Author: admin

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

If you haven’t already done so, take a look at our special 2022 Year in Review edition, which explores some of the most important themes and regulatory developments in the Ontario energy sector in 2022 (and provides some thoughts for 2023).

Ontario Energy Board

The Minister of Energy issued its new Letter of Direction (previously ‘Mandate Letter’) to the Chair of the OEB.  The Minister highlighted several near-term and business plan period initiatives that it expects to be undertaken. Over the next 12 months this includes, among other priorities, supporting the work of the Electrification and Energy Transition Panel, launching workshops exploring how the OEB can enable electrification related investments while protecting consumers’ interests, advice and proposals to improve distribution sector resiliency, responsiveness, and cost efficiency, and continued work to facilitate EV adoption.

The OEB issued a number of significant decisions, including:

• Approving the full settlement proposal that was filed in the Hydro One’s Joint Rate Application. The approved settlement includes reductions to the proposed transmission and distribution capital and OM&A spending, as a well as a substantial number of changes and commitments by the company.
• Its decision on the 2023-2027 Demand Side Management (DSM) plan for Enbridge Gas. Among the changes in the proposed plan, the OEB approved only a three-year term (2023-2025), removed conditions prohibiting customers from switching from natural gas if they want to participate in DSM programs, and eliminated customer incentives for new gas-fired equipment. It also introduced a new incentive component, which for the first time incents absolute reduction total natural gas volume sales.
• In its Phase 1 decision in its Uniform Transmission Rate (UTR) generic hearing, setting the Export Transmission Service (ETS) rate effective January 1, 2023 at $1.78/MWh, increasing each year beginning in 2025.
• Granting leave to construct to Hydro One for its proposed Chatham SS to Lakeshore TS transmission line.
• Approving an ICM for Alectra Utilities for 2023 (PowerStream and Enersource rate zones) related to an underground cable replacement program, although it denied the request for 2024 approval, and made a substantial reduction to the requested amounts for the Enersource rate zone.
• Granting leave to Enbridge Gas to construct a new pipeline from its Corunna Compressor Station, replacing 7 existing compressors that Enbridge plans to retire.
• As part of its generic proceeding regarding the price paid by rate-regulated natural gas distributors and their customers for natural gas produced in Ontario, determining that the OEb does not directly or indirectly have jurisdiction to set the price paid by natural gas producers for the gas they provide to Ontario distributors. The OEB did find that a panel of commissioners does have authority, in setting a particular regulated gas rate, to impose conditions, if required to address barriers to fair and transparent access to the distribution system.
• The 2023 Uniform Transmission Rates (UTRs).

The OEB held its annual Policy Day, and the Chief Commissioner provided her Mid-Year Update for 2022-23.The OEB released a report that its Innovation Task Force (a committee of its Board of Directors), commissioned entitled Innovation Challenges and Opportunities in Ontario  (and whose recommendations it adopted).

As part of the on-going Reliability and Power Quality Review (RPQR) initiative, and its working group, the OEB issued amendments to the Reporting and Recordkeeping requirements (RRR) for electricity distributors clarifying certain reliability definitions and introducing interruption sub-cause codes.

The OEB released its updated RPP Price Report for the Regulated Price Plan and set RPP prices as of November 1^st. It also issued its annual inflation and cost of capital parameters for 2023 rate applications.

In furtherance of its work developing a dynamic pricing pilot for non-RPP class B customers. the OEB issued a draft application form and an application guideline document.

The OEB launched its Electric Vehicle Integration initiative with a survey of electricity distributors and EV charging station providers.

As part of its modernization agenda, the OEB:

• Issued a Generic Hearings Protocol.
• Based on the work undertaken by the working group established to review the filing requirements for large distributors for 2024, issued an updated version of the Filing Requirements for Electricity Distribution Rate Applications.
• Announced the initiation of a project to update the OEB’s Environmental Guidelines for the Location, Construction and Operation of Hydrocarbon Pipelines and Facilities in Ontario.
• Released and invited comment on its draft update to Chapter 4 (leave to construct and related matters) of its Filing Requirements for Electricity Transmission Applications.
• Launched a consultation on the OEB’s RRR for electricity distributors.

The OEB issued a guidance letter reminding distributors that they have discretion under the Distribution System Code (DSC) in determining the connection horizon for system expansions.  OEB Staff issued a Bulletin regarding the administration of the rules in the Global Adjustment Regulation, allowing Class A consumers to remain in the Industrial Conservation Initiative (ICI), where their average monthly demand drops below the eligibility threshold after participation in an eligible conservation initiative.

The Regional Planning Process Advisory Group (RPPAG) submitted two documents that were part of the recommendations in its Report to the OEB:  a Load Forecast Guideline for Ontario to use as part of the regional planning process, and a Municipal Information Document to support municipal engagement and identify information distributors need from municipalities to improve accuracy of their load forecasts.

The OEB provided notice of final amendments to the Standard Supply Service Code (SSSC) and the Regulated Price Plan (RRP) Manual to implement a new optional ultra-low overnight (ULO) pricing plan for RPP customers.

The Industry-Led Working Group (IWG) for Green Button Implementation Report was released by the OEB.

The OEB released the first annual report of its IRP Technical Working Group for the 2021 year, which was critical of the slow start Enbridge has shown in displacing capital investments with non-pipes alternatives.

There was significant compliance activity. Eight additional Assurances of Voluntary Compliance (AVC) were accepted for electricity distributors (ERTH Power, Oshawa PUC, Orangeville Hydro, Elexicon, Oakville Hydro, Tillsonburgh Hydro, Wasaga Distribution, Essex Powerlines) regarding billing errors that resulted in LDCs overcharging their customers on its fixed monthly service charge. The OEB also issued its Mid-Year Compliance Report.

The OEB accepted the filing of 2024-2028 Rate Application for Enbridge Gas Inc., the first Enbridge’s cost of service since amalgamation, and determined that the application will be considered over 2023 and perhaps some of 2024 in two phases.  The energy transition is expected to be one of the key areas of focus of the first phase.

Independent Electricity System Operator

In December, the IESO released its 2022 Annual Planning Outlook (APO). The APO provides a long-term view of Ontario’s electricity system demand, capacity and energy needs, and the ability to meet them.

As requested a year earlier by the Minister of Energy, the IESO also issued its Pathways to Decarbonization Report. The Pathways Report models to potential results of a 2027 moratorium on new natural gas generation in Ontario, and the resources needed to decarbonize the electricity system by 2050.

There were significant procurement related activities during the last quarter of 2022.  The IESO continued stakeholder engagement and development, leading to its finalized Expedited Long-Term RFP (E-LT1 RFP). The IESO released the final E-LT1 RFP and contract, with a submission deadline of February 16, 2023, and expected contract offer in May, 2023. The IESO also created a Same Technology Upgrade Solicitation, with submissions due before the end of 2022. Just before the holidays, the Minister of Energy wrote the IESO to ask to make clear the expectations that a municipal council support is required for a proposed project. This led to the IESO releasing an addendum to the E-LT1 RFP.

In the lead up to the release of the final E-LT1 RFP, the IESO, at the request of the Minister of Energy, provided its recommendations on eligibility of new natural gas generation projects. The Interim Resource Eligibility Report recommended that the 4,000 MW of new capacity targeted in the up-coming procurements be made up of up to 1,500 MW of new natural gas generation, which its analysis said is required, and up to 2,500 MW of storage and other non-emitting resources. On the same day the report was released, the Minister of Energy issued a directive authorizing the E-LT1 RFP and Same Technology Upgrades Solicitation with resource eligibility requirements in line with the IESO recommendations.

The IESO undertook its annual Capacity Auction, securing 1,437 MW for summer 2023 and 1,150 MW for winter 2023-24 at a clearing price that was 18.41% and 117.82% higher respectively than the previous year.

Also released in December was the IESO’s 2021-2024 CDM Mid-Term Review. The Mid-Term Review concludes that the framework is on track to achieve its original energy and demand savings targets. The Mid-Term Review also included a number of recommendations for the remainder of the current framework, and for a post-2024 framework, including a new emphasis on electrification.

In October, the Minister of Energy wrote to the IESO and asked it to report back by the end of the year on a proposal to re-contract small hydroelectric facilities (<10 MW) with a target launch date of the end of July 2023.

During the quarter, the IESO issued a number of bulk and regional transmission and resource plans:

• Need for Northeast Bulk System Reinforcement Report
• Gatineau End-of-Life Study
• Niagara Region Integrated Regional Resource Plan
• Renfrew Region Integrated Regional Resource Plan
• Burlington Nanticoke Region Scoping Assessment Outcome Report

The IESO continued its engagement on design of an Interruptible Rate Pilot, and submitted its report to the Ministry of Energy which has not yet been made public.

The Minister of Energy wrote the IESO regarding the development of a Clean Energy Credit (CEC) registry, anchoring the IESO to undertake commercial activities required to support a launch as early as possible in 2023. As discussed below, the Government of Ontario also passed legislation to create the legal framework for the CEC.

The Minister of Energy also issued a directive to the IESO to work with the OEB to assess proposals made as part of the dynamic price pilot for non-RPP class B customers (discussed earlier),and to enter into procurement contracts for successful proponents, not to exceed a total of $40M over the life of the pilot.

