Energy Regulatory Update (Q2, 2025)

Summer has arrived, along with the latest edition of the Shepherd Rubenstein Energy Regulatory Update, our quarterly round-up of key developments in Ontario’s energy sector. This edition covers the period from April to June, highlighted by the release of the Ontario Government’s Integrated Energy Plan.

Integrated Energy Plan

On June 12th, the Ontario Government released its first Integrated Energy Plan (IEP), Energy for Generations. The IEP is meant to be the Government’s comprehensive roadmap for meeting future energy needs through a single coordinated strategy across different energy types (including electricity, natural gas, and hydrogen) and outlines a host of measures that it has undertaken and expects to continue.

The IEP includes the Government’s policy regarding:

  • Integrated Energy Planning. The IEP sets out a new integrated approach to energy planning that brings together electricity, fuels, and other energy sources under a single, coordinated framework. It outlines a governance structure led by the Ministry of Energy to ensure alignment across agencies like the IESO and OEB. Future planning will use scenario modelling and cross-sector analysis. This integrated approach aims to replace past fragmentation with long-term, system-wide coordination.
  • Affordable, Secure, Reliable, and Clean Electricity. To meet a projected 75% rise in demand by 2050, the IEP sets out new nuclear, hydro, and storage investments. It discusses Ontario’s plan to build new SMRs, expand hydro facilities, and refurbish existing nuclear units. Additionally, regular competitive procurements will add clean, dispatchable generation.
  • Electricity Transmission. The IEP outlines Ontario’s plan for more than 5,000 km of new and upgraded transmission lines to support economic growth and connect new supply. Priority lines will serve EV hubs in the southwest, enable northern mining, and connect remote Indigenous communities. A new planning division will streamline project delivery and approvals.
  • Future Electricity Grid. To handle decentralized technologies and shifting demand, the IEP calls for utilities to plan for DERs, EV chargers, and customer-side storage. The IEP also discusses how performance-based regulation and improved data access will support utility accountability and customer engagement to ensure the grid remains reliable, flexible, and ready for emerging needs.
  • Natural Gas Policy Statement. The IEP confirms Ontario’s plan to maintain natural gas as a reliable. The province will support targeted system expansions, oppose federal limits on gas heating, and increase the use of RNG. Future efforts will focus on keeping the network resilient and customer-focused, while advancing low-carbon integration. Natural gas will continue to support peak electricity, heating, and industrial needs.
  • Energy Efficiency. The IEP prioritizes energy efficiency to manage demand growth and reduce infrastructure needs. It discusses Ontario’s previously announced plan to invest $10.9 billion over 12 years in expanded electricity and gas programs, which is expected to reduce peak demand by 3,000 MW and lower long-term system costs.
  • Indigenous Leadership and Participation. The IEP commits to deeper Indigenous partnerships in Ontario’s energy sector. The plan expands opportunities for equity participation, local planning, and clean energy access. Future investments will support remote community connections and Indigenous-led projects. These measures aim to build lasting partnerships and deliver inclusive energy development.
  • Leveraging Other Energy Resources. Ontario plans to scale up hydrogen, RNG, and biofuels to diversify supply and reduce emissions. The IEP supports early hydrogen adoption in industry and transport, with infrastructure investment and pilot projects. RNG integration into gas networks will continue, alongside support for municipal and industrial production.
  • Ontario as a Global Energy Superpower. The IEP outlines Ontario’s plan to expand its global energy presence through exports, innovation, and nuclear leadership, including support for new interties, SMR commercialization, and clean tech sector growth.

At the same time, the Minister of Energy and Minis issued detailed implementation directives to each of the IESO and OEB.

The Minister’s directive to the IESO, includes among many other matters:

  • Planning. As part of its planning process, the IESO must integrate multiple demand scenarios into long-term planning documents, incorporating high-growth and less-probable scenarios with qualitative and quantitative risk assessments. These projections should encompass employment, population, housing, and extreme weather trends. It must coordinate assumptions with the OEB, participate in integrated planning forums, and consult the Ministry and stakeholders before finalizing scenarios.
  • Streamline Processes. The IESO must report back on actions to streamline its energy procurement processes, especially those critical to government priorities. It is also tasked with improving transparency in the connection process by proposing clear timelines and potential service standards.
  • Indigenous Participation. The IESO is required to enhance its engagement practices with Indigenous communities, including providing reasonable access to capacity funding to support meaningful participation in procurement design.
  • DERs. The Minister has directed the IESO to enable broader DER eligibility in procurements, ensure planning processes take cost-effective DER deployment into account, and support the OEB with its DER initiatives (including DER valuation, distributor-led procurements, and data collection and sharing).
  • Transmission. The IESO must continue developing a competitive process for transmitter selection and launch Transmitter Registry initiatives.
  • Nuclear. The IESO is tasked with advancing the next steps in Ontario’s New Nuclear Feasibility Study, collaborating with Ontario Power Generation (OPG) and Bruce Power to evaluate and conduct early planning for additional nuclear generation, including both large-scale projects and SMRs.
  • Northern Hydro Program. The directive calls for the launch of the Northern Hydro Program by the end of March 2026.

