Fall has definitely arrived, and so has the latest edition of the Shepherd Rubenstein Energy Regulatory Update, our quarterly round-up of key developments in Ontario’s energy sector. This edition covers developments from July through September 2026.
Ontario Energy Board
The OEB issued a number of notable decisions over the last few months, including:
- Approving, in part, Lakeland Power’s Z-factor claims for costs arising from the March 2025 ice storm and a June 2024 lightning strike that destroyed a substation transformer. The OEB disallowed regular-hours internal labour and unspent reactive capital already funded through base rates, the replacement of poles that were already in poor condition, and $200,000 of the $300,000 Lakeland paid its affiliate to rent a temporary transformer.
- Granting Hydro One leave to construct the Welland Thorold Power Line Project, an 18.5 km, 230 kV double-circuit line to supply Crowland TS, with an estimated cost of $311.4M. The OEB accepted Hydro One’s proposal to allocate the line costs entirely to the network pool, rather than the alternative allocation proposed by OEB staff.
- Granting two appeals of decisions made under delegated authority denying electricity retailer licences. First, in GridERP’s appeal, based on updated financial and operational evidence filed on appeal, the OEB issued a two-year licence, rather than the standard five-year term. Second, in Chosen Energy’s appeal, the OEB found that the delegated authority did not explain why Chosen Energy could not reasonably be expected to be financially responsible or technically capable. Based on its own review, the OEB found that Chosen Energy met the requirements, but also issued a two-year licence.
The OEB finalized updates to its Non-Wires Solutions Guidelines, including a new appendix on Stream 2 local electricity demand-side management (eDSM) programs. Stream 2 programs are delivered by distributors and funded through distribution rates and the Global Adjustment, in proportion to the benefits they provide to the distribution system and the broader electricity system. Distributors can seek funding starting with their 2027 rate applications.
The OEB released three reports to the Minister of Energy and Mines required by the Minister’s Integrated Energy Plan implementation directive:
- The DER Valuation Report, with recommendations on compensation, delivery rates and connection policies for distributed energy resources (DERs). These include moving from net metering to net billing, with exports compensated based on time and location, and prioritizing Retail Transmission Service Rate exemptions for IESO-procured storage connected to distribution systems.
- The Regional and Bulk Electricity Planning Processes Review Report, recommending, among other changes, a forecast standard for utilities and process changes to shorten the current 29-month regional planning cycle by up to five months. The OEB subsequently launched its Regional Planning Reform Implementation initiative, which will include amendments to the Transmission System Code and Distribution System Code and the reconvening of the Regional Planning Process Advisory Group.
- The Distribution System Operator (DSO) Roadmap, setting out four workstreams: defining DSO capabilities, defining flexibility services, a mandatory assessment of distributor DSO readiness, and longer-term policy.
The OEB also published its March 2025 report to the Minister on dynamic pricing for non-RPP Class B customers, recommending the phased introduction of an optional time-of-use price plan for the Global Adjustment.
The Minister of Energy and Mines also sent a letter directing the OEB to report back by January 15, 2027 on criteria for assessing natural gas expansion projects, should funding become available for a third intake of the Natural Gas Expansion Program.
A review of customer service rules for electricity and natural gas distributors and unit sub-meter providers was launched, focusing on billing error corrections, account opening and closing processes and related charges, and eligibility for a second arrears payment agreement.
The OEB published its annual total cost benchmarking update and stretch factor assignments for 2027 electricity distribution rates and 2025 electricity distributor scorecards. It also launched an Adjudicative Cost Reporting Dashboard, which reports applicant, intervenor and OEB costs in electricity cost of service proceedings.
Updated filing requirements were issued for 2027 electricity rate applications, covering general requirements (Chapter 1) and incentive rate-setting applications (Chapter 3).
The 2025-2026 Annual Compliance Report was released.
The Market Surveillance Panel issued a report on locational pricing in the first year of the renewed market, finding that congestion was highly localized, with the Northwest the most frequently congested zone.
Independent Electricity System Operator
The IESO released final bulk transmission plans for three regions, each identifying near-term investments and options for longer-term needs:
- North of Sudbury: new 230 kV lines and stations in the Kirkland Lake, Timmins and Kapuskasing areas, with early development work on new 500 kV lines from Hanmer TS (Sudbury) to Porcupine TS and from Porcupine TS to Pinard TS.
- South and Central: new or expanded 500/230 kV transformer stations at Kleinburg, Guelph North and Milton, with associated 500 kV lines.
- Eastern Ontario: new 230 kV double-circuit lines from St. Lawrence TS to Merivale TS and from Napanee TS to Belleville TS, with a new west Ottawa station and an Ottawa to Greater Napanee line identified for future consideration.