The Q4 Reliability Outlook was released.

The IESO Board of Directors adopted a Market Rule amendment to facilitate the delay of the replacement of the IESO’s Settlement System (RSS) project.

Legislative and Regulatory

The Government of Ontario introduced and passed Bill 36, Progress on the Plan to Build Act (Budget Measures), 2022. The legislation amends the Electricity Act and Ontario Energy Board Act to create a framework for establishment of a clean energy credit registry to be created by the IESO.

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

• Amending Ontario Regulation 95/05 under the Ontario Energy Board Act, to establish the ultra-low overnight price plan.
• Amending Ontario Regulation 161/99 under the Ontario Energy Board Act, to exempt the requirement for OEB approval to construct, expand, or reinforce a transmission line, if the costs are to be paid exclusively by a connecting customer(s).
• Amending Ontario Regulation 363/16 under the Ontario Rebate for Electricity Customers Act, reducing the electricity rebate under the Ontario Electricity Rebate for eligible customers from 17% to 11.7%.
• Amending Ontario Regulation 509/18 under the Electricity Act, updating the energy efficiency standards for 18 products to maintain harmonization with federal, United States, and industry standards.
• Amending Ontario Regulation 53/05 under the Ontario Energy Board Act, establishing a variance account to track additional costs and revenues associated with extension of the operations of Ontario Power Generation’s Pickering Nuclear Generation Station to September 2026.
• Proposed amendments to various regulations under the Building Broadband Faster Act, to outline under what circumstances OEB orders can be modified, and to allow any compensation orders issued by the OEB to apply to designated broadband projects.
• Proposal to amend Ontario Regulation 410/22 under the Ontario Energy Board Act, to shorten timelines electricity distributors have to grant internet service providers permission to attach broadband infrastructure to electricity poles.

The Ministry of Transportation also sought and received feedback on building new public electric vehicle charging infrastructure as it develops a program to be released in 2023.

Other News

The Government of Ontario appointed the remaining members of the Electrification and Energy Transition Panel (Dr. Monica Gattinger, University of Ottawa and Chief Emeritus Emily Whetung, former Chief of Curve Lake First Nation) to join panel chair David Collie.

As part of its 2022 Annual Report, the Auditor General of Ontario released its value-for-money audits of the OEB’s electricity oversight and consumer protection functions and Ontario Power Generation’s management and maintenance of its hydroelectric generating stations.

In November, the the Government of Canada provided details in its Fall Economic Statement of its planned Investment Tax Credit for Clean Technologies that will provide a refundable tax credit equal to 30% of the capital costs of zero-carbon electricity generation systems (e.g. solar, SMRs, wind, hydroelectric), stationary electricity storage systems that do not use fossil fuels in their operations (e.g. batteries, flywheels, compressed air storage, pumped hydro), low-carbon heat equipment, and industrial zero emission vehicle and related charging equipment. The Federal Government also announced a Tax Credit for Clean Hydrogen.

Things We Are Reading and Listening To

Power Advisory’s Scenarios for a Net-Zero Electricity System in Ontario Report (prepared for the Toronto Atmospheric Fund). Here are some of the energy related podcasts that are on our playlist these days: Columbia Energy Exchange, The Energy Transition Show, Volts, CleanLaw, Catalyst, Energy Radio and Flux Capacitor,

 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

It has been a busy and exciting year. While we will have our regular quarterly update in the new year, it is time for our 2022 Year in Review edition of the Shepherd Rubenstein Energy Regulatory Update. An opportunity to explore some of the most important themes and regulatory developments in the Ontario energy sector over the past year.  Stick around at the end for some thoughts as we enter 2023.

1. Meeting the Forecast Capacity Shortfall

In December, the IESO released its 2022 Annual Planning Outlook (“APO”), which accurately notes that this is a “pivotal point for the electricity system”, in part because of the need for new supply to meet a forecast capacity shortfall. This supply gap was the focus of much of the energy regulatory policy changes and actions over the past year, and will be again in 2023.

The year began with work continuing on design of various IESO procurement initiatives to meet the capacity needs, as identified in the previous year’s 2021 APO. The Minister of Energy directed the IESO, among other things, to undertake a Mid-Term RFP, and design a Long-Term RFP for at least 1000 MW.

In April, the IESO released its 2022 Annual Acquisition Report (AAR). The AAR highlighted the
need for additional supply to meet capacity needs in 2025 and 2026. As a result, on the same day, the Minister of Energy wrote the IESO requesting that it initiate an engagement on potential design to acquire further capacity, and examine options for cost-effective additional CDM, and report back by mid-July.

During the year, the IESO concluded the Medium-Term RFP and offered new contracts for five-year commitments to 6 existing facilities. As well, procurement directives were issued for the IESO to enter into contracts for the Lennox GS,  Oneida Energy Storage LP project, Chapleau GS, as well as for increased funding for conservation program expansion.

The biggest procurement that the IESO worked on this year is the Long-Term RFP (LT-RFP). Due to the upcoming capacity need, the IESO decided to undertake not just the first LT-RFP, but also a separate Expedited LT-RFP (E-LT1 RFP) with contracts to be awarded by May 1, 2023, and project in-service dates beginning in 2025. An RFQ Process for this procurement was held, and 55 entities qualified to participate in the RFP.  The IESO also created a Same Technology Upgrade Solicitation, with submissions due before the end of the year.

In recognition of the on-going work the IESO was doing on the feasibility of a moratorium on the procurement of new natural gas-fired generation, in late August the Minister of Energy asked the IESO  to provide recommendations on eligibility of new natural gas generation projects. In October, the IESO issued its Interim Resource Eligibility Report, recommending that the 4,000 MW of new capacity targeted in the up-coming procurements, be made up of up to 1,500 MW of new natural gas generation, which its analysis said is required, and up to 2,500 MW of storage and other non-emitting resources.  On the same day, the Minister of Energy issued a directive authorizing the E-LT1 RFP and Same Technology Upgrades Solicitation with resource eligibility requirements in line with the IESO recommendations.

In late September, the Minister of Energy announced that Ontario Power Generation (OPG) will extend the operations of the Pickering Nuclear Generation Station from the end of 2025 to September 2026, subject to regulatory approvals. Additionally, the company will undertake a feasibility assessment of the full refurbishment of the Pickering “B” units.

Also in the fall, the Minister of Energy asked the IESO to report back by the end of the year on a proposal to re-contract small hydroelectric facilities (<10 MW) with a target launch date of the end of July 2023.

2. Energy Transition and Pathway to Net Zero

The question of the energy transition and finding a path to net zero infused almost every energy regulatory discussion and decision this past year.

The Government for Ontario announced the formation of an Electrification and Energy Transition Panel. The panel is tasked with advising government on opportunities for energy sector to help prepare the economy for electrification and the energy transition, and to strengthen the province’s long-term energy planning process. To support the panel, the Ministry of Energy has commissioned an independent Cost-Effective Energy Pathways Study.

As previously requested by the Minister of Energy, the IESO issued its Pathways to Decarbonization Report in mid-December. The Report concludes that a moratorium on new natural gas generation is feasible beginning in 2027. The Report also modelled a full decarbonized electricity system by 2050.

The OEB has highlighted the energy transition in much of the policy work that it has undertaken, and it was a focus of its 2022 Policy Day.

Over the past year, there have been countless reports released regarding the role of the electricity sector in reaching net-zero, including from the Canadian Climate Institute, Electrifying Canada, Electricity Canada and Canadian Gas Association, and the David Suzuki Foundation. The Toronto Atmospheric Fund (Power Advisory) and Enbridge Gas (Guidehouse) also released their own pathways to net zero studies.

To help support many businesses and other organizations own GHG reduction commitments, earlier in the year, the IESO was asked by the Minister of Energy to engage stakeholders and assess options for the design and introduction of a voluntary Clean Energy Credit market in Ontario. The Government also undertook its own separate consultation. In late fall, as part of Bill 36, the Government introduced, and later passed, various legislative amendments that establish a framework for the IESO to create a Clean Energy Credit Registry. The Minister of Energy has asked the IESO to undertake necessary activities to launch the registry as early as possible in 2023.

At the Federal level, the Government of Canada launched a consultation on a planned Clean Electricity Regulation (initially called the Clean Electricity Standard). In the summer, it provided more information through the release of its Frame Document. A draft regulation is expected to be published in the new year.

The Government of Canada also provided details in its Fall Economic Statement of its planned Investment Tax Credit for Clean Technologies that will provide a refundable tax credit equal to 30% of the capital costs of zero-carbon electricity generation systems (e.g. solar, SMRs, wind, hydroelectric), stationary electricity storage systems that do not use fossil fuels in their operations (e.g. batteries, flywheels, compressed air storage, pumped hydro), low-carbon heat equipment, and industrial zero emission vehicle and related charging equipment. The Federal Government also announced a Tax Credit for Clean Hydrogen.

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

There was a continued focus this year on the use and integration of Distributed Energy Resources (DERs), and the use of Non-Wires and Non-Pipe Alternatives (NWAs and NPAs).

