We’re pleased to share the Q1, 2025 edition of the Shepherd Rubenstein Energy Regulatory Update, our summary of key developments in Ontario’s energy sector between January and March (and the first few days of April). This quarter was marked by heightened uncertainty caused by the ongoing trade dispute with the United States. The Ontario provincial election led to a temporary pause in many regulatory initiatives, while the recent launch of the federal election campaign has added further complexity to the evolving energy policy landscape heading into Q2.
Trade War
The escalating trade war between Canada and the United States has had direct implications for Ontario’s energy sector.
In January, the Ontario government introduced its Fortress Am-Can plan, aimed at promoting energy security and economic growth on both sides of the Canada-U.S. border. In early February, President Trump issued an Executive Order imposing tariffs on all Canadian imports (10% on energy and 25% on all other goods). These tariffs were subsequently paused for 30 days.
In anticipation of the pause expiring, the New York Independent System Operator (NYISO), which is interconnected with Ontario, filed a tariff revision with the Federal Energy Regulatory Commission (FERC). The filing proposed a mechanism to recover the costs of potential tariffs on Canadian electricity imports, if applicable. NYISO’s view is that under existing legal precedent, tariffs apply only to tangible goods, and therefore electricity, as an intangible product, should fall outside the scope of the Executive Order.
On March 4th, the United States implemented an Executive Order imposing the previously paused tariffs. The order was later amended to temporarily exempt goods compliant with United States-Mexico-Canada Agreement (USMCA/CUSMA). In response, the Ontario Government announced on March 10th that it would apply a 25% electricity surcharge on exports to the United States. This measure was implemented by filing Ontario Regulation 25/25 under the Electricity Act and through a letter directing the IESO to urgently amend the Market Rules to apply a surcharge of $10 per megawatt-hour, reflecting approximately 25% of the average value of electricity exports. That day, the IESO implemented an urgent Market Rule amendment requiring it to administer a charge on all export transactions to the United States, based on the amount specified in a request from the Minister of Energy and Electrification. The following day, following discussions with the United States government, the Minister directed the IESO to suspend the surcharge by setting the charge amount to zero.
In a separate February announcement, the United States imposed a 25% tariff on steel and aluminum imports, effective in mid-March. Later in March, it also announced a 25% tariff on automobile imports and parts, effective April 3rd (there is an ability for importers to exempt United States content to reduce the tariff on CUSMA originating vehicles and parts). Both measures are expected to disproportionately impact Ontario. In response to the broad-based tariff announcement and the specific tariffs on steel and aluminum, the Federal Government announced retaliatory tariffs on a range of imported products. It also launched a consultation on potential further retaliatory tariffs on imported goods from the United States, which include several energy-related items such as electricity transformers, insulators, wiring, and steel and plastic pipes used in natural gas infrastructure.
On April 2nd, the United States announced differentiated tariffs on countries around the world, with a minimum rate set at 10%. These new tariffs will not apply to Canadian (and Mexican) imports that are CUSMA-compliant, in accordance with previous Executive Orders. Non-compliant goods will be subject to a 25% rate, and a 10% rate will apply to energy and potash. On April 3rd, in retaliation for the implementation of previously announced auto tariffs, the Federal Government announced a 25% counter-tariff on United States made cars not compliant with CUSMA
Ontario Energy Board
The OEB issued a number of notable decisions over the last few months, including:
- Adopting a new Cost of Capital Framework for regulated utilities, including, among other matters, setting the 2025 return on equity (ROE) at 9% (a reduction of 25 bps from the status quo) and maintaining the existing deemed capital structures.
- Dismissing an application by a group of non-quick start gas-fired electricity generators seeking to remove the Market Rule amendments implementing the IESO’s Market Renewal Program. The OEB rejected the claim that the amendments were unjustly discriminatory and inconsistent with the purposes of the Electricity Act.
- Granting Enbridge Gas leave to construct the St. Laurent Replacement Project. The project, which involves the replacement of approximately 18 km of pipeline in Ottawa, had previously been denied by the OEB in 2022.
- Determining several outstanding issues as part of Phase 2 of the OEB’s generic hearing on Uniform Transmission Rates (UTRs).
- Approving 50% of Lakefront Utilities’ request for an Incremental Capital Module (ICM) related to a distribution substation. The OEB determined that the remaining 50% would be recorded in a deferral account, with recovery contingent upon specific undertakings related to an evaluation demonstrating the prudence of the selected solution and that the project results in measurable reliability enhancements.
- Denying Algoma Power’s request for the OEB to order the IESO to correct a prior settlement error, finding that the shareholder should bear the cost. This was the first OEB decision to interpret the limitation provisions under section 36.1.1 of the Electricity Act.
