Ontario’s electricity sector has made the front page perhaps more times than desired in past years, certainly for its political leaders. Electricity policy, while volatile on some accounts, has remained somewhat steadfast since the introduction of the province’s Feed-in-Tariff (“FIT”) program for renewable energy. Provincial electricity policy continues the FIT program and its evolution, as reflected in recent directives from the Minister of Energy to the Ontario Power Authority (“OPA”), Conservation and Demand Management program changes, Industrial Incentive Program developments, and the key recommendations of the Distribution Sector Review Panel.

Ontario’s FIT Program Developments

On January 21, 2013, the Minister of Energy directed the OPA to continue the FIT program and in offering water power contracts taking into account that the 9,000 MW target for 2018 remains the total target for existing, new, and incremental projects.

The capacity target of 50 MW for hydroelectric projects set out in the April 5, 2012 directive is replaced by this directive. The OPA is now directed to procure up to 10 MW for new build distribution-connected hydroelectric projects greater than 500 kW and less than 5 MW, under a new municipal program stream for eligible municipal waterpower projects.

The OPA created the Hydroelectric Contract Initiative (“HCI”) to implement the May 7, 2009 directive entitled ‘Negotiating New Contracts with Hydro-Electric Generation Facilities.’ The OPA is now directed to no longer commence new negotiations relating to refurbishment, upgrade or expansion of existing facilities currently holding HCI contracts. The directive indicates that the government remains committed to allocating the remaining 40 MW of the original capacity target set out in the April 5, 2012 direction and will issue a future direction for later hydroelectric procurement initiatives.

On December 11, 2012, the OPA received direction from the Minister of Energy to continue the FIT program (which supplements or replaces previous provisions in directives related to the FIT program, the microFIT program and FIT Support programs dated September 24, 2009, April 5, July 11, and November, 23 2012). The purpose of the directive is to strengthen community and Aboriginal participation in the FIT program by ensuring eligible applications for the Aboriginal contract capacity set-aside provided for in the November 23, 2012 directive are assessed and processed in a manner that provides an opportunity for a distribution of contracts across a broad range of First Nation and Métis communities. The Minister directs the OPA to establish an allocation process for the Aboriginal contract capacity set-aside under the Small FIT application window. The allocation process will no longer apply once all of the contract capacity set-aside has either been allocated, or there are no further applications for First Nation or Métis contract capacity set-aside. The OPA is directed to then continue to process applications for all projects, which may include Aboriginal projects based on prioritization points outlined in the July 11, 2012 directive.

The window for Small FIT applications closed in January of this year with almost 2000 applications having been submitted with the overwhelming majority falling in the solar PV rooftop category. The review process is currently underway. The OPA has indicated that it expects to announce contracts awarded under the Small FIT during the Q2 2013. The Large FIT window has not yet been announced.

Conservation and Demand Management Program Developments

On December 21, 2012, the OPA was directed by the Minister to fund province-wide Clean Development Mechanism (“CDM”) programs for an additional one-year period from January 1, 2015 to December 31, 2015. Currently, contracts entered into under the April 23, 2010 directive by the OPA and distributors are scheduled to end on December 31, 2014. The Minister states that a one-year time extension for the availability of funding would add stability and enhance continuity to the conservation activities now being undertaken by the OPA and distributors.

Industrial Electricity Incentive Program

On November 1, 2012, the Minister directed the OPA to develop and implement the Industrial Electricity Incentive (“IEI”) program designed to assist in the management of electricity demand in Ontario. This includes providing eligible participants with electricity-based price adjustments for the incremental consumption they bring to the province. The objectives of the IEI program are to:

1. Facilitate load management and the management of electricity demand in Ontario by increasing industrial load to better match supply conditions
2. Minimize the cost impact on existing consumers
3. Encourage industrial growth, capital investment, and job creation in Ontario.

The OPA shall design and implement the IEI program in two streams:

1. Intended for industrial consumers willing to operate an industrial facility and undertake a large capital investment in technologies, products or processes that are not currently being used or produced in Ontario.
2. Intended for existing industrial consumers in Ontario that will expand their existing industrial facility, or build a new one.

The OPA has been directed to select all IEI program participants through a competitive procurement process and to prioritize applications through a points system set out in the directive. The directive also provides requirements for the form of contract under the IEI program.

Key Recommendations of the Distribution Sector Review Panel

On December 13, 2012, the anticipated Distribution Sector Review Panel released its report on the structure and governance of Ontario’s electricity distribution sector. The mandate of the panel was to research, analyze, and provide the Minister of Energy with expert advice on how to improve efficiencies in the distribution sector with the aim of reducing the financial cost of electricity distribution for consumers. The panel was also to determine what financial advantages and savings could be realized for ratepayers from the consolidation of Ontario’s distributors.

Key recommendations include:

• Within two years create 8 to 10 large regional distributors in a shoulder to shoulder structure comprising two distributors in northern Ontario and 6 to 10 regional distributors in southern Ontario with a minimum of 400,000 customers.
• There should not be an across the board sale of Hydro One Network’s distribution assets. The creation of the new system of regional distributors will be facilitated by the merger of Hydro One Networks’ assets with those of other existing distributors.
• The Ontario government should give clear direction to Hydro One to lead and engage in the discussion of the merger of its distribution assets with the appropriate interested utilities.
• The owners of the current local distribution companies (“LDCs”) will get shares in the new regional distributors they voluntarily create in proportion to the valuation of the assets they contributed. LDCs that are amalgamated through mandatory mechanisms will have their assets valued at book value.
• The province should appoint a transition advisor to oversee the consolidation process and provide progress reports on consolidation activity.
• Consolidation activity should be voluntary. If insufficient progress is made within two years of the government accepting the panel’s recommendations, the panel will suggest legislative options be implemented to force consolidation.
• The Ontario government should enter into discussions with the federal government to remove the transfer tax on the sale of LDC assets to private investors.
• The Ontario Energy Board will continue to have regulatory oversight of merger activity and rate applications.
• Any funds from the disposal of excess utility assets would be re-invested in the regional distributors in order to strengthen the system and not be used for dividends or non-electricity purposes.
• The panel recommends that savings from the increased efficiency of the new regional distributors would be shared between the shareholder and the customer.

At this stage, there has been no announcement from the Ontario government as to whether it intends to implement any of the above recommendations.

At a recent address to the Electricity Distributors Association, Ontario Minister of Energy, Bob Chiarelli announced to the sector that he would not force local electricity distribution companies to merge. Instead, the government would see local input on how best to create the climate and incentives to drive consolidation and other efficiencies.

The Energy sector (which has been on a political hot seat in Ontario) seems to be maintaining a relatively low key profile in the spring days of 2013. With a report expected soon from the Auditor-General of Ontario on power plant cancellations in the greater Toronto area and talks of a potential election, this may very well be the right strategy for the Province’s new premier and Energy minister.

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About the author

Dr. Stephen Andrews is a government relations advisor in the Toronto office of Borden Ladner Gervais LLP. Stephen provides advice and counsel on government relations, strategic communications, issues management and stakeholder relations, with a focus on provincial and municipal matters. He can be reached at 416.367-6219 or at sandrews@blg.com