As part of its DER Market Vision Project, the IESO developed recommendations and received feedback on foundational models of DER participation in the wholesale market. The IESO also released the results of its DER Potential Study which identified achievable DER potential sufficient to satisfy 1.3 to 3.4 GW of peak summer demand by 2032.

The OEB made a number of amendments to its Distribution System Code (DSC) to facilitate connection of DERs. The amendments included the establishment of new standardized DER Connection Procedures  for connection of DERs to the distribution system. The Framework for Energy Innovation (FEI) Working Group, whose priority workstreams were DER usage and integration, issued its report.  The FEI Working Group Report included three subgroup reports, on Benefit Cost Analysis, Utility Incentives, and DER Integration. The OEB also approved the Settlement Proposal in Hydro One’s 2023-2027 Joint Rate Application, which included a number of specific DER reporting requirements, and conditions regarding the company’s plans for battery storage investments for reliability purposes.

The Government of Ontario amended regulations to clarify and allow third-party ownership and operation of net-metered renewable energy generation, and to provide consumer protection requirements related to those agreements. The OEB made consequential amendments to a number of its codes and issued consumer-facing materials.

The IESO has been working on implementing process improvements for the consideration of NWAs in the regional planning process, and seeking feedback on proposed methodologies to do so. The OEB issued its response to the report from its Regional Planning Process Advisory Group, and agreed to move forward implementing those that require it to action. A number of those recommendations relate to improving the regional planning processes consideration of NWAs.

As it relates to NPAs, the OEB’s Integrated Resource Planning (IRP) Technical Working Group issued its first annual report (for the 2021 year) in May, and has subsequently ramped up its work.  It is considering Enbridge’s proposals for pilot projects, which will be delayed beyond the OEB-imposed end of 2022 deadline.  The OEB also denied Enbridge’s application for leave to construct a replacement of its St. Laurent Ottawa North Pipeline in the face of evidence that major customers are actively planning to reduce their GHG emissions.  The OEB concluded that the need for the project and the alternatives had not been appropriately assessed, and it strongly urged the company to pursue IRP alternatives going forward.

4. Transmission

 Maybe this was really the year of transmission.

This year NextBridge’s East-West Tie Line went into service, and new communities were connected to the Wataynikaneyap Transmission Project.

The Government of Ontario issued an Order-in-Council declaring three electricity transmission projects in Southwest Ontario (a new 230kv line between Lambton TS and Chatham SS, a new 500kv line between the Longwood TS and Lakeshore TS, and a new 230kv line between the existing Chatham SS to the new Lakeshore TS) as priority projects under section 96.1 of the Ontario Energy Board Act. The latter project, the OEB granted Hydro One leave to construct. The Minister of Energy issued a directive to the OEB requiring it to amend Hydro One’s transmission license to require the company to develop and seek all necessary approvals to construct the two other priority projects in the Order-in-Council, as well as a second new 500kv line between the Longwood TS and Lakeshore TS, and a new 230kv line to connect the Windsor area to the Lakeshore TS.

Hydro One announced that that on all new transmission lines projects that cost over $100M, it will offer First Nations communities a 50 per cent equity stake in the project.

As part of its bulk system planning, the IESO issued a report identifying needs in the northeast and eastern Ontario. The Need for Northeast Bulk System Reinforcement report identified 3 new transmission lines and other work that will need to be in-service in 2029 and 2030. The Gatineau End-of-Life Study identified the need for a new double circuit 230kV line, to be in-service in 2029, as well other work that will need to be undertaken over the long-term. The IESO also updated its needs assessment for the proposed Waasigan Transmission Line.

With all this need for new transmission lines, surprisingly, it was revealed that the IESO has recommended to the Ministry of Energy not to proceed with plans for competitive transmission procurement.

On the rate regulation front, the OEB approved a settlement of Hydro One’s Joint Rate Application for 2023-2027, which includes its transmission business. As part of its generic proceeding reviewing various aspects of Uniformed Transmission Rates, the OEB issued a decision setting the Export Transmission Service (ETS) rate.

5. Innovation

While there may be differing views on what exactly is considered innovation, it cannot be denied that 2022 saw a number of regulatory and policy initiatives under way to promote innovation within the energy sector.

The OEB launched its Innovation Sandbox 2.0 and announced, jointly with the IESO, funding of 4 projects through the IESO’s Grid Innovation Fund.  The OEB’s Innovation Task Force (a committee of its Board of Directors) released a report that it commissioned entitled Innovation Challenges and Opportunities in Ontario  (and whose recommendations it adopted). As discussed above, the OEB’s Framework for Energy Innovation Working Group issued its report.

A number of proposals regarding new rate structure changes were also proposed during the year. In addition to the new ultra-low overnight price plan (see below), the OEB has been working on development of a non-RPP class B pricing pilot program, responding to a Minister of Energy directive to the IESO providing the funding.

At the request of the Minister of Energy, the IESO also consulted and prepared a proposal on an interruptible rate pilot program for large customers.

6. Conservation (CDM and DSM)

There were significant regulatory developments for both electricity and natural gas conservation this year.

On the natural gas front, the OEB issued its decision on Enbridge’s 2023-2027 demand-side management (DSM) plan. Among various changes to the proposed plan, the OEB approved only a three-year term (2023-2025) to allow greater flexibility to respond to the changing energy landscape, removed conditions prohibiting customers from switching from natural gas if they want to participate in DSM programs, and eliminated customer incentives for new gas-fired equipment. The decision also introduced a new incentive component, which for the first time incents a reduction in absolute total natural gas volume sales.

On the electricity front, in April, as a result of the capacity needs addressed in the AAR, the Minister of Energy wrote the IESO and asked it to report back with options and analysis on cost-effective additional or expanded conservation and demand management (CDM) programs.  Based on that report, in late September the Minister issued a directive increasing the existing 2021-2024 CDM Framework budget by $342M for new or enhanced conservation programs that seek to deliver an additional 285 MW and 1.1 TWh of savings by 2025.

In mid-December, the IESO issued its 2021-2024 CDM Framework Mid-Term Review, which concludes that the framework is on track to achieve its original energy and demand savings targets. The Mid-Term Review included a number of recommendations for the remainder of the current framework, including new programs and enhancements to existing ones,  as well as continued engagement with LDCs regarding leveraging the OEB’s CDM Guidelines to build on IESO programs that provide local system benefits. The Mid-Term Review also provided a number of new recommendations for a post-2024 framework.

7. Electric Vehicles

A number of new initiatives were undertaken this year related to increased adoption of electric vehicle (EVs).

At the end of March, the OEB delivered its section 35 report to the Minister of Energy on the design of an optional enhanced time-of-use price, which recommended a new ultra-low overnight price plan. The Government of Ontario endorsed the design and amended the necessary regulations to implement it, with a start date of no later than November, 2023.

The OEB launched its Electric Vehicle Integration (EVI) initiative, which outlined plans to consider various issues related to the efficient integration of electric vehicles (EVs) within the transmission and distribution systems. In his latest Letter of Direction to the OEB, the Minister of Energy endorsed those plans.  The OEB also updated the filing requirements for electricity distributor rate applications, which now require a distributor’s planning process for future capacity needs to include consideration of increased EV adoption.

The Government of Ontario also sought feedback on building new public electric vehicle charging infrastructure.

8. Hydrogen

In April, the Government of Ontario released its long awaited Hydrogen Strategy. On the same day, the Minister of Energy wrote the IESO to ask it to investigate and propose program options to integrate low-carbon hydrogen technologies by the end of October. In response, the IESO carried out a consultation, although little has been made public about what input it received and what was reported back to the Minister.

The Ministry of Energy also sought comment on three proposed options to promote the use of hydrogen, including i) allowing certain hydrogen producers to be eligible to qualify for the Industrial Conservation Initiative (ICI), ii) co-locating hydrogen electrolysis at electricity generation facilities, and iii) creating a dedicated stream for hydrogen producers as part of its interruptible rate pilot currently under development.

The Government also made regulatory amendments to exempt OPG from paying the Gross Revenue Charge for its Sir Adam Beck 2 Generation Station between 2024 and 2031 when it is producing electricity for the purpose of hydrogen production, although only when it is providing regulation services.

This year also saw Enbridge Gas’s hydrogen blending pilot project (approved in 2020 by the OEB) become fully operational.

As noted earlier, the Government of Canada announced the creation of the Tax Credit for Clean Hydrogen. The Department of Finance launched a consultation on the specifics of the tax credit.

9. Market Renewal Program Delayed to 2025

The IESO announced that its signature Market Renewal Project (MRP), aimed at modernizing the Ontario electricity energy market with the introduction of a single schedule and day-ahead market, would be delayed from November, 2023 to May, 2025, at a revised budget of $233 million ($55 million higher than the previously approved budget). The IESO still expects the project to deliver significant net financial benefits to consumers.

In light of the emerging delays with the MRP project, as part of the OEB approved Settlement Proposal in its 2022 Fees application, the IESO agreed to enhanced public quarterly reporting on project status.

Even though the completion of MRP will be delayed, the IESO continued the regulatory and market implementation work on the project. This includes working on changes to the Market Rules and Market Manuals. In March, a majority of the Technical Panel voted to recommend a number of provisional market rule amendments related to the market power mitigation framework, which were subsequently provisionally adopted by the IESO Board of Directors.

