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SR Update

Energy Regulatory Update (Q1, 2022)

Welcome to the latest edition of the Shepherd Rubenstein Energy Regulatory Update, a quarterly round-up of the important developments in the Ontario energy sector. Below are some of the key regulatory happenings between January and March (as well as the first couple of days in April).

Ontario Energy Board

The OEB issued a number of decisions, including:

With respect to innovation, the OEB:

To further incent consolidation, the OEB updated its policy for the availability of the Incremental Capital Module (ICM) for electricity distributors during extended rebasing deferral periods after consolidation.  The OEB will allow distributors to apply in years six to ten of the deferred rebasing period for an ICM for an annual capital program if certain requirements are met.

On the modernization front, the OEB issued:

The OEB provided further details regarding its Reliability and Power Quality Review. In do so, it provided the results of a customer survey, defined the objectives of a proposed regulatory framework, and outlined the next steps, which includes forming a working group.

In furtherance of the Minister of Energy’s requirement to report back and advise on a design of an optional enhanced time of use rate structure, the OEB held a stakeholder engagement meeting and presented a proposed ultra-low overnight pricing design.

The OEB accepted Assurances of Voluntary Compliance, from E.L.K. Energy for its inability to provide evidence that it undertook for required asset inspections in compliance with the Distribution System Code, Greater Sudbury Hydro for overcharging customers caused by the way its billing system translated approved rates into amounts charged on bills, and Lafarge Canada for operating in the wholesale market without a licence.

As a result of current global supply chain issues, OEB Staff issued a Bulletin advising that it will not take compliance action against electricity distributors who, despite exercising due diligence, are unable to obtain smart meters due to current semiconductor supply constraints.

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

Independent Electricity System Operator

In late January, the Minister of Energy issued a directive to the IESO that, among other things, authorized a number of procurement initiatives that the IESO has been working on as part of its Resource Adequacy Framework. This included directing the IESO to:

  • Undertake a Medium-Term RFP (and a contract bridging mechanism for successful proponents).
  • Enter into a contract for the Oneida Energy Storage Project and the Calstock Generation Station;
  • Design a Long-Term RFP for at least 1,000MW, with an RFQ to be undertaken before the end of Q2,2022.
  • Design a program to re-contract with existing small hydroelectric facilities (<10MW) and conduct an assessment of a program for existing large hydroelectric facilities (>10MW).

With respect to other procurement matters, the IESO continued its stakeholder engagement on the design of the Long-Term RFP, including with respect to the draft RFQ.  The IESO also entered into a supply contract with OPG for the Lennox GS that will run until May 2029.

On April 4th, 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 to ask it to initiate an engagement on potential designs to acquire further capacity and report back with recommendations by mid-July. The letter also asked the IESO 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. Additionally, the letter asked the IESO to consider accelerating the CDM Mid-Term Review. The IESO had just launched the engagement days earlier.

In addition to the AAR, the IESO has released some other notable reports so far this year, including:

After delaying the vote at its February Meeting to seek further stakeholder input, in March a majority of the Technical Panel voted to provisionally recommend a number of market rule amendments related to the Market Renewal Program (MRP) market power mitigation framework.

The IESO launched its Pathways to Decarbonization stakeholder engagement, to inform the study that the Minister of Energy has asked be undertaken to evaluate a moratorium on procurement of new natural gas generation, and a pathway to phase-out natural gas and achieve zero emissions in the electricity sector.

Earlier in the year, the Minister of Energy wrote the IESO and asked it to continue discussions, and update its assessment regarding the proposed Lake Erie Connector Project. In a separate letter, the Minister of Energy asked the IESO to assess and provide design options for a registry to support a voluntary clean energy credit (CEC) market, and report back by July, 2022.  The IESO subsequently launched a stakeholder engagement to support that work.

Market Assessment and Compliance Division (MACD) announced that it had entered into a settlement on behalf of the IESO with MAG Energy Solutions, regarding certain intertie trading activities between 2016 and 2020.