Engagement continued on the IESO’s competitive procurement of a transmitter for the Toronto Third Line. The IESO posted a draft contract and consulted on functional requirements, proponent qualifications, cost containment and Indigenous participation, ahead of an RFP expected in Q2 2027.
The IESO held a webinar on addenda to the Long Lead-Time (LLT) energy and capacity RFPs, which were issued in May. Proponent registration runs from September 23 to October 6, with proposals due November 26.
It also announced it is securing additional short-term capacity to accommodate facility maintenance requested for this winter through 2028. It increased the 2026 Capacity Auction targets from 1,800 MW to 2,000 MW for summer 2027 and from 1,200 MW to 1,400 MW for winter 2027/2028, and acquired 600 MW of firm import capacity for six months beginning November 1.
Changes to connection process deposits took effect September 9, introducing a tiered structure based on project size and updating deposits for technical feasibility studies.
A revised version of the IESO’s technical requirements for large computational loads, such as AI data centres, was released. The requirements, which include voltage and frequency ride-through and limits on load changes, apply to loads over 10 MW and will be incorporated into the market rules or market manuals.
The Technical Panel recommended market rule amendments addressing Capacity Auction settlements and the market rule amendment process, along with related changes to its Terms of Reference.
The IESO published its list of Potential Constrained Areas for market power mitigation, based on constraint data from the first year of the renewed market. The list takes effect November 16, and the IESO may designate any of these areas as a Dynamic Constrained Area if congestion criteria are met.
Consultation continued on Intertie Offer Guarantee payment conditions, with proposed changes that would limit payments to periods when the IESO has identified a system adequacy need.
The IESO consulted on ramp rates for battery energy storage facilities, and intends to codify in the market rules its existing 100 MW per minute limit on storage responses to five-minute energy dispatch instructions.
As part of its Enforcement Modernization engagement, the IESO responded to stakeholder feedback on proposals that include mandatory internal compliance programs, expanded information-gathering powers, and higher maximum penalties.
The IESO also held an engagement session on proposed enhancements to the Expanded Energy Management program for the 2028-2030 eDSM framework.
The IESO released the Capacity Expansion Module of its 2026 Annual Planning Outlook, which models theoretical least-cost resource portfolios to meet system needs to 2050 under multiple scenarios.
The Q3 2026 Reliability Outlook and updated methodology were released.
Legislative and Regulatory
The Ontario Government released a draft Data Centre Playbook framework for consultation, setting out how it will assess requests by large data centres to connect to the grid, based on economic development, data security and community benefits. It also announced proposed measures to have data centres pay the full cost of their impact on the electricity system, including a separate Global Adjustment rate class for new data centres above a demand threshold (the government cited 1 MW), and prioritizing projects that build their own generation.
The Ontario Government amended the following regulations:
- Ontario Regulation 410/22 under the Ontario Energy Board Act, 1998, revising the timing of Hydro One’s pole completion obligations and related reporting requirements for designated broadband projects.
- Ontario Regulation 610/98 under the Electricity Act, 1998, creating an exception to the IESO board eligibility restrictions for directors, officers and employees of specified public sector entities, including school boards, post-secondary institutions, hospitals and municipalities.
Through the 2025 intake of the IESO’s Indigenous Energy Support Program, the government announced $25M for 148 Indigenous-led energy projects. Applications for the 2026 intake close October 2.
The Ministry of Municipal Affairs and Housing sought input on a Commercial Property Assessed Clean Energy (C-PACE) framework, under which participating municipalities could facilitate private financing for energy efficiency, renewable energy and water conservation upgrades to commercial, industrial and multi-residential properties, repaid through property tax bills.
Ontario and OPG announced $500,000 in growth readiness funding for St. Clair Township to take the next steps on new generation, including potential natural gas and nuclear, at OPG’s Lambton site, which is zoned for up to 900 MW. The announcement allows the Township and OPG to sign a memorandum of understanding and advance work on the site.
Construction began on the refurbishment of OPG’s Pickering B units, which are being removed from service by the end of September. Reactor refurbishment work will begin pending CNSC approval.
Ontario and Alberta unveiled the proposed route for the Northern Shield Energy Corridor, a proposed crude oil pipeline running approximately 3,300 km from Hardisty, Alberta to Sarnia, with an estimated initial capacity of 500,000 barrels per day. Ontario’s feasibility study, which will examine costs and commercial models, is expected to be completed by the end of 2026.
Federal Government
The Federal Government introduced Bill C-39, the Building Canada Strong Act. Among its energy-related changes, the bill would amend:
- The Impact Assessment Act to require decisions on agency-led assessments within one year after the proponent provides the required information or studies, assign assessments of designated projects involving nuclear activities to the Canadian Nuclear Safety Commission, and coordinate federal authorizations and Indigenous consultation.