10. LDC Billing Errors

In what may have been the least talked about story of the year, the OEB compliance department was busy entering into Assurances of Voluntary Compliance (“AVC”) with 9 electricity local distribution companies (“LDCs”) (as of time of writing), regarding billing errors which generated significant overcollection from customers.

This story started in March, when the OEB accepted a AVC filed by Greater Sudbury Hydro after the company self-reported a billing error. That error resulted in the LDC overcharging its customers  on its fixed monthly service charge. The company’s billing system translated the monthly charge into a daily rate, but in making the calculation, it did so on the basis that there were 30 days in every month of the year (360 days a year). Since customers where actually charged based on the actual days in the month (365 days in a year), they were overcharged. While the error was believed to have occurred since at least 2005, the AVC only required Greater Sudbury Hydro to refund to customers 4 years of over-billing ($919,000), while paying a small penalty ($5,000).

At the same time as the Greater Hydro Sudbury AVC was made public, the OEB sent a letter to all LDCs alerting them of the issue. So far 8 other LDCs (Halton Hills Hydro, Chapleau PUC, ERTH Power, Oshawa PUC, Orangeville Hydro, Elexicon, Oakville Hydro, Tillsonburgh Hydro, Wasaga Distribution) have self-reported and entered into AVCs with the OEB. In total, these 9 LDCs have agreed to repay a total of $5.4 million back to customers, and a penalty of $45,000.

 All of this was in addition to AVCs filed by LDCs regarding disconnection practices, and lack of maintenance records, as well as an AVC from Enbridge Gas with respect to non-compliance with customer service quality requirements under the Gas Distribution Access Rule.

Thoughts For 2023

We may look back on 2023 as the pivotal year in mapping the next 20 years of energy regulation and policy in Ontario.

The Electrification and Energy Transition Panel will kick into high gear, providing advice to the government on developing a pathway to improved energy planning in a world of increasing electrification. The OEB has been asked to contribute its advice to that panel, including potential changes to its mandate and any necessary legislative amendments. The OEB has also been told by the Minister of Energy to undertake workshops that explore how to enable electrification related investments, while protecting customers interests.  In parallel, the IESO will undertake its E-LT1 RFP, which will be the largest single procurement of new electricity resources in Ontario history.

This is all in addition to the continued work and policy that comes out of the OEB’s FEI consultation, IESO’s DER Roadmap, and other procurement and policy processes that are being undertaken across the sector. As well, in 2023 the OEB will consider the application filed by Enbridge Gas for approval of a 5-year rate framework beginning in 2024, where front and centre will be the issue of the future role of natural gas in the energy transition.

Those in decision-making roles will be forced to ensure that the energy transition moves forward at an accelerated pace, but in a way that does not lead to a backlash. The IESO’s Pathways to Decarbonization Report moratorium scenario forecasts the need for additional $26 billion (in 2022 dollars) of new electricity infrastructure by 2035, and this does not include what are almost certainly going to be significant upgrades to distribution systems.  The costs associated with reaching a path to net zero in 2050 will be even more staggering. As the Report recognizes, increasing energy costs may be a significant risk and “[r]apidly rising electricity costs could discourage electrification, stifle economic growth or hurt consumers with low incomes.”

The task of the Electrification and Energy Transition Panel, and many of the initiatives that are being undertaken by the OEB and the IESO, do not lend themselves to easy answers. They are complex and involve hard trade-offs. Those making recommendations and decisions will need to consult widely and in a comprehensive fashion. To meet our net zero commitments, public and customer acceptance will be critical, but also difficult to achieve.  Great care will need to be taken to ensure that any short or medium-term successes do not lead to long-term failures because of the harm that may be caused to the very people the energy sector is here to serve. To avoid this, policy makers must ensure there is broad oversight, transparent decision-making, and meaningful input from all of those affected by the decisions which will define the future of energy policy in Ontario. –MR

 

As always, if you have any questions, or think we can be of assistance to you or your organization, please do not hesitate to reach out to Mark Rubenstein at mark@shepherdrubenstein.com.

Click here for a pdf version.

Fall has arrived and so too has 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 (and the first few days of October).

Ontario Energy Board

At the beginning of July, the Framework For Energy Innovation (FEI) Working Group submitted its report to the OEB, which also included separate reports from each of the Benefit-Cost Analysis, Utility Incentives, and DER Integration sub-groups. The OEB issued a letter inviting comments from stakeholders on the reports and next steps.

The OEB issued a number of decisions, including:

• Approval of settlement proposals regarding the IESO’s 2022 Fees, and in its role as Smart Metering Entity, the 2023 to 2027 Smart Metering Charge.
• Determining that it was premature in light of the Government’s regulatory proposal and consultation to develop a Clean Energy Credit registry, to consider the request by Environmental Defense to initiate a proceeding, or re-open a previously concluded proceeding, to address issues around Ontario Power Generation’s (OPG) sale of Clean Energy Credits.
• Giving Sun-Canadian Pipe Line Company Limited leave to construct a replacement pipeline segment for a portion of its existing petroleum pipeline.

There was continued work on two initiatives with respect to commodity pricing:

• Following-up on its report to the Minister of Energy on an ultra-low overnight time-of-use (TOU) price plan, which the Government has since announced plan to implement, the OEB initiated a consultation regarding implementation, and held a stakeholder meeting..
• The OEB held a stakeholder meeting and sought and received comments from stakeholders on its plan to design and implement a dynamic pricing pilot for non-RPP class B customers. The Minister of Energy also wrote to the OEB expressing its support for the pilot.

The OEB launched an  Electric Vehicle Integration (EVI) initiative which is intended to inform OEB actions to support integration of electric vehicles with the transmission and distribution systems.

Two OEB Staff Bulletins were issued. The first, updated a 2006 Bulletin, clarifying the circumstances under which electricity transmitters should allocate costs associated with network facility upgrades to a generator or load customer connecting to the transmission system. The second, clarifies and provides cost responsibility guidance, for when a local community prefers an alternative to the optimal (i.e. most cost-effective) solution to meet a need determined through a distribution planning or regional planning process,

On the modernization front, the OEB issued its Action Plan Report in response to stakeholder comments on the Framework For Review of Intervenor Processes and Cost Awards. The Action Plan includes 5 projects to be completed by the end of the 2022-23 fiscal year, and 6 projects to be completed by the end of the 2023-24 fiscal year.

The OEB released the 2022 Stretch Factor Assignments for electricity distributors, 2021 electricity utility scorecards, 2021 distributor yearbooks (natural gas, electricity), and the Activity and Program-based Benchmarking (APB) – Unit Cost Report.

Also released was the OEB Staff Report to the OEB, Review of 2022 Annual Update to Enbridge’s Natural Gas Supply Plan.

Assurances of Voluntary Compliance were accepted from:

• Enbridge Gas with respect to non-compliance with certain service quality requirements (call answering and meter reading performance) under the Gas Distribution Access Rule.
• Halton Hills Hydro and Chapleau PUC with respect to overcharging customers caused by the way their billing system translated approved monthly charges into amounts charged on bills.
• EPCOR Electricity Distribution Ontario Inc. with respect to non-compliance with its customer disconnection-related obligations under the Distribution System Code.

Independent Electricity System Operator

The IESO has announced a revised in-service date and budget for the Market Renewal Program (MRP). The IESO now expect that MRP will go live in May 2025 (previously November 2023), and cost $233M (previously $189M).

With respect to procurement activities, the IESO:

• Concluded its Medium-Term RFP, and offered new contracts for five-year commitments to 6 existing facilities.
• Announced that 55 applicants qualified to participate in the upcoming Long-Term (LT) RFP.
• Undertook further consultations regarding the LT1 and Expedited LT1 RFP design and contracts. This included presenting a spread mechanism for energy storage proponents.
• Provided further information, including draft material, for its Same Technology Upgrade Solicitation.

To help inform his decision on eligibility for upcoming procurements, the Minister of Energy has asked the IESO to provide an interim report on analysis it is undertaking regarding evaluating a potential moratorium on procurement of new natural gas generation and a pathway to phase-out natural gas.

On October 4^th, the Minister of Energy issued a directive to the IESO to increase the existing 2021-2024 CDM Framework budget by $342M for new or enhanced conservation programs, including a  new residential demand response program, targeted support for greenhouse growers in SW Ontario, enhancements to  the Save on Energy Retrofit Program (to include custom energy-efficiency projects), and the Local Initiatives Program.

The Technical Panel recommended market rule amendments related to the 2022 Capacity Auction enabling participation by generator-backed capacity imports, as well as adjustments to intertie flow limits. It also approved amendments to facilitate delay of the in-service date for the IESO’s Replacement of the Settlement System program, in light of issues detecting during testing.

As part of the fulfillment of a request by the Minister of Energy to investigate options to integrate low-carbon hydrogen technologies into the electricity system, the IESO launched a Low-Carbon Hydrogen Strategy engagement.

The Minister of Energy also wrote the IESO asking it to work with the Ministry and undertake stakeholder consultations to design a three-year interruptible electricity rate pilot (maximum 200 MW, and generally limited to transmission-connected customers).

The IESO released recommendations for foundational models for wholesale DER participation as part of its DER Market Vision and Design Project, It also released the final version of its DER Potential Study with results and recommendations.

