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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:

• Approving the comprehensive Settlement Proposal for Toronto Hydro’s 2025-2029 Custom IR rate application. In a separate decision on the lone unsettled issue, the OEB rejected Toronto Hydro’s proposed Innovation Fund, citing several deficiencies.
• Approving the partial Settlement Proposal for Phase 2 of Enbridge Gas’s 2024-2028 rate application, which represented a substantial agreement on the company’s 2025-2028 incentive rate framework, as well as issues related to natural gas storage.
• Granting Enbridge Gas’s application for an exemption from the requirement for leave to construct its Overlea Station Relocation project, finding that there were special circumstances under section 95(1) of the Ontario Energy Board Act.
• Approving Settlement Proposals in each of the five-year rate applications brought by B2M LP, Niagara Reinforcement LP, and Chatham x Lakeshore LP, establishing a new revenue requirement framework for single-asset transmitters.

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:

• As part of the VASH Project, issuing a draft report on Vulnerability Assessment for comment.
• Releasing a report authored by ICF that reviews the current state of Ontario’s electricity distributor sector regarding operations planning, system hardening, restoration performance, and customer communications.
• Issuing a Notice of Proposal to Amend the DSC to establish minimum requirements for customer communications during widespread power interruptions caused by severe weather.

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:

• Creates a legislative framework for the integrated energy plan, including outlining its goals and objectives through amendments to the Electricity Act.
• Authorizes the IESO to administer programs supporting beneficial electrification, aimed at promoting electrification and reducing emissions, through amendments to the Electricity Act.
• Provides the Government with new authority through amendments to the Ontario Energy Board Act to pass regulations amending the DSC and TSC, or exempting entities from their application regarding cost allocation and cost recovery for the construction, expansion, and reinforcement of the distribution and transmission systems.
• Amends the Electricity Act, Ontario Energy Board Act, and Energy Consumer Protection Act to clarify they do not apply to the distribution or retailing of electricity for EV charging, except as provided by regulation.

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 Government’s first integrated energy plan.
• Development of a Natural Gas Policy Statement to be included in the integrated energy plan.
• The proposed 2025–2036 Electricity Energy Efficiency Framework.
• Energy efficiency programming to promote beneficial electrification.
• Priority areas for a renewed Ontario’s Low-Carbon Hydrogen Strategy.

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.

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.

Click here for pdf version.

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:

• Approving the IESO’s request for incremental funding for 2024 and 2025 to support the Powering Ontario Growth Plan. The OEB found that section 25(1) of the Electricity Act permits the IESO to seek a change in its usage fee, notwithstanding specific provisions of a previously approved Settlement Proposal that had detailed the limited circumstances under which it could adjust its fees for those years.
• Approving Essex Powerlines’ request for the establishment of a new deferral account to record costs of energy and capacity payments made to participants of its PowerShare Distribution System Operator pilot project. In approving the account, the OEB capped the level of costs that could be recorded (at an amount lower than had been proposed) and required public reporting on the pilot’s progress.

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:

• Issued Ontario Regulation 273/24 under the Ontario Energy Board Act, specifying the revenue horizon for the setting of natural gas rates. This new authority was part of the amendments to the Ontario Energy Board Act included as part of Bill 165, Keeping Energy Costs Down Act, 2024.
• Proposed to amend Ontario Regulation 509/18 under the Electricity Act, to among other matters, expand rolling incorporation for 42 products already harmonized with NRCan requirements,

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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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:

• Granting leave to construct Enbridge’s Panhandle Regional Expansion Project (PREP). Commissioner Moran dissented on how to consider future pipeline expansions, the jurisdiction in a leave to construct proceeding to consider the need for capital contributions, and conditions of approval related to Indigenous engagement.
• Approving the application for the purchase of Chapleau PUC by Hydro One. Previously Hydro One had been granted interim approval to take possession and control of Chapleau PUC.
• Granting leave to construct to Hydro One’s Waasigan Transmission line.
• Approving a Settlement Proposal that established a formal connection procedure for producers to access Enbridge’s distribution system, including the establishment of timelines and contestability options.
• Updates to the 2024 Uniform Transmission Rates.
• Approving a Settlement Proposal in the 2024 rate adjustment application for Upper Canada Transmission 2, which operates the East-West Tie Line. The settlement included a disallowance of $30M related to project cost overruns primarily due to the COVID-19 pandemic.

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:

• Issued a letter to communicate that, as a result of a number of ongoing initiatives, it will not be formally updating the existing filing requirements for electricity distributors for 2025 cost of service filers (Chapters 1, 2, and 5). In the same letter, it outlined a pilot to budget intervenor costs for applications for distributors with fewer than 30,000 customers.
• Updated the filing requirements for electricity distribution incentive rate mechanism applications (Chapter 3).
• Provided guidance on the filing of System Impact Assessment (SIA) reports in the context of electricity transmission leave to construct applications.
• Launched a consultation to review the Filing Guidelines for Ontario Power Generation.

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:

• Central West Bulk Plan
• July 2024 to December 2025 Reliability Outlook
• EPRI’s Procuring Grid Services from Distributed Energy Resources (DER) Final Report

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 Electricity Advisory Council’s final report, Powering Canada: A Blueprint For Success.
• The Ministerial Working Group on Regulatory Efficiency for Clean Growth Projects, Building Canada’s Clean Future
• Natural Resources Canada’s progress report on its Hydrogen Strategy.

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.

 Click here for a pdf version.

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:

• Approving ICM funding for Alectra Utilities for 2024 for its underground cable replacement program in the PowerStream rate zone, while denying approval for the Enersource rate zone. In approving ICM funding, the OEB removed the materiality threshold requirement as a result of the outcome of using the 2024 Inflation factor, which it found in these specific circumstances (it would have resulted in no ICM funding) required an exceptional remedy.
• Determining that Enbridge Gas’ 2021 decision regarding contracting transportation capacity with Vector Pipeline was prudent.
• Approving the 2024 Uniform Transmission Rates (UTRs).
• Issuing a temporary partial stay of the Phase 1 decision in the Enbridge Gas 2024-2029 rate application with respect to the customer revenue horizon issue (until April 30, 2024), pending further developments regarding legislation to reverse that aspect of the decision. (Enbridge has also filed both a motion to review and notice of appeal to the Divisional Court regarding a number of aspects of the Phase 1 decision).

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:

• To facilitate connection of EV infrastructure by creating Electric Vehicle Charging Connection Procedures, standardized elements of the connection requirements and process, and requiring distributors to create a separate index in their Conditions of Service setting out any distributor specific connection requirements.
• To further facilitate DER adoption, amendments were made to enable electricity distributors to offer flexible hosting capacity arrangements.
• Requirements for distributors to comply with the new Ontario Cyber Security Standard (A parallel amendment is to be made to the Transmission System Code for transmitters was issued.)

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:

• Connection Approach for Small Modular Nuclear Reactors at the Existing Darlington Nuclear Generation Station
• April 2024 to September 2025 Reliability Outlook

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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