Canada released its decision in the reference on the Impact Assessment Act, deciding that the “designated project” portion of the legislation was outside of the Federal jurisdiction. Alberta has signaled it will challenge the constitutionality of the CER if implemented. As a result of perceived unfairness in the Federal Government’s heating oil exemption from the federal carbon charge, Saskatchewan passed legislation to enable it to require SaskEnergy to stop collecting and remitting the carbon charge on natural gas as of January 1, 2024.

8.  Innovation

There was a lot of activity on the innovation front.

The OEB issued its Innovation Handbook, a compendium of existing OEB policies and materials related to innovative projects and proposals.

As part of its Innovation Sandbox, the OEB launched the Innovation Sandbox Challenge, and ultimately provided one-time funding to six projects. In April, the OEB released its Innovation Sandbox 2.0 Report covering activities through the end of 2022. The OEB and the IESO also issued their Innovation Sandbox/Grid Innovation Fund Joint Target Call Interim Report

In addition to the launch of the Ultra-Low Overnight Time of Use Pricing Plan, there were other initiatives aiming to innovate electricity pricing. The OEB provided an update regarding its Non-RPP Class B pricing pilot program. As no draft or final applications were received, the OEB is developing new options to assess alternatives to the commodity pricing structure. At the direction of the Minister of Energy, the IESO developed and launched the Interruptible Rate Pilot.

The IESO continued its work on the implementation phase of its Market Renewal Program.

As part of implementation of its Low-Carbon Hydrogen Strategy, the Government of Ontario announced the creation of the Hydrogen Innovation Fund (HIF). The IESO was directed to administer the HIF, and by year end 10 projects had been awarded HIF funding.

To support the OEB’s objective to facilitate innovation in the electricity sector, the Government of Ontario passed legislation amending the Ontario Energy Board Act, to permit the OEB to exempt certain licensing requirements with respect to specified activities for the purposes of participating in a pilot or demonstration project.

There were two noteworthy OEB decisions related to innovative projects. The OEB approved a Settlement Proposal in PUC Distribution’s 2023 distribution rates application, which included a unique cost recovery and performance incentive mechanism related to its previously approved Sault Smart Grid project. As part of Elexicon Energy’s Incremental Capital Module (ICM) funding application, the OEB approved substantially reduced funding for its proposed community-wide smart grid project.

As of the end of the year, all but 5 electricity and natural gas distributors had fully-implemented Green Button.

The Ontario government announced a proposal to allow Class A customers under the Industrial Conservation Initiative (ICI) to enter into power purchase agreements (PPAs) with renewable generation facilities to allow them to offset their peak demand.

With climate change expected to increase the need for resiliency of the electricity system, in response to the Minister of Energy’s direction the OEB undertook a consultation on distributor resilience, responsiveness, and cost efficiency. The OEB sent a Report to the Minister of Energy, who has endorsed a number of the recommendations, and asked that the OEB begin to develop policies and implement them.

Thoughts For 2024

Last spring, I had the opportunity to speak on a panel discussing the topic of affordability in the context of how the energy sector will contribute to meeting our net-zero commitments. My message to the audience that day, which I have often repeated, is that the number one threat to meeting those decarbonization goals is cost.

The path to meet our net-zero commitments is much like driving up a steep mountain. You need constant forward momentum for the climb, or you will just start going backward. If anything, you need to keep pressing the accelerator.  Nobody doubts that the level of investment needed will be significant. At the same time, customers’ willingness and ability to pay to transform our energy system has real limitations.

Without a focus on customer affordability and least-cost planning and execution, in all aspects of the energy transition, there will be inevitable backlash.  The risk is that it will not just halt any momentum that has been achieved, but will set us backward. The history of the energy sector, in Ontario and across the country, is full of examples of government intervention when rates exceed what they believe customers are willing to pay.

Powering Ontario Growth mentions affordability, but there has not been much discussion of what that specifically means and how to achieve it. In Ontario, taxpayer-funded rebate and subsidy programs have an important role, but at a cost of approximately $6 billion this year alone, it is not a sustainable solution to what is a an extremely difficult problem with no easy solutions.

Whether it’s 2030, 2035, or 2050, the clock is ticking. We must accelerate the pace of change, but with a relentless focus on minimizing costs.

Let’s hope the Electrification and Energy Transition Panel, along with any subsequent changes that the government may make, creates a durable long-term approach that focuses on costs and affordability. The sheer magnitude and scale of the investments and changes needed in the energy system call for more, not less, oversight and scrutiny. The voices of those who pay all the costs of the energy system—customers, who themselves increasingly have diverse views—need to be at the core of those energy decision-making processes. Limiting those voices, as some continue to try, is counterproductive.

