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Happy New Year. Before the year kicks into high gear, we thought it would be useful to share with you some of the most important themes and regulatory developments in the Ontario energy sector in 2023, with our annual Year in Review edition of the Shepherd Rubenstein Energy Regulatory Update. Stick around at the end for some thoughts for 2024 from our editor. We will have out detailed Q4, 2023

2023 saw the Ontario Government release its Powering Ontario’s Growth: Ontario’s Plan for a Clean Energy Future, which outlines the actions the province is taking and plans to take to meet the increasing electricity demand over the two decades. It builds on recommendations included as part of the IESO’s Pathways to Decarbonization Report and subsequent public consultation.

Just as we pointed out in last year, the energy transition was present in almost every regulatory discussion and decision over this past year. We all await the report of the Electrification and Energy Transition Panel (EETP), who undertook consultations this year, it is expected to be released  in early 2024.

1.  Electricity Procurement

The biggest development of 2023 was significant resource procurement activity.

Currently underway is the Long-Term 1 RFP (LT1 RFP) process, which is expected to procure 2,500 MW of dispatchable new build resources. The submission deadline was in mid-December, and contracts are expected to be offered to successful proponents in Q1/Q2 2024.

Earlier, in the year, as a result of its Expedited Long-Term LT1 (E-LT1) RFP, the IESO awarded contracts for 882 MW of non-emitting capacity from 15 storage facilities and 295 MW of natural gas capacity from on-site expansion of two existing facilities (about half the target capacity). An additional 286 MW of natural gas capacity was contracted as part of the Same Technology Upgrade process. The annual Capacity Auction procured a record 1,867MW of capacity for summer 2024 and 1,310 MW for winter 2024/2025.

The IESO also finalized a 20-year agreement with Oneida Energy Storage LP 250 MW storage facility, and a contract to extend Brighton Beach Generation Station to 2034 (with incremental capacity), and entered into a Memorandum of Understanding with Hydro-Québec to negotiate a new capacity sharing agreement that would swap a minimum of 600 MW of capacity per season.

At the direction of the Minister of Energy, the IESO developed the Small Hydro Program, to provide new contracts for existing hydroelectric facilities with installed capacities of 10MW and below. Minister of Energy also asked the IESO to assess two proposed pump storage projects to determine if they would provide positive value to the electricity system.  The Minister proposed that,  if they are implemented, they would be OEB rate regulated.

In December, in response to a request from the Minister of Energy, the IESO issued a Resource Adequacy Update, focused on Ontario’s system needs beginning in 2029. Resource Adequacy Update includes a 5000 MW procurement target for energy needs to be met through 3 bi-annual long-term RFPs. The first of these, LT2 RFP is expected to take place in 2025.   The IESO has begun engagement for it, and is anticipated to target 2,000 MW of new energy producing capacity.

To help offset the cost of procurement of these resources (and other programs and infrastructure costs), the Minister of Energy asked the IESO to report back on options for a Future Clean Electricity Fund, funded from proceeds from the sale of Clean Energy Credits held by the IESO and OPG.

2.  The Future of Natural Gas

Over the past year there has been a heated discussion regarding the future of natural gas and natural gas generation.

As discussed earlier, the IESO awarded contracts for 581 MW of natural gas generation as part of the E-LT1 RFP and Same Technology Upgrade process. Additional natural gas generation is expected to be procured as part of the on-going LT1 RFP.

As part of that LT1 RFP procurement, project proponents must get consent from the host municipal council. This created a lively debate between project proponents and opponents (primarily environmental groups). Recognizing the issue, the Minister asked the IESO to ensure it made itself available to municipal councils to answer questions on Ontario’s electricity system needs. Municipal councils in Napanee, and Windsor have provided their consent to potential projects. Those in Thorold, Halton Hills and Kingston have refused to provide that necessary consent, effectively killing some proposed projects that were expected to have made a bid in the LT1 RFP.

The future of natural gas as a fuel and heating source was debated through most of the year as part of Phase 1 of Enbridge Gas’ 2024-2028 rates application. Just before the December holidays, the OEB issued its Phase 1 decision, finding that the energy transition poses a risk that assets used to serve Enbridge’s customers will become stranded, and the company has not provided an adequate assessment of that risk to demonstrate its plan is prudent. One consequence of that finding was an OEB decision (with one commissioner dissenting) that to reduce stranded asset risk, beginning in 2025 all new small volume connecting customers will bear their connection costs upfront (as opposed to spread over 40 years as now). The next day, the Minister of Energy expressed his “extreme disappointment” in that part of the OEB decision, as it could result in added costs of building new homes. He announced that the Government would use its authorities to pause it, and introduce legislation, to reverse it.

Earlier in the fall, the OEB also held an oral hearing on Enbridge’s application to construct the Panhandle Regional Expansion Project, a major transmission pipeline expansion needed for growing greenhouse and natural gas generator demand in Southwest Ontario. A significant part of the debate before the OEB is who should be required to pay for the project, the customers driving the project need, or all customers.

There was also activity regarding natural gas expansion.

The Ministry of Energy launched a consultation on the future of the Natural Gas Expansion Program.

The OEB approved a number of Enbridge’s applications for leave to construct natural gas expansion projects that had received funding through the Natural Gas Expansion Program. Those projects have seen opposition at the OEB by environmental intervenors, and construction was temporarily halted as a result of a motion to review, which was ultimately denied.

3.  Nuclear Renaissance

The Government of Ontario has clearly signaled that nuclear power will remain a significant component of the energy mix well into the future.

The Minister of Energy made two major announcements regarding new nuclear development.

First, he announced the beginning of pre-development work to construct new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of siting up to 4,800 MW of new nuclear generation on the existing site. The Minister has asked the IESO to develop a cost sharing and recovery framework with Bruce Power for the Impact Assessment process.

