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Ontario Energy 2016 Outlook and Year-End Review

Published on
December 22, 2015

Ontario’s energy and electricity sectors are typically very active with planning, procurement, and policy announcements - 2015 proved to be no exception. Reflecting on the past year, there has been substantial activity in the Energy portfolio headed by the Honourable Bob Chiarelli, as the Government of Ontario worked to achieve the key mandates and priorities set out by Premier Kathleen Wynne and her Cabinet.

The following is a snapshot of achievements and milestones in 2015:

January 1, 2015 – Legislation which was passed in 2014 came into force at the start of this year with the merger of the Independent Electricity System Operator (“IESO”) and the Ontario Power Authority. Bruce Campbell was appointed as the CEO of the newly merged organization, with Vice Presidents Joanne Bulter (Market and Resource Development), Mike Lyle (Planning, Law and Aboriginal Relations), Doug Thomas (Information and Technology Services and CIO), Kimberly Marshall (Corporate Services and CFO), Kim Warren (Market and System Operations and COO) and Terry Young (Conservation and Corporate Relations).

February 12, 2015 – The Ministry of Environment and Climate Change (“MOECC”) published the Climate Change Discussion Paper, formally commencing consultation on a strategic policy priority for the Government of Ontario. Following initial consultation, Premier Wynne and Environment and Climate Change Minister Glen Murray announced in April 2015 the Government of Ontario’s intent to develop a cap and trade system, linking with Quebec and California (and later joined by Manitoba) through the Western Climate Initiative. The MOECC consultations with various sectors continued throughout the year, including major industry and the clean technology sectors. In preparation for the United Nations’ 21st Conference of the Parties (COP 21) in Paris, the Government of Ontario hosted the Climate Summit of the Americas to advance sub-national leadership on climate change and announced its own Climate Change Strategy to reduce greenhouse gas (GHG) emissions to 80% below 1990 levels by 2050. Premier Wynne, Minister Murray and other Ontario officials joined the Canadian delegation to COP 21 in November/December 2015, and announced a $20 million investment for building more public charging stations for electric vehicles. The money will come from the newly established $325 million Green Investment Fund to jump-start investment in the green economy announced by Finance Minister Charles Sousa in his 2015 Economic Outlook and Fiscal Review on November 26, 2015. While it was expected that plan language draft regulations on the cap and trade regulation would be published in 2015, it is now expected that the draft regulation will be published in Q1 2016. (For more information on Climate Change, please visit: Climate Change Update – 2015 in Review and What’s in Store for 2016)

February 19, 2015 – The IESO posted Energy Market Pricing System Review Report which examined alternatives to Ontario's two-schedule pricing system as part of the Energy Market Pricing System Review (SE-114). Also on this day, the IESO launched the Capacity Exports Stakeholder Engagement to investigate the potential for allowing Ontario generators to export their capacity to other jurisdictions. Other market rule changes were implemented by the IESO in 2015 to enable the demand response/capacity auction design.

March 10, 2015 – The IESO issued a Request for Proposals for the Large Renewable Procurement (“LRP I RFP”) following a lengthy consultation period. Submissions were due September 1, 2015, and many individuals within the renewable energy sector spent their summer consulting with Ontario communities. Not surprisingly, submissions for wind and solar projects vastly exceeded the procurement target, suggesting that there is ample future opportunity to procure these resources in an environment where high levels of social licence (as demanded by the LRP process) are required. While the IESO had originally planned for the announcement of LRP awards in 2015, the renewable energy industry is now waiting for results to be announced in March 2016.

March 12, 2015 – The IESO announced a new consultation - called the “Foundation Project” - to enhance the value of electricity consumption data which is available through the Meter Data Management and Repository (“MDM/R”). The project aimed to define information required to be associated with electricity consumption information and protocols for third party access to data. Consultation continued through the summer and results were discussed at the IESO’s Stakeholder Advisory Committee.

March 26, 2015 – The Minister of Energy announced the Ontario Electricity Support Program (“OESP”) for low-income households. This program is designed to provide support to eligible participants following the removal of the Ontario Clean Energy Benefit from the electricity bills starting December 31, 2015. The Ontario Energy Board (“OEB”) undertook extensive consultation with industry and LDCs for the implementation of the new program.

April 1, 2015 – Both Enbridge and Union Gas filed Demand Side Management plans to the OEB, consistent with the requirements of the new Conservation First Framework for the years 2015 to 2020. Throughout the remainder of the year, the utilities defended their plans through the OEB’s rigorous hearings.

April 23, 2015 – Minister Sousa released Budget 2015. Notable for the electricity sector, the budget introduced time-limited relief on certain taxes for the transfer of electricity assets from Municipal Electric Utilities to private sector investors, in an effort to facilitate consolidation. For Northern Ontario, the budget also confirmed ongoing support for industrial customers through the Northern Industrial Electricity Rebate Program. Other budgetary measures included:

The expansion of natural gas service to more Ontario communities (in particular northern Ontario) through the design of Natural Gas Expansion Programs;

The expansion of the Industrial Conservation Initiative by lowering the threshold from 5MW to 3MW;

Removal of the Debt Retirement Charge from residential electricity users’ bills after December 31, 2015;

and

Moving forward with the connection of remote northern communities to the electricity grid.

April 28, 2015 – Draft revised FIT program documents were posted following consultation which started in late 2014. Stakeholders raised concern with respect to the timing of the price review in conjunction with the bid-down approach. The IESO subsequently conducted an early review of FIT prices (with a notable price reduction for solar), and opened the window shortly thereafter. The application window closed in October 26, but was opened again to resubmit for timestamps December 19th due to a technical glitch in the initial application period.