Over the past 3 months, the IESO also released:

• Enabling Foundational Hybrid Facility Models final design document
• Results of a refresh of the 2019 energy efficiency Achievable Potential Study (APS).
• Independent reviews of each of the Dispatch Scheduling and Optimization (DSO), and Day-Ahead Calculation Engine (DACE).
• Q3 2022 Reliability Outlook
• 2022-27 Corporate Strategy

The Market Assessment and Compliance Division (MACD) sanctioned the IESO for violating the Market Rules, by affecting the market schedule in an unauthorized way, through imposing intertie flow limits based on internal transmission constraints.

Legislative and Regulatory

The Minster of Energy announced that Ontario Power Generation (OPG) will extent the operations of the Pickering Nuclear Generation Station to September 2026, and that the company will undertake a feasibility assessment of the full refurbishment of the Pickering “B” units.

The Government of Ontario sought comment on a number of proposed regulations and policy proposals, including:

• Amending Ontario Regulation 95/05, under the Ontario Energy Board Act, implementing an ultra-low overnight electricity price plan for RPP customers.
• Amending Ontario Regulation 509/18, under the Electricity Act, updating efficiency requirements for commercial gas furnaces, residential air conditioners and heat pumps, roadway luminaires and highway luminaires.
• Development of a Clean Energy Credit registry.

Other Development

The Federal Government provided further information on its planned Clean Energy Regulation (formerly known as the Clean Electricity Standard) through release of its Frame Document.

Fortis announced that its subsidiary ITC has suspended development activities and commercial negotiations for its Lake Erie Connector transmission project due to recent economic conditions.

Shepherd Rubenstein News

On October 26^th, Mark Rubenstein will be co-chairing the Ontario Bar Association Natural Resources and Law Section’s Recent Developments in Energy Regulation program. Register today to hear from a panel of experts.

Both Jay Shepherd and Mark Rubenstein were listed in the 2023 edition of ‘Best Lawyers’, and Mark was also named Energy Regulation Law “Lawyer of the Year” for Toronto.

Things We Are Reading

The new book, California Burning: The Fall of Pacific Gas and Electric–and What It Means for America’s Power Grid. The latest scoping paper from the Canadian Climate Institute on Electricity Affordability and Equity in Canada’s Energy Transition.

 

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 summer 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 April and June. It was a very busy April, and then slower during the election and post-election period. We expect activity to pick up over the next few months.

Ontario Energy Board

The OEB issued a number of decisions, including:

• Approving the amalgamation of Kitchener-Wilmot Hydro Inc. and Waterloo North Hydro Inc., but denying approval at this time to maintain two separate rate zones for an additional 10 years after the deferred rebasing period.
• Denying Enbridge’s application for leave to construct a replacement of its St. Laurent Ottawa North Pipeline on the basis that the need for the project and the alternatives had not been appropriately assessed.
• Approving Enbridge’s Quarterly Rate Adjustment Mechanism (QRAM) application for natural gas commodity rates beginning July 1^st. The Application included rate mitigation measures to address the significant increases in forecast natural gas market prices.
• Granting one part, but dismissing another, of Hydro One’s motion to review two aspects of a decision approving disposition of deferral and variance accounts of certain previously acquired utilities.
• Approving only 1 of 5 projects for which Enbridge’s had sought Incremental Capital Module (ICM)
• Approving a settlement proposal in E.L.K. Energy’s 2023 rates application which incorporated a number of unique commitments and features, including the establishment of a Reliability Commitment Account.

The Framework For Energy Innovation Work Group submitted its report to the OEB, which also included separate reports from the Benefit-Cost Analysis, Utility Incentives, and DER Integration sub-groups. (On July 6^th, the OEB issued a letter inviting comments from stakeholders on the reports and next steps.)

As part of its Reliability and Power Quality Review, the OEB announced the membership and scope of work for the newly established working group.

The OEB released its report to the Minister of Energy on the design of an optional enhanced time-of-use rate price.

The Chief Commissioner issued a letter providing a year-end (2021-22) update on the OEB’s adjudicative work. The OEB also announced the membership and the commencement of work of the working group reviewing the filing requirements for 2024 for large electricity distributors.

The OEB provided its response to the Regional Planning Process Working Group (RPPAG)’s report, which provided recommendations to improve the regional planning process, endorsing all of the recommendations that require the RPPAG to take some form of action.

The Government of Ontario amended Ontario Regulation 541/05 under the Ontario Energy Board Act, to clarify and allow third-party ownership and operation of net-metered renewable energy generation. The Government also amended Ontario Regulation 389/10 under the Energy Consumer Protection Act, to provide consumer protection requirements for related agreements. As a result, the OEB proposed and then made various amendments to the Distribution System Code (DSC), Electricity Retailer Code of Conduct (ERCC), and Retail Settlement Code (RSC). It also consulted and then issued related consumer-facing materials and retail forms.

The OEB accepted Assurances of Voluntary Compliance with companies operating without generator, wholesaler, and sub-metering licenses. The OEB also released its annual Compliance Report.

Independent Electricity System Operator

The IESO released its 2022 Annual Acquisition Report (AAR).  The AAR highlighted the need for additional supply to meet capacity needs in 2025 and 2026.

On the same day, the Minister of Energy wrote the IESO and requested that it:

• Initiate an engagement on potential designs to acquire further capacity and report back with recommendations by mid-July.
• Examine and report back by the of the end of July with options on cost-effective additional or expanded CDM to help address needs identified in the AAR.
• Consider accelerating the CDM Mid-Term Review.

The Minister of Energy also issued a directive to the IESO to, i) enter into a procurement contract with Oneida Energy Storage LP for its proposed 250 MW Oneida Battery Storage project, and ii) waive an available off-ramp to the Bruce Power refurbishment agreement.

The IESO undertook various procurement engagement activities, including, its Long-Term RFQ and RFP, and the development of a new program for re-contracting small hydro facilities, The IESO is also evaluating the submissions made to its Medium-Term RFP, which closed in April.

As part of its Hybrid Integration Project engagement, the IESO published the design document for Enabling Foundational Hybrid Facility Models for review.

With respect to the Market Renewal Program (MRP), the IESO revealed that there will be a delay in the November 2023 in-service date and a revised schedule expected to be shared by the end of Q3, 2022.

The Technical Panel held three meetings during the quarter where it recommended market rules amendments related to the replacement of the IESO settlement system, improving awareness of system conditions, and accessibility of operating reserve. All three were adopted by the IESO’s Board of Directors. In contrast, it did not recommend proposed amendments related to the 2022 Capacity Auction which would introduce a capacity qualification process (shift requirements from ICAP to UCAP), performance assessment modifications, and expand participation of generator backed capacity imports.

The IESO issued a number of significant reports, including:

• Update on the Status of Obstacles to Storage Resources in Ontario Report, prepared at the request of the Minister of Energy.
• The Q2 2022 Reliability Outlook
• South Georgian Bay/Muskoka Integrated Regional Resource Plan (IRRP) reports, (Barrie/Innisfil Integrated sub-region IRRP, and Parry Sound/Muskoka sub-region IRRP)
• An Updated Needs Assessment and Timing for Waasigan Transmission Line

Comments were sought regarding IESO’s reconsideration of existing Market Rules exemptions provided to certain steel producers related to the participation in the energy and operating reserve markets, as well as Hydro One’s request for an exemption from certain ORTAC requirements related to new load to be connected to one of its transmission stations.

The IESO launched the Industrial Energy Efficiency Program.

The Market Assessment and Compliance Division (MACD) entered into a settlement agreement with Ontario Power Generation with respect to two events in 2016, alleging OPG had failed to sufficiently plan and coordinate scheduled outages involving certain control equipment or to recognize the purpose and limitations of the associated electrical protective relay scheme contrary to the Market Rules.

The IESO signed an updated Memorandum of Understanding with the Ministry of Energy.

Legislative and Regulatory

The Minister of Energy announced the launch of the Electrification and Energy Transition Panel. The panel, to be chaired by David Collie, is tasked with providing advice on how to coordinate long-term energy planning, in the context of growing energy demand, new technologies, low-carbon fuel switching, and the need for sustainability and affordability.

There were a number of significant developments with respect to the promotion of hydrogen:

• The Government of Ontario released its Low-Carbon Hydrogen Strategy.
• As a follow-up, the Minister of Energy wrote the IESO and asked it to investigate and propose program options to integrate low-carbon hydrogen technologies into the electricity grid, and report back by October 31, 2022.
• The Ministry of Energy also issued for comment three proposed options to promote the use of hydrogen, including i) allowing certain hydrogen producers to be eligible to qualify for the Industrial Conservation Initiative (ICI), ii) co-locate hydrogen electrolysis at electricity generation facilities, and iii) create a dedicated stream for hydrogen producers as part of its interruptible rate pilot currently under development.