Second, the Minister announced that the Government is working with Ontario Power Generation to commence planning and licenses for three additional small modular reactors (SMRs) at the Darlington Nuclear site.

The Minister of Energy also asked the IESO to work with OPG and Bruce Power to develop a feasibility study and business for future nuclear generation facilities. In addition, OPG was to send the Ministry of Energy its feasibility assessment for refurbishing Pickering B units by the end of 2023.

4.  Transmission Expansion

Increased electricity demand will require significant transmission system expansion.

The Government of Ontario issued an Order-in-Council declaring three new transmission projects (a new 230 kV transmission line from the Mississagi TS to the Third Line TS, a new 500 kV transmission line from the Mississagi TS to Hanmer TS, and a new 230 kV transmission line from the Dobbin TS to either the Cherrywood Ts or Clarington TS) as priority projects under section 96.1 of the Ontario Energy Board Act. 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 for the three projects.

The IESO recommended that the Hydro One construct phase 2 of the Waasigan Transmission Line between Atikokan and Dryden.

There has also been movement on a more competitive process for the development of transmission projects. As requested by the Minister of Energy in implementation of Powering Ontario’s Growth, the IESO initiated an engagement to develop a Transmission Selection Framework. In the summer, the Ministry of Energy said that it would engage with indigenous communities and interested transmitters who have expressed an interested in constructing a new 230 kv line between the Wawa TS and Porcupine TS. There are at least two groups (Transmission Infrastructure Partnerships 9, and Wabun Tribunal Council/Hydro One) seeking to construct and own the line.

The OEB revised the filing requirements for electricity transmission leave to construct applications.

5.  Electric Vehicles

There was a focus at the OEB on facilitating the adoption of electric vehicles (EVs).

As part of its Electric Vehicle Integration initiative, the OEB released the results of the survey of electricity distributors and EV charging service providers, and a consultant’s report on Electricity Delivery Rates for EV Charging.

The OEB also expanded the scope of its DER Connection Review to include system readiness for EV charger connections.  That work resulted in the OEB issuing a Notice of Proposal to Amend the Distribution System Code (DSC) to facilitate connection of EV charging infrastructure. The Notice creates Electric Vehicle Charging Connection Procedures which standardize many elements of the connection requirements and process.

As of May 1^st, some electricity distributors started to offer the new EV friendly  Ultra-Low Overnight Electricity Pricing Plan, with all others required to offer the new pricing plan by November 1^st

In late December, the Federal Government finalized its new Electric Vehicle Availability Standard, which would set annual sales targets of zero-emission light duty vehicles annually, leading to a requirement of 100% by 2035.

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

A number of big steps were taken to require consideration of non-wires and non-pipes alternatives to meet system needs, and to promote the use of Distributed Energy Resources (DERs).

In January, the OEB released its long-awaited report arising from its Framework for Energy Innovation (FEI) consultation on integrating DERs into the distribution planning and operations, as well as the use of third-party owned DERs as non-wire alternatives. The FEI: Setting a Path Forward for DER Integration Report set out some initial OEB guidance and laid out a multi-year implementation plan.

The first part of the implementation plan included the issuance of filing guidelines for incentive by electricity distributors to use third-party DERs, as well launching a consultation to develop a Benefit-Cost Analysis (BCA) Framework for addressing electricity system needs. By the end of the year, the OEB had released a draft BCA Framework Handbook for comment.

The IESO released a Guide to Assessing Non-Wires Alternatives as part of the Integrated Regional Resource Plan process. Together with the OEB, the IESO has commissioned a Joint Study of DER Incentives.

Enbridge Gas filed its application with the OEB to implement and recover costs of two Integrated Resource Plan (IRP) pilot projects.

In preparation for the next CDM framework, the Ministry of Energy sought input on the future of electricity conservation programs.  The IESO launched a new stakeholder engagement initiative that explores enhancements to demand-side resource participation in the IESO administered markets and programs.

To better understand DER adoption, the OEB now requires distributors to report on non-net metered embedded generation and storage devices connected to its system. The OEB also amended the Distribution System Code (DSC) to facilitate DERs through the elimination of certain capital allocation exemptions, capacity allocation deposits, and revised connection cost deposit refund processes and timelines.

At the end of the year, the OEB launched a consultation to develop a policy on standby rates.

7.  Federal Investment and Regulation

The Federal Government’s has significantly increased its investment and regulation to promote clean energy.

In August, the Federal Government issued Powering Canada Forward: Building a Clean, Affordable, and Reliable Electricity System for Every Region of Canada, which outlines its vision for the electricity sector.

Soon after, the Federal Government published for comment a draft of its Clean Electricity Regulations (CER) , aimed at achieving a net-zero electricity grid by 2035. The CER would effectively prohibit grid-scale natural gas electricity generation, except for a total of 450 hours a year, by 2035 for all new facilities commissioned after 2025, or the later of 2035 or 20 years after they were commissioned if it was before 2035.

The IESO provided feedback that in its view the CER as drafted are unachievable in Ontario by 2035 without risking the reliability of the electricity system, electrification of the broader economy and economic growth. The Minister of Energy has asked the IESO to provide a detailed assessment on the CER’s impacts in Ontario.

Earlier in the year, the Federal Minister of Energy and Natural Resources announced the creation of the Canada Electricity Advisory Council to provide him with expert advice. In December, it issued an Interim Report, and launched a consultation.  Natural Resource Canada also conducted a Request for Information seeking input regarding regulatory, policy and market barriers and opportunities for accelerating the pace of electrification and electricity grid modernization.

Budget 2024 announced significant new measures to promote clean energy investments.

At its centerpiece, it included the Clean Electricity Investment Tax Credit, a 15% refundable tax credit available for eligible investments, including non-emitting electricity generation systems, electricity storage systems, and equipment for electricity transmission between provinces/territories. This is available to both taxable and non-taxable entities (i.e. indigenous communities, crown corporations, publicly owned utilities, and pension funds). In order to access the tax credit in each province/territory, there will be a requirement for a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.