The Minister’s directive to the OEB, includes, among other matters:

  • Planning. Directing the OEB to establish an ongoing gas-electric coordination and information-sharing forum to support integrated energy planning. It is tasked with setting expectations for electricity and natural gas distributors to use multiple demand scenarios and incorporate economic trends, cost forecasts, and other planning assumptions into their planning frameworks. Additionally, the OEB must collaborate with the IESO to review and update regional and bulk planning processes, ensuring they are more responsive to rapid demand growth, particularly in high-growth regions.
  • DERs. Requiring the OEB to review DER valuation and, in coordination with the IESO, provide recommendations on an updated regulatory and compensation framework that reflects the value DERs bring to the system. The OEB must also ensure that planning processes account for cost-effective DER deployment, explore mechanisms to support distributor investment in DERs and non-wires alternatives (including across boundaries), continue work to improve the connection process, enhance data collection and sharing, and define a roadmap for enabling Distribution System Operator (DSO) functions.
  • Natural Gas Policy Statement. Requiring the OEB to consider the government’s Natural Gas Policy Statement (included in the IEP) in its evaluation of the future role of natural gas in Ontario’s energy system.
  • Streamline Processes. Directing the OEB to report on opportunities to streamline its own processes to support rapid energy project development and to review both transmitter and electricity distributor connection procedures to enhance efficiency, reduce timelines, and facilitate faster project development.
  • Expanded Mandate. The OEB must report back on the scope, timing, and resourcing considerations for a potential expansion of its mandate to reflect the evolving energy landscape, including hydrogen pipeline, district energy, and rate regulation for long-life electricity projects.

The Minister of Energy and Mines also released the Cost-Effective Energy Pathways Study that it has previously commissioned.

Ontario Energy Board

The OEB issued a number of notable decisions over the last few months, including:

As part of the implementation of the Report on System Expansion for Housing Developments, the OEB issued both a Notice of Proposal and a Final Notice to amend the Distribution System Code (DSC), establishing a Capacity Allocation Model (CAM) to facilitate connections for housing developments. The CAM was developed primarily based on input from the previously announced CAM Advisory Group.

There was a significant amount of new and on-going policy work, the OEB:

To further incent electricity distributors to use third-party DERs as non-wires alternatives, the OEB issued a Notice of Proposal to Amend the DSC to include a 25% Margin on Payments (MoP) incentive for such uses when meeting a distribution system need. As part of the Notice, the OEB released a consultant report that informed the specifics of the OEB’s proposal.

The OEB released a draft for comment and held a stakeholder meeting on its proposed update to the Filing Requirements for electricity transmission rate applications, including guidance on the revenue requirement framework for single-asset transmitters.

The CEO issued her annual end of fiscal year progress update letter.

The OEB announced the launch of its second Innovation Sandbox Challenge focused on empowering Indigenous innovation and leadership.

In time for the Market Renewal Program (MRP) go-live date, finalized accounting guidance was provided to electricity distributors regarding the impact on commodity-pass through accounts. 

The OEB provided calculations on the 2026 inflation parameters, as well as issued orders setting the 2026 distribution pole attachment charge, and energy retainer service charges. It also established a deferral account to record impacts arising from the implementation of the Electric Vehicle Charging Rate.

As part of Phase 2 of its capacity information map project, the OEB issued a letter providing direction to electricity distributors to submit standardized data on system capacity to connect new loads, to support the development of a centralized, distribution-level Geographic Information System based Centralized Capacity Information Map.

An Assurance Voluntary Compliance was accepted from Bracebridge Generation Ltd., related to operating in the market without a generator’s license. The OEB also released its Annual Compliance Report (April 2024-March 2025).

Work was advanced on implementing several initiatives under its 10-point Action Plan, outlined in its September 2024 Report Back to the Minister on Intervenors and Regulatory Efficiency, by updating the cost award tariff, issuing a proposal for comment on categorizing intervenors by interest, and launching a pilot for the use of technology and process changes aimed at increasing collaboration and reducing duplication of interrogatories.

Independent Electricity System Operator

The IESO’s Market Renewal Program went live as scheduled on May 1st. Ontario’s electricity wholesale market is now operating with its new Real-Time and Day-Ahead Markets, with locational marginal pricing.  In advance, as a result of final testing, an urgent market rule amendment was adopted to correct two errors that would have resulted in a misalignment between the intended design that were built into the settlement tools and the wording of the Market Rules.