- Approving, with modifications, Enbridge Gas’s application for its Integrated Resource Planning (IRP) pilot project, the Southern Lake Huron Pilot Project. As part of the Decision, the OEB rejected funding for hybrid heating and natural gas heat pumps, and directed that those funds be reallocated to electrification measures. On the same day the decision was released, the OEB initiated, on its own motion, a review raising several questions regarding the correctness of the decision.
- Declining to approve a Settlement Proposal filed in Enbridge Gas’s annual deferral and variance account disposition proceeding, citing concerns related to the fugitive emissions component of the agreement.
- Issuing the 2025 Uniform Transmission Rates (UTRs).
Notices of Amendments to various codes were issued, including:
- Final amendments to the Distribution System Code (DSC) establishing minimum requirements for electricity distributors when communicating with customers during widespread power interruptions caused by severe weather.
- Proposed and Final amendments to the Retail Settlement Code (RSC) and the Standard Supply Service Code (SSSC), to facilitate implementation of the IESO’s Market Renewal Program.
- Final amendments to the Unit Sub-Metering Code (USM Code) intended to increase awareness of the consumer protection framework applicable to customers of unit sub-meter providers.
- Proposed and Final amendments to the Transmission System Code (TSC) aimed at better facilitating the connection of energy storage by introducing “storage customer” as a third category of customer that can connect to the transmission system.
The OEB announced a consultation on Distribution System Operator (DSO) capabilities, with a focus on ensuring that their introduction delivers value for customers. It also announced a consultation to support a review and evaluation of its Integrated Resource Planning Framework for Enbridge Gas.
As part of the Distributed Energy Resources (DER) Connection Review initiative, the OEB revised the Distributed Energy Resources Connection Procedures (DERCP). The revisions aimed to address customer concerns, enhance access, standardize connection practices, and simplify processes to reduce connection costs and timelines. OEB Staff also issued a letter reminding electricity distributors of their obligations under the Electric Vehicle Charging Connection Procedures (EVCCP).
A letter was issued providing guidance to electricity distributors in incorporating innovation-related proposals in rate applications. The OEB also updated its performance standards for Mergers, Acquisitions Amalgamations and Divestitures (MAADs) applications.
In January, the OEB released its Draft Report for comment on its proposed Electric Vehicle Charging Rate (EVC Rate), incorporating feedback received on its earlier proposal last year. At the end of March, the OEB released the Final Report, incorporating feedback received on the Draft Report.
As part of its Reliability and Power Quality Review (RPQR), the OEB announced the introduction of reliability performance targets. Developed in consultation with the RPQR Working Group, these targets will be included in electricity distributors’ performance scorecards beginning with applications for rates effective in 2027.
The OEB issued a letter, in conjunction with the release of the OEB Staff report, reviewing Enbridge Gas’s 2024 Annual Update to its natural gas supply plan. As part of the letter, the OEB adopted a process change for the consideration of future gas supply plans and accepted the OEB Staff recommendation that the next five-year gas supply plan (to be filed in 2025) be adjudicated by a panel of commissioners, with subsequent annual updates to continue to be considered through stakeholder consultation.
A generic deferral and variance account (DVA) for electricity distributors was established to record the incremental revenue requirement impacts resulting from reductions in forecasted customer capital contributions embedded in distribution rates. These reductions arise from previously implemented changes to the connection and revenue horizon for housing developments.
Assurances of Voluntary Compliance (AVCs) were entered into with Orangeville Hydro Limited regarding non-compliance related to Class A Global Adjustment under-billing and loss adjustment errors. As part of accepting the AVC, the OEB directed the IESO, notwithstanding the limitation period, to refund Orangeville Hydro for the billing error. AVCs were also entered into with GC Project and Atlantic Packing Products for operating in the electricity market without a retailer or wholesaler license, respectively.
The OEB released its Intervenors and Regulatory Efficiency report, which was sent to the Minister of Energy and Electrification. The report was developed in response to the 2023 Letter of Direction to the OEB, and its Action Plan is referenced in the Minister’s 2024 Letter of Direction.
At the beginning of April, the OEB launched two consultations to inform ratemaking for electricity distributors. The first is a review of the use of total cost benchmarking in assessing the overall cost performance of electricity distributors, which is used as part of the price cap index X-factor. The second is a review of electricity distributor spending patterns.
Independent Electricity System Operator
In early January, 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 aimed at promoting electrification and the use of electricity to reduce emissions.
The Ontario government announced that it is advancing pre-development work for the proposed Ontario Pumped Storage Project (a partnership between TC Energy and the Saugeen Ojibway Nation). The Minister of Energy and Electrification issued a directive to the IESO to finalize and enter into an agreement with TC Energy to recover expenses associated with the pre-development work.
The IESO released the April 2025 to September 2026 Reliability Outlook.