The Budget also included a new Investment Tax Credit for Clean Hydrogen, expanded eligibility of the Clean Technology Investment Tax Credit to include geothermal energy systems, enhancements to the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit, funding to recapitalize the Smart Renewables and Electrification Pathways Program, and renewal of the Smart Grid Program. It also announced a Canadian Infrastructure Bank investment of $20Bn in clean power and infrastructure priority areas, and that the Canada Growth Fund will design a Contract for Differences mechanism to backstop figure prices of carbon and hydrogen.

The Fall Economic Statement, announced that the Canada Growth Fund will be allocated $7Bn, on a priority basis, for carbon Contract for Differences and offtake agreements. It also provided further information on delivery timeline for the various investment tax credits.  Accompanying legislation was introduced implementing the CCUS and Clean Technology Investment Tax Credits.

There are debates about the limits to the Federal government authority, and several legal battles are coming next year. In the fall, the Supreme Court of Canada released its decision in the reference on the Impact Assessment Act, deciding that the “designated project” portion of the legislation was outside of the Federal jurisdiction. Alberta has signaled it will challenge the constitutionality of the CER if implemented. As a result of perceived unfairness in the Federal Government’s heating oil exemption from the federal carbon charge, Saskatchewan passed legislation to enable it to require SaskEnergy to stop collecting and remitting the carbon charge on natural gas as of January 1, 2024.

8.  Innovation

There was a lot of activity on the innovation front.

The OEB issued its Innovation Handbook, a compendium of existing OEB policies and materials related to innovative projects and proposals.

As part of its Innovation Sandbox, the OEB launched the Innovation Sandbox Challenge, and ultimately provided one-time funding to six projects. In April, the OEB released its Innovation Sandbox 2.0 Report covering activities through the end of 2022. The OEB and the IESO also issued their Innovation Sandbox/Grid Innovation Fund Joint Target Call Interim Report

In addition to the launch of the Ultra-Low Overnight Time of Use Pricing Plan, there were other initiatives aiming to innovate electricity pricing. The OEB provided an update regarding its Non-RPP Class B pricing pilot program. As no draft or final applications were received, the OEB is developing new options to assess alternatives to the commodity pricing structure. At the direction of the Minister of Energy, the IESO developed and launched the Interruptible Rate Pilot.

The IESO continued its work on the implementation phase of its Market Renewal Program.

As part of implementation of its Low-Carbon Hydrogen Strategy, the Government of Ontario announced the creation of the Hydrogen Innovation Fund (HIF). The IESO was directed to administer the HIF, and by year end 10 projects had been awarded HIF funding.

To support the OEB’s objective to facilitate innovation in the electricity sector, the Government of Ontario passed legislation amending the Ontario Energy Board Act, to permit the OEB to exempt certain licensing requirements with respect to specified activities for the purposes of participating in a pilot or demonstration project.

There were two noteworthy OEB decisions related to innovative projects. The OEB approved a Settlement Proposal in PUC Distribution’s 2023 distribution rates application, which included a unique cost recovery and performance incentive mechanism related to its previously approved Sault Smart Grid project. As part of Elexicon Energy’s Incremental Capital Module (ICM) funding application, the OEB approved substantially reduced funding for its proposed community-wide smart grid project.

As of the end of the year, all but 5 electricity and natural gas distributors had fully-implemented Green Button.

The Ontario government announced a proposal to allow Class A customers under the Industrial Conservation Initiative (ICI) to enter into power purchase agreements (PPAs) with renewable generation facilities to allow them to offset their peak demand.

With climate change expected to increase the need for resiliency of the electricity system, in response to the Minister of Energy’s direction the OEB undertook a consultation on distributor resilience, responsiveness, and cost efficiency. The OEB sent a Report to the Minister of Energy, who has endorsed a number of the recommendations, and asked that the OEB begin to develop policies and implement them.

Thoughts For 2024

Last spring, I had the opportunity to speak on a panel discussing the topic of affordability in the context of how the energy sector will contribute to meeting our net-zero commitments. My message to the audience that day, which I have often repeated, is that the number one threat to meeting those decarbonization goals is cost.

The path to meet our net-zero commitments is much like driving up a steep mountain. You need constant forward momentum for the climb, or you will just start going backward. If anything, you need to keep pressing the accelerator.  Nobody doubts that the level of investment needed will be significant. At the same time, customers’ willingness and ability to pay to transform our energy system has real limitations.

Without a focus on customer affordability and least-cost planning and execution, in all aspects of the energy transition, there will be inevitable backlash.  The risk is that it will not just halt any momentum that has been achieved, but will set us backward. The history of the energy sector, in Ontario and across the country, is full of examples of government intervention when rates exceed what they believe customers are willing to pay.

Powering Ontario Growth mentions affordability, but there has not been much discussion of what that specifically means and how to achieve it. In Ontario, taxpayer-funded rebate and subsidy programs have an important role, but at a cost of approximately $6 billion this year alone, it is not a sustainable solution to what is a an extremely difficult problem with no easy solutions.

Whether it’s 2030, 2035, or 2050, the clock is ticking. We must accelerate the pace of change, but with a relentless focus on minimizing costs.

Let’s hope the Electrification and Energy Transition Panel, along with any subsequent changes that the government may make, creates a durable long-term approach that focuses on costs and affordability. The sheer magnitude and scale of the investments and changes needed in the energy system call for more, not less, oversight and scrutiny. The voices of those who pay all the costs of the energy system—customers, who themselves increasingly have diverse views—need to be at the core of those energy decision-making processes. Limiting those voices, as some continue to try, is counterproductive.

Regardless of where you sit around the table—whether as a policymaker, regulator, utility, customer representative, project developer, energy service provider, or simply an interested observer—it is in all our collective interests to keep customer impacts at the forefront of the energy transition. Failure to do so jeopardizes our ability to fulfill our net-zero commitments, as we start sliding backwards down the mountain. –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 the pdf version.