Regardless of where you sit around the table—whether as a policymaker, regulator, utility, customer representative, project developer, energy service provider, or simply an interested observer—it is in all our collective interests to keep customer impacts at the forefront of the energy transition. Failure to do so jeopardizes our ability to fulfill our net-zero commitments, as we start sliding backwards down the mountain. –MR

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 mark@shepherdrubenstein.com.

Click here for the pdf version.

Categories
SR Update

Energy Regulatory Update (Q3, 2023)

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between July and September. It was busy, with both the Federal and Ontario Governments releasing electricity plans.

Ontario Energy Board

The OEB released several notable decisions over the past few months, including:

The OEB launched a number of consultations that will:

OEB Staff issued a Bulletin providing guidance to electricity distributors regarding the residential customer Basic Connections, and Distribution Service Code requirements in relation to subdivision connections and service upgrades.

The OEB issued a letter summarizing its recent guidance and resources available to electricity distributors regarding planning for electric vehicle (EV) integration.

Last quarter, the OEB completed implementing recommendations made by the Regional Planning Process Advisory Group’s Report to the OEB, by:

The OEB also issued the 2024 Inflation Parameters.

As the November 1, 2023 Green Button implementation deadline approaches for electricity and natural gas distributors, OEB Staff provided guidance regarding terms and conditions between distributors and authorized third-parties.

An update was provided regarding the Non-RPP Class B Pilot Program. No draft or final applications were received and as a result the OEB is developing new options to assess alternatives to the commodity pricing structure.

The OEB also released its Report to the Ontario’s Electrification and Energy Transmission Panel.

Two more Assurances of Voluntary Compliance (AVC) were accepted from electricity distributors (Grandbridge, Entegrus) related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. The OEB also accepted AVCs from a commercial property owner who had been acting as a unit sub-meter provider without a license, and an electricity storage facility (who had been operating without a storage license).

Independent Electricity System Operator

The IESO formally completed the Expedited Long-Term RFP (E-LT1 RFP) and Same Technology Upgrades Solicitation by releasing the contract prices. The IESO also released the contract prices for the Medium Term RFP that was concluded in the fall of 2022.

With respect to future procurement, the preparations continue for the Long-Term 1 RFP (LT1 RFP) including stakeholder engagement on the draft RFP and contract. The IESO also released draft contracts for its Small Hydro Program which would provide new contracts for existing hydroelectric facilities with installed capacities of 10MW and below. The Minister of Energy issued a procurement directive requiring the IESO to move forward with both the LT1 RFP and the Small Hydro Program. The directive also required the IESO to work with the Ministry of Energy and the Ontario Finance Authority on the feasibility of transferring existing NUG contracts to the IESO.

The IESO and Hydro-Québec entered into Memorandum of Understanding to negotiate a new capacity sharing agreement that would swap a minimum of 600 MW of capacity per season.

The Minister of Energy wrote to the IESO to request that it work and report back on several initiatives to support its Powering Ontario’s Growth plan, including, among others:

  • Developing a cost sharing and recovery framework with Bruce Power for the nuclear new-build Impact Assessment.
  • Working with both Bruce Power and OPG to develop a feasibility study and business case for potentially new nuclear generation facilities in Ontario.
  • Potential subsequent procurements, including a Long-Term 2 RFP.
  • Options for the previously announced Future Clean Electricity Fund to support development of new clean electricity projects and programs.
  • Continue work to develop a transmission selection framework.

Separately, the Minister of Energy wrote to the IESO to ask to assess two proposed pump storage projects, to determine if they would provide positive value to the electricity system, and to make a recommendation concerning the unsolicited proposal process, if it is still necessary.

The IESO launched a new stakeholder engagement initiative that explores enhancements to demand-side resource participation in the IESO administered markets and programs.

The Technical Panel recommended Market Rule amendments:

The IESO Board of Directors provisionally approved Market Rules amendments coding the Market Renewal Program’s market settlement framework.

The Exemption Panel approved the IESO’s application for an exemption from the Market Rules to allow it to cancel Transmission Rights auctions to facilitate transition to the new market. Comments were sought on a Market Rules exemption application from Hydro One regarding load security and restoration criteria for new loads to be connected to the Windsor NextStar Transformer Station.

The Q3 2023 Reliability Outlook was released.

The IESO also released a draft EPRI DER Scenario and Modelling Study regarding transmission-distribution coordination in the context of the York Region NWA demonstration project.

The IESO entered into settlement agreements with 6 generators (Grand Bend Wind LP, Iroquois Falls Power Corp., Kingston Cogen LP, Kirkland Lake Power Corp., Thorold CoGen LP, and Cochrane Power Corp.) regarding a range of Market Rules violations.                                    