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

• Amending Ontario Regulation 124/99 and Ontario Regulation 162/01 under the Electricity Act, extending Municipal Electricity Utilities transfer tax relief, and Payment in Lieu of Corporate Taxes (PILs) relief upon a change in tax status, from January 1, 2023 to January 1, 2025.
• Issuing Ontario Regulation 410/22 under the Ontario Energy Board Act, prescribing certain requirements when a distributor receives notice regarding a designated broadband project in its service territory, including timelines for development, access, and use, of infrastructure, default rules regarding appointment of costs, authority of the OEB to resolve disputes, and establishment of a deferral account for designated broad band projects (On July 7^th, the OEB issued an Accounting Order for the deferral account).
• As discussed earlier, amending Ontario Regulation 541/05 under the Ontario Energy Board Act and Ontario Regulation 389/10 under the Energy Consumer Protection Act, to allow third-party ownership and operation of net-metered renewable energy generation.
• Amending Ontario Regulation 429/04 under the Electricity Act, aimed at reducing regulatory burden with respect to the Industrial Conservation Initiative (ICI), including among others, i) changing that the five peak hours will be determined based on real-time Ontario demand, ii) changes to address partial changes of ownership, iii) LDCs will now administer transfers of ownership, and iv) various other administrative changes.

Judicial Decisions

The Ontario Superior Court of Justice released its decision in National Steel Car Ltd. v. Independent Electricity System Operator, dismissing an application challenging the constitutionality of portions of the Global Adjustment, that recover costs related to the Feed-in-Tariff Program, as an unconstitutional tax. National Steel Car argued that the Government’s real purpose in creating the FIT programs was economic stimulus, and thus it was a colorable attempt to tax through regulation, contrary to sections 53 and 54 of the Constitution Act, 1867, which requires taxes to be authorized by the legislature. The Court dismissed the application finding the Global Adjustment, including the portions recovering the costs of the FIT program, are a valid regulatory charge, and not a tax. It also found that the FIT programs were not a colorable attempt at taxation, and that given the importance of energy to the economy, the pursuit of economic stimulus can be related to a regulatory scheme about energy, and in this case, was related to electricity regulation.

Things We Are Reading

FERC’s Notice of Proposed Rulemaking regarding transmission planning and cost allocation.

There were many reports released by a range of organizations over the past few months regarding the role of electricity in reaching net-zero, including from the Canadian Climate Institute, Electrifying Canada, Electricity Canada and Canadian Gas Association, and the David Suzuki Foundation.

 

Happy New Year and welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between October and December. A reminder, if you have not already, take a look at our special 2021 Year in Review edition.

Ontario Energy Board

The Minister of Energy issued a new Mandate Letter to the Chair of the OEB. The Minister highlighted several initiatives that it expects the OEB to deliver on, including its modernization, EV readiness, natural gas DSM, helping implement the Supporting Broadband and Infrastructure Expansion Act, and designing a dynamic pricing pilot program for non-RPP Class B customers.

The OEB released some noteworthy decisions, including:

• In its decision on the unsettled issues in Ontario Power Generation’s (“OPG”) 2022-2026 Payment Amounts application, the OEB made a permanent disallowance for imprudence of $94M and certain carrying costs incurred for the construction of OPG’s Heavy Water Storage and Drum Handling Facility. It also provided reasons for its approval of a substantial Settlement Proposal;
• Implementing the OEB’s 2015 decision to eliminate Hydro One’s seasonal rate class.
• Approving a Settlement Proposal in the IESO 2020-2021 Revenue Requirement and Fees application.
• Allowing Energy+ recovery of some additional Advanced Capital Module funding for its Southworks facility, but disallowing $350K as imprudent.
• While granting leave to construct to Hydro One for two transmission projects (Richview by Trafalgar Reconductoring and Ansonville by Kirkland Lake Refurbishment), the OEB provided guidance to the IESO regarding the type of evidence that should be filed in support of an application, and commenting on the need for timely examination of alternatives.

The OEB announced the initial membership to its natural gas Integrated Resource Planning Technical Working Group (our own Jay Shepherd was named a member).

In moving forward with its modernization agenda, the OEB made amendments to its Rules of Practice and Procedure on Confidential Filings to streamline the process for considering confidentiality claims and reform how redactions for personal information will be addressed. It also issued new cost of service filing requirements for small electricity distributors (newly defined as those with fewer than 30,000 customers). In its annual letter regarding electricity distribution cost of service filers for the upcoming year, it outlined a revised approach to electricity distributor cost of service deferrals.

After considering stakeholder comments during Q3 2021, the OEB issued new Conservation and Demand Management Guidelines for Electricity Distributors. It also released a revised Notice of Proposal to Amend the Distribution System Code to facilitate connection of Distributed Energy Resources. OEB Staff issued a Bulletin clarifying its view that, for the purposes of net metering, a customer need not own the generation facility to be considered an “eligible generator.”

The OEB provided its initial reporting on the frequency of RPP-TOU switching over the past year. It also released the Regulated Price Plan Pilot Meta-Analysis Final Report, which provides analysis and recommendations related to various pilot and alternative Regulated Price Plan (RPP) price plans and non-price features that have been undertaken over the past few years. In response, the Minister of Energy, using his section 35 authority, has asked the OEB to report back and advise on the design of an optional enhanced time of use rate to incent further demand shifting away from peak periods to lower-demand periods.

Before the end of the year, the OEB announced the launch of the Reliability and Power Quality Review, a comprehensive review of electricity reliability and power quality.

The Regional Planning Process Advisory Group provided its Report to the OEB recommending improvements in the efficiency, effectiveness, and transparency of the current regional planning process in Ontario.

The OEB accepted an Assurance of Voluntary Compliance, from one entity regarding non-compliance related to provision of electricity supply without valid customer authorization. It also issued its inaugural report detailing its compliance and enforcement activities.

Independent Electricity System Operator

The IESO released its 2021 Annual Planning Outlook (APO) Report and its most recent 18-month Reliability Outlook (January 2022-June 2023).

As new technologies and resources become a more significant part of the electricity system, the IESO presented its Enabling Resources Program work plan, released its DER Roadmap, and launched the Distributed Energy Resources (DER) Market Vision and Design Project.

With respect to resource adequacy and procurement, the IESO issued, for stakeholder comment the draft Medium Term RFP and contract, aimed at procuring up to 750MW for a 3-year period, beginning in 2026. It is also considering potential bridging mechanisms to align expiring contracts with the Medium Term RFP commitment period. The IESO began engaging stakeholders on a Long-Term RFQ (to be followed by an RFP). In November, the Minister of Energy issued a letter to the IESO asking it to report back on a number of resource adequacy and procurement initiatives

As a result of the previously mentioned approved OEB Settlement Proposal, with respect to its 2020-21 revenue requirements and fees application, the IESO consulted stakeholders on a procurement fee setting framework.

In early October, the IESO released the much-awaited assessment of the impacts of phasing out natural gas generation by 2030. While the IESO did not recommend doing so, the Minister of Energy followed up by asking for further analysis to be undertaken regarding a moratorium on procurement of new natural gas generation and a pathway to phase-out natural gas and achieve zero emissions in the electricity sector.

The continued impact of COVID-19 caused the Minister of Energy to issue a letter to the IESO asking for options to mitigate the impacts of the pandemic on certain Conservation First Program participants. In late December, the Minister followed up by issuing a directive to further extend project timelines.

The Market Assessment and Compliance Division (MACD) issued a letter of non-compliance and a financial penalty to Alectra for breaches of various Market Rules related to instrument transformer checks.

Legislative and Regulatory

The Government of Ontario introduced and passed Bill 13, the Supporting Businesses and People Act, 2021. The legislation includes amendments to the Electricity Act that create a new two-year limitation period that applies to certain payments, adjustments, and amounts to be settled with the IESO. It also included amendments to the Ontario Energy Board Act, removing the upper limit on the number of commissioners and changing to the process of ministerial review of certain by-laws made by the OEB board of directors.

In the past three months, the Government of Ontario was very busy amending or proposing to amend various regulations:

• Amendments to Ontario Regulation 53/05, to include Small Modular Reactors at OPG’s Darlington site to be a prescribed facility, to allow OPG to recover the project’s prudently incurred costs as determined by the OEB.
• Amendments to Ontario Regulation 95/05, changing the frequency of RPP rate-setting to generally once a year.
• Amendments to Ontario Regulation 363/16, to adjust the Ontario Electricity Rebate, effective November 1, 2021.
• Amendments to Ontario Regulation 161/99, permitting certain Hydro One backhaul network infrastructure projects in the Municipality of Brighton. 
• Proposed amendments to Ontario Regulation 429/05, to facilitate an electricity interruptible rate pilot to be developed in conjunction with the IESO.
• Proposed amendments to Ontario Regulation 389/10, to make it easier for condominium corporations and other building owners/administrators to switch suite meter providers from a local distribution company to a Unit Suite Metering Provider, and vice-versa.  
• Proposed amendments to Ontario Regulation 429/04, to facilitate an interruptible electricity rate pilot to be developed in conjunction with the IESO.
• Proposed amendments to Ontario Regulation 541/05, to provide greater clarity on eligibility of a customers who are leasing, or financing electricity generation equipment used for net metering.

The Government of Ontario, in furtherance of the Supporting Broadband and Infrastructure Expansion Act passed earlier this year, issued Ontario Regulation 842/21, which among other things, sets a new methodology for pole attachment charges. The OEB subsequently issued a decision for 2022 pursuant to the new methodology, substantially lowering the rate as compared to the 2021 approved rate. The Minister of Energy also proposed new regulation(s) to support and enable the enforceability of its proposed Building Broadband Faster Act Guideline.