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between July and September. It was busy, with both the Federal and Ontario Governments releasing electricity plans.

Ontario Energy Board

The OEB released several notable decisions over the past few months, including:

• Granting substantially reduced Incremental Capital Module (ICM) funding for Elexicon Energy related to a proposed community-wide smart grid project, and denying various exemptions to the Distribution System Code and ICM funding to construct new feeders for a planned Whitby area sub-division.
• Approving the partial Settlement Proposal in Phase 1 of the Enbridge Gas 2024-2028 rates application (An 18-day oral hearing was held in the summer regarding the unsettled Phase 1 issues).
• Disallowing approximately 9% of the amount Synergy North sought to recover retroactively related to certain previously disposed commodity pass-through accounts.
• Approval of the Settlement Proposal regarding IESO’s 2023-2025 Fees.

The OEB launched a number of consultations that will:

• Review and update the OEB’s Handbook to Electricity Distributor and Transmission Consolidations (MAADs Handbook).
• Develop a Benefit-Cost Analysis (BCA) framework for addressing electricity system needs.
• Rationalize the regulatory requirements for very small electricity distributors (<5000 customers) cost of service applications.
• Develop a policy on standby rates.

OEB Staff issued a Bulletin providing guidance to electricity distributors regarding the residential customer Basic Connections, and Distribution Service Code requirements in relation to subdivision connections and service upgrades.

The OEB issued a letter summarizing its recent guidance and resources available to electricity distributors regarding planning for electric vehicle (EV) integration.

Last quarter, the OEB completed implementing recommendations made by the Regional Planning Process Advisory Group’s Report to the OEB, by:

• Issuing final amendments to the Transmission System Code and Distribution System Code, meant to ensure that cost-effective investments are made when major transmission assets reach end of life and need to be replaced.
• Amending the IESO’s license to implement changes to the regional planning process, such that when there is a material change as part of Regional Infrastructure Plan process, there is a return to the IRPP process (on an expedited basis).

The OEB also issued the 2024 Inflation Parameters.

As the November 1, 2023 Green Button implementation deadline approaches for electricity and natural gas distributors, OEB Staff provided guidance regarding terms and conditions between distributors and authorized third-parties.

An update was provided regarding the Non-RPP Class B Pilot Program. No draft or final applications were received and as a result the OEB is developing new options to assess alternatives to the commodity pricing structure.

The OEB also released its Report to the Ontario’s Electrification and Energy Transmission Panel.

Two more Assurances of Voluntary Compliance (AVC) were accepted from electricity distributors (Grandbridge, Entegrus) related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. The OEB also accepted AVCs from a commercial property owner who had been acting as a unit sub-meter provider without a license, and an electricity storage facility (who had been operating without a storage license).

Independent Electricity System Operator

The IESO formally completed the Expedited Long-Term RFP (E-LT1 RFP) and Same Technology Upgrades Solicitation by releasing the contract prices. The IESO also released the contract prices for the Medium Term RFP that was concluded in the fall of 2022.

With respect to future procurement, the preparations continue for the Long-Term 1 RFP (LT1 RFP) including stakeholder engagement on the draft RFP and contract. The IESO also released draft contracts for its Small Hydro Program which would provide new contracts for existing hydroelectric facilities with installed capacities of 10MW and below. The Minister of Energy issued a procurement directive requiring the IESO to move forward with both the LT1 RFP and the Small Hydro Program. The directive also required the IESO to work with the Ministry of Energy and the Ontario Finance Authority on the feasibility of transferring existing NUG contracts to the IESO.

The IESO and Hydro-Québec entered into Memorandum of Understanding to negotiate a new capacity sharing agreement that would swap a minimum of 600 MW of capacity per season.

The Minister of Energy wrote to the IESO to request that it work and report back on several initiatives to support its Powering Ontario’s Growth plan, including, among others:

• Developing a cost sharing and recovery framework with Bruce Power for the nuclear new-build Impact Assessment.
• Working with both Bruce Power and OPG to develop a feasibility study and business case for potentially new nuclear generation facilities in Ontario.
• Potential subsequent procurements, including a Long-Term 2 RFP.
• Options for the previously announced Future Clean Electricity Fund to support development of new clean electricity projects and programs.
• Continue work to develop a transmission selection framework.

Separately, the Minister of Energy wrote to the IESO to ask to assess two proposed pump storage projects, to determine if they would provide positive value to the electricity system, and to make a recommendation concerning the unsolicited proposal process, if it is still necessary.

The IESO launched a new stakeholder engagement initiative that explores enhancements to demand-side resource participation in the IESO administered markets and programs.

The Technical Panel recommended Market Rule amendments:

• As part of the Capacity Addition, the addition of a performance adjustment factor to calculate the unforced capacity (UCAP) value that will be determined in a pre-auction qualification process. Additionally, administrative changes were made to improve clarity and presentation.
• Correction to an inadvertent error made in previous intertie flow limit amendments.

The IESO Board of Directors provisionally approved Market Rules amendments coding the Market Renewal Program’s market settlement framework.

The Exemption Panel approved the IESO’s application for an exemption from the Market Rules to allow it to cancel Transmission Rights auctions to facilitate transition to the new market. Comments were sought on a Market Rules exemption application from Hydro One regarding load security and restoration criteria for new loads to be connected to the Windsor NextStar Transformer Station.

The Q3 2023 Reliability Outlook was released.

The IESO also released a draft EPRI DER Scenario and Modelling Study regarding transmission-distribution coordination in the context of the York Region NWA demonstration project.

The IESO entered into settlement agreements with 6 generators (Grand Bend Wind LP, Iroquois Falls Power Corp., Kingston Cogen LP, Kirkland Lake Power Corp., Thorold CoGen LP, and Cochrane Power Corp.) regarding a range of Market Rules violations.                                    