Legislative and Regulatory

The Ontario Government released Powering Ontario’s Growth: Ontario’s Plan for a Clean Energy Future, outlining actions the province is taking to meet the increasing electricity demand over the next two decades as a result of economic growth and electrification. It builds on recommendations included as part of the IESO’s Pathways to Decarbonization Report as well subsequent public consultation.

The Minister of Energy made two significant announcements regarding new nuclear development. First, the Ontario Government is beginning pre-development work to construct a new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of sitting up to 4,800 MW of new nuclear generation on the existing site. Second, the Ontario Government was working with Ontario Power Generation to commence planning and licenses for three additional small modular reactors (SMRs) at the Darlington Nuclear site.

 

The Government of Ontario is proposing to amend a number of regulations, including:

  • Ontario Regulation 160/99 under the Electricity Act, 161/99 under the Ontario Energy Board Act, and 389/10 under the Energy Consumer Protection Act¸ to implement the recently passed amendments to the Ontario Energy Board Act, giving the OEB the authority to exempt persons from having to be licensed with respect to specified activities for the purposes of participating in a pilot or demonstration project.
  • Ontario Regulation 679/21 under the Ontario Energy Board Act, and 389/10 under the Energy Consumer Protection Act, to clarify regulatory requirements for community net-metering and third-party net-metering ownership.
  • Ontario Regulation 53/05 under the Ontario Energy Board Act, to rate-regulate two proposed pump storage projects.
  • Ontario Regulation 509/18 under the Electricity Act, to harmonize requirements and efficiency metrics for various space and water heating products with NRCan through rolling incorporation.

The Ministry of Energy initiated consultations regarding proposals for three transmission projects in Northeast and Eastern Ontario. It proposes to designate as priority projects under section 96.1(1) of the Ontario Energy Board Act, the Mississagi to Third Line (230 kv line between Missisagi TS and Third Line TS), the Hanmer to Mississagi Line (500 kv line between Hanmer TS and Mississagi TS), and the Greater Toronto Area East Line (230 kv between Cherrywood TS or Claringston TS, and Dobbin TS). The Ministry is also proposing to issue a directive under section 26.7.1 of the Ontario Energy Board Act , to designate Hydro One as the transmitter to develop these three transmission projects. The Ministry also noted that for a fourth transmission project, the Wawa to Porcupine Line (230 kv line between Wawa TS to Porcupine TS) will engage with indigenous communities and interested transmitters who have expressed an interest in developing the line.

The Ministry of Energy also sought input on the future of electricity efficiency programs in advance of the end of the current 2021-2024 conservation and demand management framework.

Federal Government

The Government of Canada issued Powering Canada Forward: Building a Clean, Affordable, and Reliable Electricity System for Every Region of Canada, which outlines its vision for the electricity sector.

The Government of Canada also published a draft of its Clean Electricity Regulation which is currently open for comment (the IESO has already raised certain concerns with the draft regulation). Feedback period is open to November 2, 2023 and final regulations are expected to be published in 2024.

Shepherd Rubenstein News

Both Jay Shepherd and Mark Rubenstein were listed in the 2024 edition of ‘Best Lawyers’. Mark was ranked by Chambers Canada in its 2024 guide.

What We Are Reading

Power Advisory’s analysis of the impact of the Clean Energy Regulation on Ontario. Positive Energy’s Net Zero: An International Review of Electricity and Natural Gas Delivery System Policy and Regulation for Canadian Energy Decision-makers Report.

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 mark@shepherdrubenstein.com.

Categories
SR Update

Energy Regulatory Update (Q2, 2023)

Summer has arrived and so has the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the key developments in the Ontario energy sector. We scoured the regulatory landscape to provide you with a summary of all the important happenings between April and June (and the first few days of July) so you can stay in the know.

Ontario Energy Board

The OEB issued several notable decisions over the past few months, including:

Both the Chief Executive Officer and Chief Commissioner provided their respective 2022-2023 year-end updates. As it looks forward, the OEB also published its 2023-2026 Business Plan, which was approved by the Minister of Energy.

As part of its Electric Vehicle Integration (EVI) Initiative, the OEB released a consultant’s report on Electricity Delivery Rates for EV Charging, held a stakeholder meeting and sought written comments to gather feedback.

The OEB released its inaugural Innovation Sandbox 2.0 report covering activities of the Innovation Sandbox since July 2020.

In advance of the filing of 2024 incentive regulation applications, the OEB issued:

The OEB made changes to the Distributed Energy Resources Connection Procedures, requiring the use of standard template forms for certain information provided to a distributor by a customer, and for responding information provided by a distributor.

On the compliance front, the OEB issued its annual Compliance Report. A further 4 Assurances of Voluntary Compliance (AVC) were accepted from electricity distributors (Synergy North, Fort Francis Power, Atikokan Hydro, and Sioux Lookout Hydro) related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. The OEB also accepted AVCs from two electricity wholesalers (Carmeuse Lime (Canada) and Enbridge Pipelines) who had been operating without a license.