Legislative and Regulatory

After undertaking consultations earlier this year, the Government Ontario issued an Order-in-Council declaring three electricity transmission projects in Southwest Ontario (a new 230kv line between the existing Chatham SS to the new Lakeshore TS, a new 230kv line between Lambton TS and Chatham SS, and new 500kv line between the Longwood TS and Lakeshore TS) as priority projects under section 96.1 of the Ontario Energy Board Act. Separately, the Minister of Energy issued a directive to the OEB requiring it to amend Hydro One’s transmission licence requiring it to develop and seek all necessary approvals regarding two of the of the priority projects in the Order-in-Council (the third had already been subject to a 2020 directive), 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.

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

  • Amending Ontario Regulation 363/16 to add to the types of accounts eligible to receive the Ontario Electricity Rebate, common areas in multi-unit complexes, retirement residences, and mobile home parks, effective July 1.
  • Amending Ontario Regulation 835/20, to include biomass contracts entered into with the IESO as being eligible to be paid in whole or in part by general revenues as opposed to through electricity rates.
  • Amending Ontario Regulation 123/02, 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, but only during the time when it is providing regulation services.
  • Amending Ontario Regulation 245/97, to regulate compressed air energy storage projects.
  • Amending Ontario Regulation 95/05 to apply the off-peak TOU rate 24 hours day for 21 days beginning January 18, 2022, to provide rate relief during COVID-19 restrictions that were put in place in early January.
  • Amending Ontario Regulation 429/04, to facilitate an electricity rate pilot, as well as to make a number of administrative changes to the Industrial Conservation Initiative (ICI) program .
  • Amending Ontario Regulation 198/17, to adjust annually the Distribution Rate Protection caps by the OEB’s inflation factor.
  • Issuing Ontario Regulation 30/22, setting a 2-year limitation period for customers under the Ontario Fair Hydro Plan Act, 2017.
  • Proposing amendments to the Industrial Conservation Initiative (ICI) program eligibility to prohibit participation by facilities that mine cryptocurrency.

The Minister of Infrastructure introduced Bill 93, Getting Ontario Connected Act, 2022. The proposed legislation would amend the Building Broadband Faster Act, 2021 to, among other things, provide that the Minister of Infrastructure, may by notice, require a distributor or transmitter to complete necessary work for deployment of a designated broadband project. It would add a new provision requiring utility infrastructure owners to share certain information about the infrastructure, if it is close to a designated broadband project.

Judicial Decisions

In February, the Divisional Court issued its decision in West Whitby Landowners Group Inc. v. Elexicon Energy. The Court dismissed an application for judicial review brought by a group of developers to set aside two letters issued by the staff of the OEB, in which the OEB provided its opinion, as requested by the developers and Elexicon, under the terms of a dispute resolution provision in an Offer to Connect agreement, that the construction of a substation was an expansion as opposed to an enhancement under the Distribution System Code. The developers argued that the OEB should have held a hearing, and that the decision-making process was both procedurally unfair, and substantively unreasonable. The Court found that even though the developers escalated the matter as a formal complaint, it had no standing to require the OEB to hold a hearing or undertake any specific investigatory process. The Court also found that it had no jurisdiction to hear the application as it was an opinion and not a decision. The Court found that while the developers and Elexicon may agree to be bound by an opinion of the OEB, that itself does not make it a statutory power of decision that is amendable to judicial review. The only decision that the OEB made was not to refer the matter for further investigation, which decision the developers do not have standing to challenge.

Other News

The Federal Government released a discussion paper on its proposed Clean Electricity Standard for comment. It also released its 2030 Emissions Reduction Plan.

The Government of Ontario (in conjunction with Governments of Alberta, Saskatchewan, and New Brunswick) released a Strategic Plan for the Deployment of Small Modular Reactors.