Legislative and Regulatory

The Ontario Government released Powering Ontario’s Growth: Ontario’s Plan for a Clean Energy Future, outlining actions the province is taking to meet the increasing electricity demand over the next two decades as a result of economic growth and electrification. It builds on recommendations included as part of the IESO’s Pathways to Decarbonization Report as well subsequent public consultation.

The Minister of Energy made two significant announcements regarding new nuclear development. First, the Ontario Government is beginning pre-development work to construct a new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of sitting up to 4,800 MW of new nuclear generation on the existing site. Second, the Ontario Government was working with Ontario Power Generation to commence planning and licenses for three additional small modular reactors (SMRs) at the Darlington Nuclear site.

 

The Government of Ontario is proposing to amend a number of regulations, including:

• Ontario Regulation 160/99 under the Electricity Act, 161/99 under the Ontario Energy Board Act, and 389/10 under the Energy Consumer Protection Act¸ to implement the recently passed amendments to the Ontario Energy Board Act, giving the OEB the authority to exempt persons from having to be licensed with respect to specified activities for the purposes of participating in a pilot or demonstration project.
• Ontario Regulation 679/21 under the Ontario Energy Board Act, and 389/10 under the Energy Consumer Protection Act, to clarify regulatory requirements for community net-metering and third-party net-metering ownership.
• Ontario Regulation 53/05 under the Ontario Energy Board Act, to rate-regulate two proposed pump storage projects.
• Ontario Regulation 509/18 under the Electricity Act, to harmonize requirements and efficiency metrics for various space and water heating products with NRCan through rolling incorporation.

The Ministry of Energy initiated consultations regarding proposals for three transmission projects in Northeast and Eastern Ontario. It proposes to designate as priority projects under section 96.1(1) of the Ontario Energy Board Act, the Mississagi to Third Line (230 kv line between Missisagi TS and Third Line TS), the Hanmer to Mississagi Line (500 kv line between Hanmer TS and Mississagi TS), and the Greater Toronto Area East Line (230 kv between Cherrywood TS or Claringston TS, and Dobbin TS). The Ministry is also proposing to issue a directive under section 26.7.1 of the Ontario Energy Board Act , to designate Hydro One as the transmitter to develop these three transmission projects. The Ministry also noted that for a fourth transmission project, the Wawa to Porcupine Line (230 kv line between Wawa TS to Porcupine TS) will engage with indigenous communities and interested transmitters who have expressed an interest in developing the line.

The Ministry of Energy also sought input on the future of electricity efficiency programs in advance of the end of the current 2021-2024 conservation and demand management framework.

Federal Government

The Government of Canada issued Powering Canada Forward: Building a Clean, Affordable, and Reliable Electricity System for Every Region of Canada, which outlines its vision for the electricity sector.

The Government of Canada also published a draft of its Clean Electricity Regulation which is currently open for comment (the IESO has already raised certain concerns with the draft regulation). Feedback period is open to November 2, 2023 and final regulations are expected to be published in 2024.

Shepherd Rubenstein News

Both Jay Shepherd and Mark Rubenstein were listed in the 2024 edition of ‘Best Lawyers’. Mark was ranked by Chambers Canada in its 2024 guide.

What We Are Reading

Power Advisory’s analysis of the impact of the Clean Energy Regulation on Ontario. Positive Energy’s Net Zero: An International Review of Electricity and Natural Gas Delivery System Policy and Regulation for Canadian Energy Decision-makers Report.

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

Summer has arrived and so has the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the key developments in the Ontario energy sector. We scoured the regulatory landscape to provide you with a summary of all the important happenings between April and June (and the first few days of July) so you can stay in the know.

Ontario Energy Board

The OEB issued several notable decisions over the past few months, including:

• Rejecting a request from Ontario Power Generation to establish a variance account to record the impacts of the overturning of Bill 124 on its nuclear revenue requirement, finding it was not unforeseeable and the amounts did not meet the materiality criteria.
• Granting approval of EPCOR Natural Gas LP’s request to establish a variance account to capture the difference in assumed versus actual average customer consumption for its South Bruce distribution system, albeit on a modified basis. The OEB allowed only recovery of 50% of the annual balance from customers, until such a point that actual earnings reach 300 basis points below approved ROE. EPCOR has filed a Motion to Review.
• Providing the necessary interim approvals for Hydro One to take possession and control of Chapleau PUC, which had been experiencing difficulty managing the day-to-day operations of the utility.
• Setting EPCOR Electricity Distribution Ontario’s 2023 distribution rates. In its decision the OEB made a number of reductions to the proposed revenue requirement, including with respect to capital, OM&A and cost of debt.
• Approving the Settlement Proposal in PUC Distribution’s 2023 distribution rates application, which included a unique cost recovery and performance incentive mechanism related to its previously approved Sault Smart Grid project.
• Denying Grandbridge Energy’s request to make certain adjustments and reducing their proposed recovery from customers of amounts related to an accounting error in previously disposed of balances in certain commodity pass-through accounts.
• Updating the Uniform Transmission Rates (UTRs).

Both the Chief Executive Officer and Chief Commissioner provided their respective 2022-2023 year-end updates. As it looks forward, the OEB also published its 2023-2026 Business Plan, which was approved by the Minister of Energy.

As part of its Electric Vehicle Integration (EVI) Initiative, the OEB released a consultant’s report on Electricity Delivery Rates for EV Charging, held a stakeholder meeting and sought written comments to gather feedback.

The OEB released its inaugural Innovation Sandbox 2.0 report covering activities of the Innovation Sandbox since July 2020.

In advance of the filing of 2024 incentive regulation applications, the OEB issued:

• Updated Chapter 3 Filing Requirements for Electricity Distribution Rate Applications
• 2024 Inflation Factor for electricity distributers and transmitters

The OEB made changes to the Distributed Energy Resources Connection Procedures, requiring the use of standard template forms for certain information provided to a distributor by a customer, and for responding information provided by a distributor.