The IESO released the 2025 Annual Planning Outlook (APO). The APO forecasts a 75% increase in net annual energy demand by 2050, and significantly higher than what was forecast in 2024, driven by electrification, EV manufacturing, data centers, and population growth. The APO discusses the IESO’s plan to meet this rising demand, through its plans for major procurements of generation, storage, and transmission, alongside expanded energy efficiency programs and demand-side management.

As part of its procurement work, the IESO concluded its second Medium-Term Procurement (MT2 RFP) by executing contracts with 27 proponents, securing a total of 3,001 MW of capacity. The MT2 RFP energy stream secured 994.97 MW from 19 proponents, while the capacity stream secured 2,006 MW from 8 proponents.

Stakeholder engagement continued for the upcoming Long-Term 2 RFP (LT2 RFP), including the release of updated draft RFP and contract documents. The first submission windows (LT2-W1) for the capacity and energy streams are expected in October and December, respectively. In late June, the IESO received a directive from the Minister of Energy and Mines to include, as part of LT2-W1, an incentive for Canadian proponents.

The IESO also engaged stakeholders in the development of a Local Generation Program targeting both new builds and re-contracting of distribution-connected resources between 100 kW and 10 MW, in advance of its required report back to the Minister in July. Engagement also began on design considerations for a potential Long Lead-Time RFP (LLT RFP).

The IESO advanced work on a planned Transmitter Selection Framework (TSF), including the design and rules for a TSF Registry of eligible transmitters that could participate in future TSF procurements. Under the IEP implementation directive to the IESO, the TSF Registry is required to be launched by mid-August.

The Minister of Energy and Mines issued a directive to the IESO approving an increase in annual funding for the Indigenous Energy Support Program from $10M to $20M.

The Ontario government and the IESO announced they are advancing plans for a third transmission line into downtown Toronto to address future electricity demand. The IESO has proposed three potential routes and is leading public and Indigenous consultations to determine the preferred option to report back to the Minister of Energy and Mines by August 2025.

The IESO released its latest Reliability Outlook Report (July 2025-December 2026). It also published a third-party review of its planning and procurement processes, and its response to their recommendations.

The IESO Exemption Panel approved a number of amendments to exemptions to align existing exemptions with the renewed market rules.

Legislative and Regulatory

The Ontario Government introduced and passed Bill 5, Protect Ontario by Unleashing our Economy Act, 2025. The legislation enacts the Special Economic Zones Ac, 2025, which authorizes the designation of special economic zones through regulation. It also allows, through regulation, the exemption of designated projects or trusted proponents from the application of certain legislation, regulations, instruments, and by-laws.Bill 5 also included amendments to both the Electricity Act and the Ontario Energy Board Act, authorizing the government to impose geographic origin-based restrictions on the procurement of electricity and gas-related goods and services. These restrictions apply to the IESO, OPG, gas utilities, and electricity licensees (e.g. distributors, and transmitters) or their subsidiaries. The changes give the government broader control over procurement decisions through directives and regulations tied to the geographic origin of suppliers or services.

The Ontario Government also introduced Bill 40, Protect Ontario by Securing Affordable Energy for Generations Act, 2025. If passed, the bill would make several amendments to energy-related legislation, including:

  • Electricity Act. Adds new statutory purposes to promote economic growth and support the development of a hydrogen market and economy, and expands the IESO’s objectives to include economic growth. It would also permit, through regulation, certain electricity-related payments to be funded through legislative appropriations, and introduce new provisions restricting electricity distributors and transmitters from connecting certain load facilities unless connection requirements set by regulation are met.
  • Ontario Energy Board Act. Adds economic growth as a new statutory objective of the OEB in relation to electricity regulation. It would authorize the CEO to issue internal procedural policies and implement provisions related to new connection restrictions under the Electricity Act. The bill would also require the OEB to consider appropriated payments to transmitters in rate-setting, incorporate economic growth into the public interest test for leave to construct applications, and allow deferral and variance accounts for costs related to compliance with Bill 5, Protect Ontario by Unleashing our Economy Act, 2025.
  • Municipal Franchises Act. Removes the requirement for municipal elector approval before granting a utility the right to use or occupy municipal highways, allowing municipalities to do so through a by-law passed by council. It also expands the OEB’s authority to consider applications from municipalities or gas distributors to renew or extend rights not only to operate but also to construct, extend, or add to gas distribution works.

The Ontario Government announced that it has approved OPG’s plan to begin construction of the first of four SMRs at Darlington. OPG estimates the total cost for all four units at $20.9 billion.