Judicial Decisions

In October, an interesting decision was issued from the Alberta Court of Appeal (ABCA) regarding the scope of the no-harm test and the public interest. In AltaLink Management Ltd. v. Alberta (Utilities Commission), the ABCA overturned a decision of the Alberta Utilities Commission (AUC), finding that it had erred in law by making it a condition of approval of the sale of an interest of a transmission line to the Piikani Nation and the Blood Tribe that they could not recover certain audit and hearing costs from ratepayers. The AUC had rejected consideration of cost savings from routing the transmission line through reserve lands because the no-harm test is a forward-looking exercise and also due to the benefits that arise from partnerships with First Nation communities.

In varying the AUC decision, the ABCA adopted a broader view of the no-harm test and the public interest. It noted that the test is not always a forward-looking exercise, and that the AUC was wrong not to consider the cost savings that arose because the transmission line has been routed across the Piikani Nation and the Blood Tribe reserves. The ABCA also commented on the public interest benefits of economic activity on reserves that the project contemplated.  The concurring opinion by Justice Feehan is also notable as it discusses in considerable length the requirement that the AUC when exercising its authority, must consider the honour of the Crown and the goal of reconsolidation whenever it engages with Indigenous communities (and their governance entities).  

Other News

Another proposed local distribution company merger in southwest Ontario. The municipal shareholders have approved the proposed merger of the parent companies of Kitchener-Wilmot Hydro Inc. and Waterloo North Hydro. OEB approval is still required.

OPG has announced that it would work with Hitachi GE to develop its Small Modular Reactor (SMR) at Darlington.

Things We Are Reading and Listening To

A couple of interesting new reports were released over the past few months, including the Institut de l’énergie Canadian Energy Outlook 2021 – Horizon 2060, and Positive Energy’s Energy Project Decision Systems For Net Zero: Designing For Functionality, Adaptability and Legitimacy. Lazard released its annual analyses on the Levelized Cost of Energy, Storage, and Hydrogen. The excellent, and always nerdy, Energy Transition Show podcast celebrated its 6-year anniversary this fall.

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 any of the Shepherd Rubenstein Lawyers.

Click here for the pdf version.

We will have our regular quarterly update (Q4 2021), but we thought we would end the year with a special 2021 Year in Review edition of the Shepherd Rubenstein Energy Regulatory Update. A chance to explore some of the most important themes and regulatory developments in the Ontario energy sector over the past year. It has been a busy year to say the least. Stick around at the end for some thoughts on the year ahead from our editor.

1. Non-Wires and Non-Pipe Alternatives Begin To be Taken Seriously

The biggest story of the year might just be that, for the first time, it feels like Ontario might be beginning to take the idea of non-wire and non-pipe alternatives seriously. Over the past year, the OEB launched the Framework for Energy Innovation, established a working group, and set the initial workstreams looking at DER usage and integration.

The OEB also issued the first-generation Integrated Resource Planning Framework for Enbridge Gas, establishing specific requirements for when and how Enbridge must consider non-pipe alternatives to address system needs.  A technical working group was established to support its implementation.

The Regional Planning Process Advisory Group was reconstituted, and issued a report recommending a number of improvements to the regional planning process, including ways to allow greater consideration of non-wire alternatives. The OEB issued new Conservation and Demand Management Guidelines for Electricity Distributors, which includes updated consideration and guidance of CDM in distribution system planning, including how the costs may be eligible for rate recovery.

The IESO launched the DER Market Vision and Design Project, which is looking at creating different wholesale participation models for DERs to increase their ability to provide services. It also conducted its first Energy Efficiency Auction pilot, and its second annual capacity auction for the York Region Non Wires Alternatives Demonstration Project.

2. Innovation and Distributed Energy Resources

The year also saw a number of initiatives and regulatory changes aimed at promoting innovation within the energy sector.

The OEB initiated a consultation to review its existing Innovation Sandbox and design version 2.0. Together, the IESO and the OEB, through combined use of the Grid Innovation Fund and the Innovation Sandbox, issued a targeted call for novel and innovative project proposals. 

To help remove barriers of connection of customer DERs to the distribution system, the OEB issued a Proposal to amend the Distribution System Code to facilitate connection of DERs, which included the creation of the Distributed Energy Resources Connection Procedures. After considering stakeholder comments, the OEB issued a Revised Notice incorporating a number of suggested changes.

The IESO has begun work on enabling Hybrid Resources in the wholesale market. Through the Grid Innovation Fund, it has funded a number of pilot and demonstration projects, including vehicle-to-grid, smart grid, and microgrid projects.  It is also working to complete a DER Roadmap and has begun the process of undertaking a DER Potential Study.

The OEB approved a rate application by PUC Distribution that included Incremental Capital Module for its Sault Smart Grid Project.  This project, partly funded through the Federal Government, involves significant investments in voltage/VAR optimization, distribution automation, and advanced metering infrastructure integration.

The Government of Ontario issued amendments to Ontario Regulation 679/21 providing a framework for Community Net Metering Program, and authorized West Five development in London to be the first demonstration project. It also issued Ontario Regulation 633/21, requiring by November 1, 2023, that all Ontario electricity and natural gas utilities provide energy usage data to their customers in Green Button format. The OEB is involved in the Green Button implementation.

3. More Clarity on Future Procurements

2021 saw greater clarity on the future of IESO procurement and the wholesale market.

The IESO moved forward to implement its high-level Resource Adequacy Framework. This involved significant Resource Adequacy engagement, and in July it issued its first Annual Acquisition Report. In the fall, the IESO released the draft Medium Term RFP, aimed at procuring up to 750MW of capacity for a 3-year period beginning in 2026. The expectation is that the RFP will be undertaken in the Q1/Q2 2022. The IESO is also considering potential bridging mechanisms to align expiring contracts with the Medium Term RFP commitment period. The IESO has begun engaging on a Long-Term RFQ, which will be followed by a RFP to be undertaken in 2023. It held its second annual capacity auction in December for summer 2022 and winter 2022-2023. In November, the Minister of Energy asked the IESO to report back on a number of resource adequacy and procurement initiatives.

The IESO continued the implementation of Market Renewal in preparing for its scheduled 2023 go-live date.  This included consultation on the Market Power Mitigation market rules and manuals .

4. Transmission

There was significant regulatory activity regarding new transmission projects.

The OEB issued initial revenue requirement decisions for two major northern Ontario transmission projects, NextBridge’s East-West Tie Line and the Wataynikaneyap Power line. The Minister of Energy asked the IESO to undertake contract negotiations with ITC regarding the Lake Erie Connector project, which would connect Ontario to the PJM. The IESO requested Hydro One to construct a new transmission line in southwest Ontario between the Lambton TS and the Chatham SS. The OEB approved an application by Hydro One to create a deferral account to record and track costs for any new transmission line projects that are requested to be constructed either by the IESO or Minister of Energy through Order in Council, and that are expected to be owned by new partnerships.

The OEB also commenced a generic hearing to review a number of issues regarding the Uniform Transmission Rates, starting with the Export Transmission Service rate.

5. Net-Zero

The question of how Canada will achieve its 2050 net zero greenhouse gas emission target began to enter the forefront in Ontario in 2021. Utilities all across the province are putting forward various climate change and net zero plans, campaigns, and commitments (For example, Hydro Ottawa, OPG & Bruce Power, Hydro One, and Toronto Hydro). The Ontario Energy Association released a report on the topic, and so did Strategic Policy Economics on behalf of the Power Workers Union.

At the IESO, in early October it released an assessment of the impacts of phasing out natural gas generation by 2030. While it did not recommend doing so, the Minister of Energy followed up by asking the IESO to undertake a further analysis, due by fall 2022, regarding a moratorium on procurement of new natural gas generation and a pathway to phase-out natural gas and achieve zero emissions in the electricity sector. Although, earlier in the year, the Government of Ontario announced funding for a further 28 natural gas expansion projects.

6. OEB Modernization

The OEB’s modernization agenda hit its stride during the year. In addition to a number of the initiatives already discussed, the OEB issued its new 5-Year Strategic Plan, completed Phase 1 of its Top Quartile Regulator project, hired two senior leadership executives to support the CEO, and held its first Policy Day. As part of its Stakeholder Engagement Plan, the OEB formed the Energy [X] Change and the Adjudicative Modernization Committee. A new MOU was signed with the Minister of Energy, and in late November, the Minister issued a new Mandate Letter. 

With respect to its adjudicative work, a number of new commissioners were appointed, and the Chief Commissioner issued her first initiatives plan. Changes were also made to both the Rules of Practice and Procedure related to Motions to Review and the Practice Direction on Confidential Filings.   The OEB also formed a working group to review the cost-of-service filing requirements for small electricity distributors. In December, the OEB issued a revised filing requirement based on the working group’s work.

The Ministry of Energy also posted two proposals, aimed at reducing when applications for leave to construct are required under the Ontario Energy Board Act. Proposals were issued to increase the threshold for when leave to construct is required for pipelines, and exempt certain transmission projects that are not expected to impact existing ratepayers. Final regulations have not yet been issued.  