On the compliance front, the OEB issued its annual Compliance Report. A further 4 Assurances of Voluntary Compliance (AVC) were accepted from electricity distributors (Synergy North, Fort Francis Power, Atikokan Hydro, and Sioux Lookout Hydro) related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. The OEB also accepted AVCs from two electricity wholesalers (Carmeuse Lime (Canada) and Enbridge Pipelines) who had been operating without a license.

Independent Electricity System Operator

The IESO issued its Resource Adequacy update, providing the results from its recent Expedited Long-Term RFP (E-LT RFP) and Same Technology Upgrade procurement. As a result of the E-LT RFP, the IESO has contracted for 881 MW of non-emitting capacity from 15 storage facilities (combined category 1 and 2), and 295 MW of natural gas capacity from on-site expansion of two existing facilities (about half the target capacity). Through the Same Technology Upgrade, the IESO has contracted for 291 MW of additional natural gas capacity. The Minister of Energy issued a directive requiring IESO to enter into its finalized contract to extend Brighton Beach Generation Station to 2034 and provide incremental capacity.

The IESO also announced that for its next Capacity Auction it will target 1,400 MW for summer 2024 and 850 MW for winter 2024/2025, an increase over the 2022 auction.

Work continued on the Long-Term RFP which is expected to be issued at the end of September, including design of the contract and a number of technical matters (deliverability and the connection assessment processes).

The IESO recommended that Hydro One construct phase 2 of the Waasigan Transmission Line between Atikokan and Dryden.

The Technical Panel recommended market rule amendments:

• Introducing a capacity qualification process and modifying the performance assessment framework to the Capacity Auction. (The IESO Board of Directors approved the amendment).
• Codifying the Interim Alignment Batch for the Market Renewal Program (MRP) which integrates amendments between previous MRP batches, and across market rules otherwise unaffected by MRP. (The IESO Board of Directors approved the amendment).
• Codifying the Market Renewal Program’s market settlement framework.

The IESO sought comment on its application for an exemption from the Market Rules to allow it to cancel Transmission Rights auctions to facilitate transition to the new market.

The IESO issued a number of reports, including:

• Integrated Regional Resource Plans: Guide to Assessing Non-Wires Alternatives
• North & East of Sudbury: Integrated Regional Resource Plan
• ISO Markets and Planning Data Jurisdictional Review for IESO
• Q2 2023 Reliability Outlook

A settlement agreement was entered into with ArcelorMittal Dofasco for breaches of the Market Rules related to the Operating Reserve market.

Legislative and Regulatory

On July 5^th, the Minister of Energy announced that the Ontario Government is beginning pre-development work to construct a new large scale nuclear generation on the Bruce Power site. Bruce Power will start necessary consultations and undertake a federal environmental assessment to determine the feasibility of sitting up to 4,800 MW of new nuclear generation on the existing site.

The Government of Ontario introduced and passed Bill 91, Less Red Tape, Stronger Economy Act, 2023, which among other things:

• Amended the Ontario Energy Board Act by: i) expanding the types of penalties or fines that are not eligible expenses for inclusion in rates for electricity and gas distributors, and transmitters to include all those made under any legislation, and ii) allowing the OEB to exempt proponents that wish to undertake innovative projects from various license requirements on a time-limited basis.
• Amended the Oil, Gas and Salt Resources Act, by creating a process for the designation of special projects to test, pilot or demonstrate new or innovative activities, such as carbon storage.

In parallel with the introduction of Bill 91, the Government of Ontario initiated consultations for each of these three legislative amendments: keeping penalties off rates, advancing innovation on Ontario’s energy sector, and proposed changes to OGSRA to regulate test projects.

The Electrification and Energy Transition Panel released an Open Call document and sought written feedback to assist in its work.

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

• Amending Ontario Regulation 429/04 under the Electricity Act, exempting Global Adjustment charges for power purchased from outside of the province using private transmission lines.
• Amending Ontario Regulation 393/07 under the Electricity Act, expanding the objectives and the definition billing quantity data of the Smart Metering Entity to allow it to collect data on the electricity conveyed into the grid from a generation or energy storage system installed behind the customer’s meter.
• Issuing Ontario Regulation 153/23 under the Electricity Act, amending Ontario Regulation 429/04 under the Electricity Act, Ontario Regulations 14/18, 198/17, 197/17, 330/09, 442/01 under the Ontario Energy Board Act, Ontario Regulation 30/22 under the Ontario Fair Hydro Plan Act, and Ontario Regulation 363/16 under the Ontario Rebate for Electricity Consumers Act which will implement the 2-year limitation period for certain payments, adjustments, and amounts to be settled with the IESO that was previously enacted as part of the amendments to the Electricity Act.

On May 1^st, seven electricity distributors started offering the new Ultra-Low Overnight Electricity Price Plan with all others required to offer the plan by November 1^st.

Judicial Decisions

More than sixteen years after the Supreme Court of Canada’s ATCO Gas (aka Stores Block) decision, the Alberta Court of Appeal (ABCA) released the latest decision that wades through its implications. In ATCO Electric Ltd v Alberta Utilities Commission, the ABCA overturned an Alberta Utilities Commission (AUC) decision that determined that the undepreciated value of assets lost by ATCO in Ft. McMurray were losses to be borne by the shareholder. The ABCA found that the AUC had misread the implications of the Supreme Court’s Stores Block (and a subsequent ABCA decision) that constrained the regulator’s discretion with respect to destroyed assets. The ABCA sent the matter back to the AUC for reconsideration.

The Ontario Court of Appeal (OCA) released its decision in Hydro One Networks Inc. v. Shiner allowing the appeal. The OCA found that Hydro One had made out the test for prescriptive easement over certain lands used to access and maintain its transmission facilities since the 1930s.