- The Canadian Energy Regulator Act to make the CER the sole assessor of pipeline, designated power line and offshore renewable energy applications, establish a one-year decision period, and coordinate federal authorizations and Indigenous consultation.
- The Building Canada Act to apply a framework similar to the one for national interest projects to certain projects within designated regions of national interest.
A number of the changes had been subject to an earlier consultation, following which a What We Heard report was released.
A new Cabinet Directive on Getting Projects Built in Canada sets out a coordinated approach to federal reviews, with the aim of decisions within one year after the proponent provides a comprehensive application and the required information and studies. A separate letter to the CER’s CEO addresses planning for the proposed legislative changes and coordination of federal permitting and Crown consultation.
Separately, amendments to the Physical Activities Regulations under the Impact Assessment Act came into force on September 3, removing CER-regulated projects, fossil fuel-fired power generating facilities and certain in situ oil sands facilities from the list of projects subject to federal impact assessment.
The Canada Energy Regulator approved TransCanada PipeLines Limited’s negotiated settlement setting Mainline tolls for 2027 to 2030. Two Ontario First Nations (Aroland and Ginoogaming) opposed the settlement, arguing they had been excluded from the negotiations and that the tolls should include a revenue stream for affected First Nations. The CER found they were not interested parties under its settlement guidelines, as they have no commercial interest in the Mainline tolls, and that the settlement does not affect their claims or section 35 rights.
The Department of Finance proposed the Productivity Mega Deduction, which would permanently allow immediate expensing of most capital property acquired on or after September 15, 2026, in the year it becomes available for use. Exclusions include buildings and Class 51 natural gas distribution pipelines.
Newfoundland and Labrador and Quebec announced a new agreement to replace the 1969 Churchill Falls power contract and the December 2024 memorandum of understanding, including upgrades and an expansion at Churchill Falls and development of the 2,700 MW Gull Island project. The governments will now work to implement final binding agreements. The Federal Government announced up to $10B in financial support and investments, including a loan guarantee for Gull Island.
Natural Resources Canada announced nearly $19M from its Clean Fuels Fund to expand StormFisher’s renewable natural gas facility in London, Ontario.
The Federal Government launched Canada’s Responsible Data Centre Development Principles, a national baseline for assessing data centre proposals. The five principles include that data centres must not shift electricity costs to Canadians.
Judicial
In FortisAlberta Inc. v. Alberta Utilities Commission, the Alberta Court of Appeal largely dismissed appeals by FortisAlberta, ENMAX and ATCO Electric of the AUC decision setting the parameters for the 2024-2028 performance-based regulation (PBR) term. The Court upheld the AUC’s use of historical capital additions to set supplemental capital funding, its adjustment of the productivity factor, and its criteria for exceptional capital funding, finding no error of law. However, it allowed Fortis’s appeal on one issue, Fortis’s request to remove the stretch factor to account for its obligation to serve rural electrification associations, which it found the AUC had rejected without explanation. The Court also encouraged the AUC to write its decisions so that a lay reader can understand them, including by relying less on acronyms.
In ATCO Gas and Pipelines Ltd. v. Alberta Utilities Commission, the Alberta Court of Appeal dismissed ATCO Gas and ATCO Electric’s appeal of the AUC decisions reopening their 2018-2022 PBR plans and ordering customer refunds. Both utilities had earned more than 300 basis points above their approved return on equity in 2021 and 2022, triggering the plans’ reopener provision. The AUC found the excess earnings resulted from factors other than efficiencies. The Court held that PBR rates remain subject to the just and reasonable standard and that returns above the approved level are acceptable when they flow from the plan’s intended incentives, but not when they arise from unrelated factors. It also held that the reopener provision brought the refunds within the knowledge exception to the rule against retroactive ratemaking, even though the PBR term had ended.
Shepherd Rubenstein News
Both Jay Shepherd and Mark Rubenstein were listed in the 2027 edition of ‘Best Lawyers’, where Mark was Energy Regulatory Law “Lawyer of the Year” for Toronto. Mark was ranked by Chambers Canada in its 2027 guide.
Mark will be speaking on the panel “That’s why they’re called KEY accounts” at The Last Mile, a policy symposium on electricity distribution co-hosted by Electricity Canada and the National Electricity Roundtable, taking place October 21 in Ottawa.
Things We Are Reading
The International Energy Agency’s Special Report on Electrification, E3’s Compensating DER for Local Distribution Value While Protecting Affordability, Electricity Canada’s Building Grid Resilience through Interprovincial Interties, and Clean Energy Canada’s Advancing Virtual Power Plants in Ontario and The Value of Using DERs for Distribution System Services in Ontario.
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.