The Minister of Energy and Mines announced that the Ontario government and OPG are working with the Taykwa Tagamou Nation and the Moose Cree First Nation to explore and advance two new hydroelectric generation stations in Northern Ontario: the Nine Mile Rapids Generating Station and the Grand Rapids Generating Station.

There were a number of new proposed or issued amendments to regulations, including:

  • Amendments to Ontario Regulation 429/04 under the Electricity Act and Ontario Regulation 53/05 under the Ontario Energy Board Act to align the regulatory framework with the IESO’s MRP.
  • Amendments to Ontario Regulation 429/04 under the Electricity Act to create a new framework allowing participants in the Industrial Conservation Initiative (ICI) program to enter into Corporate Power Purchase Agreements with eligible non-emitting generators located anywhere in Ontario, provided both parties are market participants, to help reduce a facility’s Global Adjustment charges.
  • Amendments to Ontario Regulation 328/03 under the Ontario Energy Board Act to expand the exemption from the leave to construct requirement for pipeline projects to include all relocation and reconstruction projects required by another person, provided certain conditions are met. Previously, the exemption was limited to projects required by a priority transit or road authority.
  • Amendments to Ontario Regulation 53/05 under the Ontario Energy Board Act expanded the scope of the Pickering B extension variance account to include costs related to preserving OPG’s ability to operate Pickering B following the refurbishment project, regardless of whether it proceeds.
  • Proposed amendments to Ontario Regulation 53/05 under the Ontario Energy Board Act to: i) establish a concurrent cost recovery mechanism allowing OPG to recover debt costs during the construction phase of the Darlington SMRs and Pickering Refurbishment; and ii) enable OPG to enter into commercial partnerships for equity in new SMRs built at Darlington, with the new entity remaining a prescribed generator under the regulation.
  • Proposed seperate amendments to Ontario Regulation 53/05 under the Ontario Energy Board Act to allow for the creation of a new variance account to record OPG’s pre-development expenses for new hydroelectric projects.

The Ontario Government also sought public feedback on actions it is considering with respect to several transmission projects. In each case, the Government proposes to declare the project a priority under section 96.1 of the Ontario Energy Board Act and, where it has not already done so (if applicable), designate Hydro One as the transmitter under section 26.7.1. The new transmission projects include:

The Associate Minister of Energy-Intensive Industries announced a number of new initiatives to support the hydrogen economy, including creating a new hydrogen interruptible rate pilot, exploring the regulation of hydrogen pipelines, and expanding the Hydrogen Innovation Fund.

Federal Government

The Federal Government introduced and passed Bill C-5, One Canadian Economy Act, which enacts the Building Canada Act. The Act allows the Federal Government to designate certain infrastructure and resource developments as national interest projects, streamlining their approval by consolidating all required federal authorizations into a single decision.

Canadian Nuclear Safety Commission (CNSC) announced its decision to issue a license to construct to OPG to construct its first SMR at Darlington.

Competition Bureau issued final guidelines regarding environmental claims, including the new greenwashing provisions that were added to the Competition Act in 2024.

Natural Resources Canada released Electric Utility Innovation Benefits: Lessons Learned from Government Programming Report.

Judicial

The Ontario Court of Appeal released its decision in Essex (County) v. Enbridge Gas Inc. upholding the Divisional Court’s decision overturning an OEB’s ruling that found a 1957 franchise agreement between Enbridge and the County had expired under the rule against perpetuities. The Court agreed that the OEB had misapplied the rule, focusing incorrectly on the duration of the agreement rather than whether the franchise rights had vested. The Court also held that the Divisional Court was not bound to follow its earlier decision which had been based on a misunderstanding of the rule against perpetuities. Lastly, it confirmed that the OEB lacked authority under section 10 of the Municipal Franchises Act to impose new franchise terms unless the existing agreement had expired or was about to expire.

In Telus Communications Inc. v. Federation of Canadian Municipalities, the Supreme Court of Canada held that telecom carriers do not have a statutory right to install 5G antennas on utility poles under the Telecommunications Act. The Supreme Court found that transmission line refers only to wireline infrastructure like cables, not antennas. As a result, access to poles for 5G antennas must be negotiated with pole owners, which include municipalities and electricity utilities.

What We Are Reading

Power Advisory’s weekly MRP review, NERC’s Interregional Transfer Capability Study Canadian Analysis Final Report and 2025 Summer Reliability Assessment, Clean Air Task Force’s Beyond LCOE: A Systems-Oriented Perspective for Evaluating Electricity Decarbonization Pathways, Lazard’s 2025 LCOE+ Report, and Professor Daly’s 2024 Developments in Administrative Law Relevent to Energy Law and Regulation.

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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