The Ontario Superior Court of Justice granted an interim receivership application under the Bankruptcy and Insolvency Act over the assets of Planet Energy, an Ontario electricity and natural gas retailer.

 Things We Are Reading

The Canadian Energy Regulator released its Canada’s Energy Future 2023: Energy Supply and Demand Projections to 2050 Report. Canadian Climate Institute issued a report on Clean Electricity, Affordable Energy. The National Association of Convenience Stores in the United States released a report it had commissioned on the benefits of competitive EV charging stations.

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 the pdf version.

Welcome to the Q1 2023 edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector between January and March (and the first days of April). As always, we scoured the regulatory landscape so that you can stay informed and ahead of the curve in this rapidly changing environment.

Ontario Energy Board

In January, the OEB released its long-awaited report arising from its Framework for Energy Innovation (FEI) consultation on integrating DERs into the distribution planning and operations, as well as the use of third-party owned DERs as non-wire alternatives. The FEI: Setting a Path Forward for DER Integration Report set out some initial OEB guidance, and laid out a multi-year implementation plan. The first part of the implementation plan involved the release of new Filing Requirements for electricity distributors who bring forward incentive mechanism applications for use of third-party DERs as NWAs.

On the innovation front, the OEB announced a call for submissions to its Innovation Sandbox Challenge, and released its Innovation Handbook, a compendium of existing OEB policies and materials related to innovative projects and proposals.

In a notable decision, the OEB approved a municipal franchise agreement between Enbridge and the County of Essex, finding that the previous 1957 agreement had expired as a result of the application of the rule against perpetuities.

In response to the Minister of Energy‘s Letter of Direction, the OEB instituted a consultation Distribution Sector Resilience, Responsiveness & Cost Efficiency, and held a first stakeholder meeting to discuss the contents of a draft report it had commissioned on the topic.

As part of its modernization work, the OEB issued:

• A Standard Issues List for electricity distribution rate applications.
• Revised Filing Requirements for electricity transmission leave to construct applications.
• Amendments to the Rules of Practice and Procedure, and aspects of the Practice Direction on Cost Awards, related to adoption of new intervenor forms.
• Updated performance standards for natural gas Quarterly Rate Adjustment Mechanism (QRAM) applications.
• The 8^th edition of its Environmental Guidelines for the Location, Construction and Operation of Hydrocarbon Pipelines and Facilities in Ontario.

The OEB accepted 5 more Assurances of Voluntary Compliance (AVC) from electricity distributors (Alectra, North Bay Hydro, Enova, Newmarket-Tay, and Kingston Hydro), related to billing errors that resulted in the overcharging of customers through the fixed monthly service charge. AVCs were also accepted with an electricity retailer (XOOM Energy) regarding price disclosure issues, and two electricity wholesalers (Weyerhaeuser, Dyno Noel Nitrogen)  who had been operating without a license.

There were several changes made to OEB’s Reporting and Record-keeping Requirements (RRR) for electricity distributors, including:

• New record-keeping requirements for equipment failure and changes to the definition major events, both arising from the ongoing Reliability and Power Quality Review.
• Reporting requirements to monitor implementation of the Ultra-Low Overnight Price Plan.
• Reporting requirements on non-net metered embedded generation and storage devices arising from the DER Connection Review.
• Other reductions, removals, enhancements, and additions.

Amendments to the Distribution System Code were proposed and finalized to further facilitate DERs through the elimination of certain capital allocation exemptions, capacity allocation deposits, and revised connection cost deposit refund processes and timelines.

As part of its continued work implementing recommendations from the Regional Planning Processes Advisory Group Report, the OEB issued a notice of proposal to amend the DSC and Transmission System Code (TSC), requiring transmission asset owners to provide certain end-of-life asset information to the IESO (via the lead transmitter in the regional planning process) to better facilitate more optimal investment planning.

Enhancements were announced to the OEB’s Activity and Program-based Benchmarking initiative through improvements to certain unit cost formulas.

As part of its Electric Vehicle (EV) Integration initiative, the OEB released the results of the survey of electricity distributors and EV charging service providers, which will be used to help inform the next part of its work in this area.

OEB Staff issued a Bulletin providing its view that electricity customers on the Regulated Price Plan, who are net metered, still have the ability to choose their pricing plans (time-of-use or tiered pricing). It also provided a letter setting out guidance on the calculation of cost apportionment for designated broadband projects under section 5(7) of Ontario Regulation 410/22.

The OEB issued a letter summarizing feedback it heard from electricity distributors and the proposed actions it plans to take regarding enhanced cybersecurity readiness.

As it relates to the Low-income Energy Assistance Program (LEAP) and Emergency Financial Assistant Program, the OEB extended the previously announced flexibility to two program requirements regarding program eligibility (needed to be in arrears, but no threat or actual disconnection, and can access program more than once a year). At the same time, the OEB returned the maximum annual grant amount back to $500 per household a year.

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

Independent Electricity System Operator

In late March, the IESO launched the Clean Energy Credit program. The Minister of Energy also wrote to the IESO in the lead-up to the launch, providing some guidance regarding his expectations, as well as noting that the Ministry of Energy was finalizing plans on how net revenues from sales of IESO and Ontario Power Generation CECs would benefit Ontario ratepayers and support new clean energy generation.

In early 2023, the Government announced the Hydrogen Innovation Fund and the Minister of Energy directed the IESO to administer it. The IESO has consulted on certain aspects of the program and issued the final documents in advance of the Application window opening at the beginning of April.

With respect to procurement, the IESO’s Expedited Long-Term (E-LT1) RFP submission deadline was February 16, 2023. Before the deadline, the Canadian Infrastructure Bank (CIB) proposed a uniform offer of investment to the Storage Category 2 proponents after the submission deadline. This was supported by the Minister of Energy.  As a result, the IESO amended the proposal evaluation portion of the E-LT1 RFP. An announcement of selected proponents is expected in May/June. The IESO also began consultation on its upcoming Long-Term RFP (LT-1 RFP) that it is targeting for Q2 2024.

