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.

Click here for pdf version