Things We Are Reading and Listening To

There were a few interesting new reports issued over the last few months. The International Energy Agency (IEA) issued its Canada 2020: Energy Policy Review report, and the the Ivey Energy Policy and Management Centre released a report on Electrification and Investment in Electricity Infrastructure. A great podcast to keep on top of what is happening in the climate-tech space, which almost always involves energy, is Catalyst with Shayle Kann.

 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@shepherdrubenstein.com.

Click here for the pdf version.

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SR Update

Energy Regulatory Update (Q4, 2021)

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

Ontario Energy Board

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

The OEB released some noteworthy decisions, including:

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

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

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

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

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

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

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

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

Independent Electricity System Operator

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

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

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

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

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

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

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

Legislative and Regulatory

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

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

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

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

Judicial Decisions

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

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

Other News

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

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

Things We Are Reading and Listening To

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

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

Click here for the pdf version.

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SR Update

2021 Energy Regulatory Year in Review

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

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

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

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

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

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

2. Innovation and Distributed Energy Resources

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

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

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

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

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

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

3. More Clarity on Future Procurements

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

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

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

4. Transmission

There was significant regulatory activity regarding new transmission projects.

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

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

5. Net-Zero

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

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

6. OEB Modernization

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

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

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

7. Ontario Power Generation

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

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

8. COVID-19

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

9. LDC Mergers Are Back

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

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

10. Broadband

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

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

Thoughts For 2022

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

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

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

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

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

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

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Categories
SR Update

Energy Regulatory Update (Q3, 2021)

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

Ontario Energy Board

The OEB’s modernization efforts continue. The OEB:

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

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

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

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

Independent Electricity System Operator

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

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

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

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

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

Legislative and Regulatory

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

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

Other News

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

Shepherd Rubenstein News

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

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

Things We Are Reading and Listening To

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

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

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

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Mark Rubenstein Appointed to OEB’s New Adjudicative Modernization Committee

Mark Rubenstein has been appointed to the Ontario Energy Board’s new Adjudicative Modernization Committee (AMC). The AMC is tasked with providing early advice to the OEB’s senior management and Chief Commissioner, and serve as a forum for informal discussion with stakeholders on adjudication process and policy.

 

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Mark Rubenstein Speaks at the OEA’s Long Term Planning Framework Symposium

On April 7th, 2021, Mark Rubenstein spoke at the Ontario Energy Association’s Long Term Planning Framework Symposium. Mark was a featured speaker and shared his thoughts on how Ontario can improve its long term energy planning framework.

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Jay Shepherd Recognized in 2021 Canadian Legal Lexpert Directory

Jay Shepherd was recognized in the 2021 Canadian Legal Lexpert Directory as a leading lawyer in Energy (Electricity).

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Mark Rubenstein Participated in a Panel Discussion on Enhancing Regulatory Effectiveness

On September 9th, Mark Rubenstein was a panelist at a webinar discussion hosted by CAMPUT titled, Enhancing Regulatory Effectiveness: Smooth Sailing? The panel discussed how energy regulatory tribunals in Canada are under pressure to evolve and adapt in order to advance the efficiency and effectiveness of their regulation. A video of the webinar is available here.

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Shepherd Rubenstein Lawyers Recognized in the 2021 Editions of ‘Best Lawyers’ in Canada & Chambers Canada Guide

Both Jay Shepherd (Energy Regulatory Law) and Mark Rubenstein (Energy Law/Energy Regulatory Law) were included in the 2021 edition of ‘Best Lawyers’ in Canada and ranked in the 2021 Chambers Canada Guide for Energy: Provincial Regulatory (Ontario).

 

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Mark Rubenstein Appointed Chair of the Ontario Bar Association’s Natural Resources and Energy Law Section

Mark Rubenstein has been appointed Chair of the Ontario Bar Association’s Natural Resources and Energy Law Section Executive for the 2020-2021 term. Mark will also continue to serve as a member-at-large on the executive of the Ontario Bar Association’s Administrative Law Section where he was re-elected.