The IESO announced that it has finalized a 20-year agreement with Oneida Energy Storage LP. With the encouragement of the Minister of Energy, the IESO also entered into a new contract for regulation services with Ontario Power Generation’s Niagara Hydrogen Centre.

During the quarter, the IESO issued a number of reports as part of the regional planning process:

• Integrated Regional Resource Plan for the Northwest Region
• Toronto Region Scoping Assessment Outcome Report
• Ottawa Region Scoping Assessment Outcome Report

The Technical Panel recommended market rules amendments related to:

• The revised implementation date for the Replacement of the IESO Settlement System (subsequently approved by the IESO Board of Directors).
• Enabling the co-location of generation and storage facilities behind a single connection point (hybrid model) (subsequently approved by the IESO Board of Directors)

The IESO’s Board of Directors also approved previously recommended market rules amendments related to improving accessibility of operating reserve. They also approved the recommended change to the Technical Panel Terms of Reference.

At the request of the Minister of Energy, including by way of a directive, the IESO continued work and launched the Interruptible Rate Pilot. They undertook further consultation, finalized pilot rules and contracts, and received applications.

The Exemption Panel made two determinations on market rules exception and reconsideration applications for dispatchable loads (ArcelorMittal Dofasco and Ivaco Rolling Mills).

The Q1 2023 Reliability Outlook was released.

Legislative and Regulatory

On April 3^rd, the Government of Ontario introduced Bill 91, Less Red Tape, Stronger Economy Act, 2023, which among other things would:

• Amend the Ontario Energy Board Act by: i) expanding the types of penalties or fines that are not eligible expenses for inclusion in rates for electricity and gas distributors and transmitters to include all those made under any legislation ii) allowing the OEB to exempt proponents that wish to undertake innovative projects from various license requirements on a time-limited basis.
• Amend the Oil, Gas and Salt Resources Act, by creating a process for the designation of special projects to test, pilot or demonstrate new or innovative activities, such as carbon storage.

In parallel with the introduction of Bill 91, the Government Ontario initiated consultations for each of these three legislative amendments (keeping penalties off rates, advancing innovation on Ontario’s energy sector, proposed changes to OGSRA to regulate test projects)

The Ministry of Energy launched a consultation seeking feedback on the findings of the IESO’s Pathways to Decarbonization Study, and in particular, the “no regrets” recommendations.

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

• Amending Ontario Regulation 24/19 under the Ontario Energy Board Act, adjusting the amount of funding under the Natural Gas Expansion Program for the Hamilton Airport Regional Expansion project.
• Issuing Ontario Regulation 39/23 under the Electricity Act related to the Clean Energy Credits, defining energy sources for the purposes of the definition of environmental attributes, requirements and restrictions on the transfer of environmental attributes. The Government also amended Ontario Regulation 160/99 under the Electricity Act providing certain exemptions for when registration is required for contracts entered into before January 1, 2023.
• Issuing Ontario Regulation 25/23 under the Electricity Act (and revoked Ontario Regulation 507/18), setting out the energy reporting and CDM plans requirement for the broader public sector.
• Amending Ontario Regulation 410/22 under the Ontario Energy Board Act, to shorten timelines for electricity distributors that have to grant internet service providers permission to attach broadband infrastructure to electricity poles.
• Issuing Ontario Regulation 12/23 under the Electricity Act, prescribing rules for the issuance of administrative penalties by the Electricity Safety Authority.
• Proposing changes to regulations and policies under the Environmental Assessment Act, regarding the types of electricity transmission projects eligible to be included in a streamline EA process (Class EA or MTF Class EA).
• Proposing changes to Ontario Regulation 393/07, and if required the Electricity Act, to allow the Smart Metering Entity (SME) to collect and manage bi-directional data from smart meters.

 Other News

 Natural Resource Canada issued a Request for Information seeking input regarding regulatory, policy and market barriers and opportunities for accelerating the pace of electrification and electricity grid modernization.

As part of the Federal Government’s 2023 Budget, it announced significant new measures to promote clean energy investment, including among others:

• New Clean Electricity Investment Tax Credit – A 15% refundable tax credit available to both taxable and non-taxable entities (such as indigenous communities, crown corporations, publicly owned utilities, and pension funds) for eligible investments in non-emitting electricity generation systems (wind, solar, hydro, wave, tidal, and nuclear), abated natural gas-fired generation, stationary non-fossil fuel operation electricity storage systems, and equipment for electricity transmission between provinces/territories. Among other requirements, in order to access the tax credit in each province/territory, there will be a requirement for a commitment by a competent authority that the federal funding will be used to lower electricity bills, and a commitment to achieve a net-zero electricity sector by 2035.
• New Investment Tax Credit for Clean Hydrogen – A refundable tax credit between 15-40% of eligible project costs based on the carbon intensity of clean hydrogen projection.
• Expanded eligibility of the Clean Technology Investment Tax Credit to include geothermal energy systems.
• Enhancements to the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit.
• Funding to recapitalize the Smart Renewables and Electrification Pathways Program and renewal of the Smart Grid Program.
• Canadian Infrastructure Bank investment of $20Bn in clean power and infrastructure priority areas.
• Consultation on the development by the Canada Growth Fund of the design of a Contract for Difference mechanism to backstop figure prices of carbon and hydrogen.

Shepherd Rubenstein News

Jay Shepherd will speaking on May 3^rd at the 2023 Industrial Gas Users Association Spring Seminar on the role of utilities and regulators in getting industry to net-zero. Mark Rubenstein will speaking on May 10^th, at the Electricity Canada 2023 Regulatory Forum on how to ensure that investments needed to be made to the electricity grid to meet net zero commitments are affordable for customers.

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.

 

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.