Independent Electricity System Operator

The IESO issued its Resource Adequacy update, providing the results from its recent Expedited Long-Term RFP (E-LT RFP) and Same Technology Upgrade procurement. As a result of the E-LT RFP, the IESO has contracted for 881 MW of non-emitting capacity from 15 storage facilities (combined category 1 and 2), and 295 MW of natural gas capacity from on-site expansion of two existing facilities (about half the target capacity). Through the Same Technology Upgrade, the IESO has contracted for 291 MW of additional natural gas capacity. The Minister of Energy issued a directive requiring IESO to enter into its finalized contract to extend Brighton Beach Generation Station to 2034 and provide incremental capacity.

The IESO also announced that for its next Capacity Auction it will target 1,400 MW for summer 2024 and 850 MW for winter 2024/2025, an increase over the 2022 auction.

Work continued on the Long-Term RFP which is expected to be issued at the end of September, including design of the contract and a number of technical matters (deliverability and the connection assessment processes).

The IESO recommended that Hydro One construct phase 2 of the Waasigan Transmission Line between Atikokan and Dryden.

The Technical Panel recommended market rule amendments:

The IESO sought comment on its application for an exemption from the Market Rules to allow it to cancel Transmission Rights auctions to facilitate transition to the new market.

The IESO issued a number of reports, including:

A settlement agreement was entered into with ArcelorMittal Dofasco for breaches of the Market Rules related to the Operating Reserve market.

Legislative and Regulatory

On July 5th, the Minister of Energy announced that the Ontario Government is beginning pre-development work to construct a new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of sitting up to 4,800 MW of new nuclear generation on the existing site.

The Government of Ontario introduced and passed Bill 91, Less Red Tape, Stronger Economy Act, 2023, which among other things:

  • Amended 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, and ii) allowing the OEB to exempt proponents that wish to undertake innovative projects from various license requirements on a time-limited basis.
  • Amended 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 of Ontario initiated consultations for each of these three legislative amendments: keeping penalties off rates, advancing innovation on Ontario’s energy sector, and proposed changes to OGSRA to regulate test projects.

The Electrification and Energy Transition Panel released an Open Call document and sought written feedback to assist in its work.

The Government of Ontario issued, amended or proposed to amend a number of regulations, including:

On May 1st, seven electricity distributors started offering the new Ultra-Low Overnight Electricity Price Plan with all others required to offer the plan by November 1st.

Judicial Decisions

More than sixteen years after the Supreme Court of Canada’s ATCO Gas (aka Stores Block) decision, the Alberta Court of Appeal (ABCA) released the latest decision that wades through its implications. In ATCO Electric Ltd v Alberta Utilities Commission, the ABCA overturned an Alberta Utilities Commission (AUC) decision that determined that the undepreciated value of assets lost by ATCO in Ft. McMurray were losses to be borne by the shareholder. The ABCA found that the AUC had misread the implications of the Supreme Court’s Stores Block (and a subsequent ABCA decision) that constrained the regulator’s discretion with respect to destroyed assets. The ABCA sent the matter back to the AUC for reconsideration.

The Ontario Court of Appeal (OCA) released its decision in Hydro One Networks Inc. v. Shiner allowing the appeal. The OCA found that Hydro One had made out the test for prescriptive easement over certain lands used to access and maintain its transmission facilities since the 1930s.

The Ontario Superior Court of Justice granted an interim receivership application under the Bankruptcy and Insolvency Act over the assets of Planet Energy, an Ontario electricity and natural gas retailer.

 Things We Are Reading

The Canadian Energy Regulator released its Canada’s Energy Future 2023: Energy Supply and Demand Projections to 2050 Report. Canadian Climate Institute issued a report on Clean Electricity, Affordable Energy. The National Association of Convenience Stores in the United States released a report it had commissioned on the benefits of competitive EV charging stations.

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 mark@shepherdrubenstein.com.

Click here for the pdf version.

Categories
SR Update

Energy Regulatory Update (Q1, 2023)

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:

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:

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.

The OEB issued a letter summarizing feedback it heard from electricity distributors and the proposed actions it plans to take regarding enhanced cybersecurity readiness.

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:

The Technical Panel recommended market rules amendments related to:

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 Exemption Panel made two determinations on market rules exception and reconsideration applications for dispatchable loads (ArcelorMittal Dofasco and Ivaco Rolling Mills).

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.

 Other News

 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.

As part of the Federal Government’s 2023 Budget, it announced significant new measures to promote clean energy investment, including among others:

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 mark@shepherdrubenstein.com.