7. Ontario Power Generation

Two important developments occurred in 2021 regarding Ontario Power Generation (“OPG”). First, the OEB issued its decision on OPG’s 2022 to 2026 payment amount application. The OEB approved a substantial settlement proposal reached between OPG and 13 intervenors on most aspects of the application. The settlement proposal included a number of unique aspects, including the use of the OPG’s long-term debt rate, as opposed to the higher return on equity rate until 2036 on a portion of capital spending over the 2017 to 2021 period in excess of what was previously approved by the OEB. On the unsettled issues, most notably the OEB made a permanent disallowance for imprudence of $94M and certain carrying costs incurred for the construction of OPG’s Heavy Water Storage and Drum Handling Facility. Final payment amounts will be finalized in the early new year.

Second, in November, OPG announced that it had chosen GE Hitachi as the technology partner to construct its planned Small Modular Reactor (SMR) at Darlington. This would be the first new nuclear facility built in Canada in decades and could be completed as early as 2028.  On a related note, earlier in the fall the Ontario Government proposed amendments to Ontario Regulation 53/05, that would include a Darlington SMR as a prescribed facility to allow OPG to recover the project’s prudently incurred costs as determined by the OEB.

8. COVID-19

While it may have been, and continues to be, the dominant story in our day-to-day lives, COVID-19 was much less so this year in energy regulation. With that said, the OEB did release it’s report on the Regulatory Treatment of Impacts Arising from the COVID-19 Emergency, which establishes guidelines for the COVID-19 deferral account. The Report creates a framework for which Covid-related costs, if any, are recoverable by regulated utilities from ratepayers. In June, a directive was issued to the IESO extending the deadlines for certain Conservation First Framework funded projects. In November, the Minister of Energy wrote the IESO to ask that it work with them to explore options for the remaining  projects that have not yet been completed.

9. LDC Mergers Are Back

After a few years of quiet, 2021 saw renewed movement towards  consolidation of the Ontario electricity distribution sector. In southwest Ontario, the relevant shareholder city councils approved a merger between Energy+ Inc. and Brantford Power Inc. The application for OEB approval was filed in late fall.  This was followed by an announcement of a proposed merger between Kitchener Hydro Inc. and Waterloo North Hydro Inc.  

The pressure on consolidation seems to be increasing. In the Minister of Energy’s recent Mandate Letter to the OEB, it asked that the filing requirements of distributors with fewer than 30,000 customers be amended to require them to file information within their cost-of-service applications on the extent they have investigated consolidation.

10. Broadband

The push to expand broadband access in the province looks like it may have a significant impact on the electricity distributor sector, based on legislative and regulatory changes in 2021. The Government of Ontario introduced and passed the Building Broadband Faster Act, 2021, which included a number of amendments to the Ontario Energy Board Act, creating a number of new authorities and regulation-making powers regarding access to electricity infrastructure. Since deployment of broadband generally requires access to electricity poles and use of rights of way, the intent is to create new rules for access and cost recovery.  In late fall, the Government issued a guideline that includes specific processes and timelines for the interaction between electricity distributors and telecommunication companies deploying broadband. It has also begun consultation on a regulation to enforce the guideline for provincially funded projects.

In early December, under its new authority, the Government issued Ontario Regulation 842/21 which among other things, set a new methodology for pole attachment charges. For 2022, it will result in a charge lower than what is currently in place. 

Thoughts For 2022

It is an exciting time in the energy sector. You can feel it. There are new innovative technologies and companies that are changing the relationship between customers and their utility. There is an increased focus on enabling DERs to help solve problems through the electricity system.

For the first time, it also feels like the discussion about meeting our climate change targets may be becoming serious, through enabling the inevitable increased electrification, and reducing our reliance on natural gas. This is all being supported by important new technical pilots and regulatory flexibility. The energy system is in transition.

At the same time, with all this change and excitement, it is hard not to think back to a somewhat similar feeling that took hold of much of the energy sector just over a decade ago with the changes made by the Green Energy Act. What followed was a period of significant public and consumer backlash that resulted from a lack of scrutiny and independent oversight of decision-making. This led to inevitable and understandable political interventions which just compounded the problems and further eroded trust.

The lesson to be learned is we need more, not less, independent oversight and stakeholder scrutiny, to ensure that the challenging questions of the appropriate trade-offs between cost, reliability, environmental impact, innovation, customer preference, competition, and indigenous reconsolidation, are properly considered. Without that, the sector may once again lose the confidence of customers and the public at a time where we cannot afford to decelerate the energy transition.  The added wrinkle is that many of the decisions that need to be made will determine the competitive dynamics for the future of the energy sector, as the old monopoly utility model is being challenged by not just new players, but also its own customers.

Hopefully, when the Ministry of Energy releases its revised long-term energy planning framework, it will create a durable process that incorporates these needed features. Until then, and potentially despite it, we must all work together to ensure that all perspectives are at the table, and decisions are made in a rigorous fashion. The decisions that will have to be made in 2022 will have a long-lasting impact. Let’s make sure we get them right.  –MR

As always, if you have any questions, or think we can be of assistance to you or your organization, please do not hesitate to reach out to any of the Shepherd Rubenstein lawyers. 

Click here for pdf version.

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

Ontario Energy Board

The OEB’s modernization efforts continue. The OEB:

• made amendments to its Rules of Practice and Procedure related to Motions to Review,
• proposed some changes to the Practice Direction on Confidential Filings,
• formed its new Adjudicative Modernization Committee (our own Mark Rubenstein is a member), and
• held its first Policy Day.

The OEB also issued some significant decisions. During the past three months it:

• created a first generation Integrated Resource Planning Framework for Enbridge Gas establishing specific requirements for when and how Enbridge will consider non-pipe alternatives to address system needs,
• approved a substantial Settlement Proposal in Ontario Power Generation’s 2022-2026 Payment Amounts application,
• released a decision regarding the applicability of Federal Carbon Charge Pricing Program to Enbridge Gas’ Indigenous customers, and
• approved the first revenue requirement for the new Wataynikaneyap Power LP’s transmission line.

It released for comments an OEB Staff Discussion Paper on updating the CDM Guidelines for Electricity Distributors, and a proposal to amend the Distribution System Code to facilitate connection of DERs.

The OEB accepted Assurances of Voluntary Compliance with two different entities regarding operating in the wholesale market without a license, one entity related issuing individual bills to customers with a being a licenses sub-metered, and Enbridge Gas regarding disconnection-related practices,

The Market Surveillance Panel also issued its semi-annual monitoring report.

Independent Electricity System Operator

The IESO issued its first Annual Acquisition Report and its Q3 2021 Reliability Outlook. The Technical Panel approved a number of  administrative changes for the upcoming 2021 capacity auction.

The IESO continues its engagement in several different important areas. This includes:

• the creation of a Distribution Energy Resources Roadmap, which includes a DER Potential Study,
• the enablement of participation of hybrid resources, and 
• continued work on resource adequacy, including engagement on a medium term RFP and enhancements to the IESO’s capacity auction.

Work also continues on the implementation phase of the Market Renewal Program. The IESO released for comment draft market rules and manuals related to market power mitigation.

The IESO and the OEB have also jointly through combined use of the Grid Innovation Fund and Innovation Sandbox issued a targeted call for novel and innovative project proposals

With respect to bulk system and regional planning, the IESO released its:  

• electricity plan for the West of London Area,
• Southern Huron-Perth IRRP, and
• Peel/Halton (GTA West) IRRP.

Legislative and Regulatory

The Government of Ontario has proposed amendments to regulations under the Ontario Energy Board Act. First, it proposed changes to Ontario Regulation 53/05 to include the Darlington Small Modular Reactor project to be a prescribed facility to allow Ontario Power Generation to recover the project’s prudently incurred costs as determined by the OEB. Second, it proposed amendments to Ontario Regulation 95/05 to specify that RPP rates would be updated only once a year.

The Government of Ontario also issued Ontario Regulation 679/21 under the Ontario Energy Board Act that provides a framework for Community Net Metering Program, and authorized West Five development in London to be the first demonstration project.

Other News

The municipal shareholders have approved the proposed merger of the parent companies of Energy+ Inc. and Brantford Power Inc. OEB approval is still required.  

Shepherd Rubenstein News

Shepherd Rubenstein has expanded with the addition of associate lawyer Fred Zheng. Fred will be assisting in a wide range of energy regulatory matters.

Both Jay Shepherd and Mark Rubenstein were named in the 2022 edition of ‘Best Lawyers’ for energy regulatory law. Jay was also recognized in the Lexpert Special Edition – Energy.

Things We Are Reading and Listening To

New report from Strategic Policy Economics on Ontario’s future electricity supply issues if we are going to meet climate goals, the Canadian portion of NERL’s North American Renewable Integration Study, FERC’s Advanced Notice on Proposed Rulemaking regarding regional transmission planning, cost allocation, and generator interconnection, and the The Disconnect: Power, Politics and the Texas Blackout podcast.

Last week was the first National Day Truth and Reconciliation Day.  Regardless of the day, it is always a good time to reflect and review the Truth and Reconciliation Commission’s Calls to Action.

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 any of the Shepherd Rubenstein lawyers. 

Click here for pdf version.