Legislative and Regulatory
The Ontario Government approved Ontario Power Generation’s (OPG) plan to proceed with the next phase (project definition) of the refinement of the Pickering Nuclear Generating Station’s “B” units. The Minister of Energy and Electrification also proposed amendments to Ontario Regulation 53/05 under the Ontario Energy Board Act, clarifying the scope of what can be recorded in the Pickering B Extension Variance Account.
The Ontario Government also asked OPG to explore opportunities for new nuclear generation at its Wesleyville site, following expressions of interest from the Municipality of Port Hope and the Williams Treaties First Nations (WTFN). It also expressed support for OPG’s $2 billion plan to refurbish and expand hydroelectric generating stations across Northern Ontario.
The Ministry of Energy and Electrification proposed an amendment to Ontario Regulation 735/20, under the Electricity Act, to use the proceeds from the Future Clean Electricity Fund (where proceeds of the Clean Energy Credits from OPG and the IESO are held) to offset the Global Adjustment costs arising from non-emitting electricity generation approved by the IESO.
With the swearing in of the new cabinet in March, the Ministry of Energy and Electrification was renamed the Ministry of Energy and Mines to reflect the expanded responsibilities.
The Associate Minister of Energy-Intensive Industries announced a new round of funding of up to $3M from the Hydrogen Innovation Fund.
Federal Government
The Federal Government announced $55 million of funding from its Environment and Climate Change Canada’s Future Electricity Fund (FEF) to OPG to support the predevelopment activities for the next three proposed small modular reactors (SMR) at its Darlington site.
In late March, the Federal Government effectively eliminated the consumer Federal Carbon Charge through a regulation amending Schedule 2 of the Greenhouse Gas Pollution Pricing Act and the Fuel Charge Regulation, setting the charge amount to zero after March 31, 2025. Subsequently, the OEB approved applications by both Enbridge Gas and EPCOR to reflect the change in rates charged for customer commodity consumption as of April 1st.
The Federal Government also announced the doubling of the indigenous Loan Guarantee Program from $5 to $10 billion.
The Canadian Nuclear Safety Commission (CNSC) issued its Record of Decision of its recent approval to extend the operation of Pickering Nuclear Generating Station Units 5 to 8 until the end of 2026.
Judicial
In Kebaowek First Nation v. Canadian Nuclear Laboratories, the Federal Court granted, in part, the Kebaowek First Nation’s application for judicial review of a CNSC decision authorizing the construction of a Near Surface Disposal Facility (NSDF) at Chalk River. The Federal Court found that the Commission erred in law by concluding it lacked jurisdiction to consider the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) and its implementing legislation, in assessing the Crown’s duty to consult and accommodate. It held that the UNDRIP is now part of Canadian law and must inform the interpretation of section 35 of the Constitution Act, 1982. The Federal Court emphasized that while UNDRIP does not create new rights or a veto, it is an important interpretive lens for reconciliation and meaningful consultation.
The Alberta Court of Appeal in FortisAlberta Inc v Alberta Utilities Commission, granted permission to appeal the Alberta Utilities Commission’s (AUC) decision establishing the third-generation performance-based regulation (PBR3) plan for 2024–2028. FortisAlberta, ENMAX, and ATCO argued that the AUC’s PBR3 framework denied them a reasonable opportunity to recover prudent capital costs. The Court of Appeal found the utilities raised serious questions of law regarding the compatibility of cost recovery obligations with a PBR model that deliberately de-links rates from costs under section 122 of the Electric Utilities Act. FortisAlberta also raised a distinct issue regarding the Commission’s failure to account for its unique circumstances in applying a stretch factor. Given the importance of these questions to Alberta’s utility regulation framework, the Court of Appeal concluded they were of significant public and industry-wide importance. Despite important differences between the Alberta’s Electric Utilities Act and the Ontario Energy Board Act, this is still a case to watch
Other
The Town of Essex announced that it has decided to sell its shares in E.L.K. Energy, along with a subsidiary, to the ENWIN Group of Companies (which includes ENWIN Utilities Ltd.), owned by the City of Windsor.
Firm News
Both Jay and Mark were recognized in the latest edition of Canadian Legal Lexpert Directory.
Mark will be co-chairing the Ontario Bar Association’s Natural Resources and Energy Law Section’s Recent Developments in Energy Regulation program on April 24th.
What We Are Reading
Power Advisory’s Impact of Tariffs on Electricity Exports from Canada to the United States analysis, Positive Energy’s Energy Projects and Net Zero by 2050: Can We Build Enough Fast Enough Report, the Duke University’ Nicholas Institute for Energy, Environment & Sustainability’s Rethinking Load Growth Assessing the Potential for Integration of Large Flexible Loads in US Power Systems whitepaper, and Professor Schaufele’s article Demand and Oversight in Ontario’s Hybrid Electricity Market.
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.