May 1, 2015 – Local Distribution Companies (“LDCs”) were required to submit their conservation plans to the IESO at the beginning of May for the new Conservation First framework. These submission culminated the efforts of 2014 to move forward under a new conservation framework that places a greater emphasis on LDCs for achieving 7 TWh savings by 2020. Throughout the remainder of the year, the IESO conducted working groups to finalize program rules, and LDCs submitted business plans and moved forward with implementation of the program.

May 14, 2015 – The IESO announced a 500 MW capacity sharing agreement with Hydro Quebec Energy Marketing, following an intertie study conducted by the IESO. The arrangement, set to commence this winter, will effectively transfer 500 MW of capacity to Quebec when called for, with certain conditions, with recognition to provide 500 MW of clean imports back to Ontario when required. No financial transaction is to take place with this “swapping.” On September 11th, Ontario and Quebec signed a Memorandum of Understanding detailing a number of priorities including: support for clean technologies and green energy (including support for technology development), electric vehicle infrastructure and incentives, common protocols for cap and trade market development, connecting remote communities to the provincial transmission system, and renewing the Canada-US Softwood Agreement. Subsequently, the two provinces have continued negotiations to support each province’s capacity needs (through the winter months in Quebec, and nuclear refurbishment and decommissioning in Ontario), and an interest to suppress the cycling of fossil fuels for electricity generation.

May 14, 2015 – New contract offers for the Industrial Electricity Incentive (“IEI”) Program were announced. Following this announcement the third stream of the IEI Program was concluded.

June 2, 2015 – Bill 112, Strengthening Consumer Protection and Electricity System Oversight Act, 2015 was introduced to the Ontario Legislature by Minister Chiarelli. The Bill increases the powers of the OEB and restricts door-to-door sales by energy retailers and gas marketers. Of importance for LDCs, the Act also increased the scope for LDC affiliates to expand business activities. The Bill enhanced the powers of Cabinet to prioritize critical transmission infrastructure projects. Bill 112 passed legislative review and received Royal Assent in December 2015. Regulatory development will continue over the first half of 2016.

June 26, 2015 – Earlier in the year, applications were received for the first CHPSOP 2.0 application window. Contract awards were subsequently announced in June, representing 92 MW of new capacity. However, the second CHPSOP 2.0 window was postponed indefinitely by a Minister’s Directive in April which instructed the IESO to report on lessons learned from the first application window.

August 4, 2015 – The MOECC posted proposed changes to O.Reg. 359/09 (the Renewable Energy Approval process) and Noise Technical Guidelines for Wind Farms. The proposal caused significant concern to many wind developers responding to the IESO’s LRP I RFP with submissions due September 1, 2015. The final regulations and guidelines are expected to be confirmed shortly, with an expected coming into force date of January 1, 2016.

August 13, 2015 - At the IESO’s Stakeholder Advisory Committee, IESO planners provided an update with respect to the preliminary outlook for Ontario supply and demand. Of interest, due to changes in the nuclear refurbishment schedule and other initiatives, the need for new supply was postponed from the existing LTEP date of 2018 until approximately 2021.

August 27, 2015 – The Ministry of Energy conducted their first webinar on the proposal for a new Net-Metering/Self Consumption regulation. Consistent with the 2013 LTEP, the Ministry of Energy is exploring options to transition from the microFIT program to a net-metering model. This webinar marked the start of consultation which continued throughout the remainder of the year.

September 17, 2015 – The IESO published two reports as requested by the Minister of Energy per directives in December 2014 and April 2015: a) Assessment of framework for NUG re-contracting, and; b) lessons learned from the first CHPSOP 2.0 application window. The IESO stated that the majority of the NUGs had little benefit from a grid reliability perspective. Both reports recommended that there was little need for long-term contracting and focused on the upcoming Capacity Auction which is currently in development.

October 7, 2015 – Ministry of Energy announced a new application window for the Smart Grid Fund, with an emphasis on supporting smart technology with a consumer focus.

October 19, 2015 – Justin Trudeau’s Liberals defeated the incumbent Conservatives in the federal election, winning a majority mandate with a total of 184 seats in the House of Commons. For the energy sector, this major shift in Canadian politics signals a strengthened commitment to tackling climate change, implementing carbon pricing, investing in clean technologies, and enhancing environmental permitting and engagement with Canada’s Indigenous communities. The shift has also restored strained relations between the Government of Ontario and the Government of Canada given Premier Wynne’s strong, early and vocal support of Justin Trudeau.

October 28, 2015 - Bill 135, Energy Statute Law Amendment Act, 2015 was introduced to the Ontario Legislature by Minister Chiarelli. The Bill proposes to formally amend the process for power system planning in Ontario, by removing requirements for the IESO to prepare an “Integrated Power System Plan” for review to the OEB. Instead, the planning regime is proposed to shift formally to Ministry of Energy’s Long Term Energy Plan (“LTEP”). The IESO would be responsible for preparing detailed information reports to the Ministry of Energy to consider in development of their LTEP. The Bill also contemplates that the IESO could procure transmission projects. Directive authority to the IESO is also proposed to shift from the Minister of Energy to Cabinet. The Bill has been referred to committee hearings starting in February 2015.

November 12, 2015 – Ontario announced the completion of the first phase of Hydro One’s initial public offering (“IPO”), which generated $1.83 billion in gross proceeds that are now dedicated to critical infrastructure and transit investments. The IPO was originally contemplated based on recommendations from the Premier’s Advisory Council on Government Assets lead by Ed Clark.

November 16, 2015 – The OEB released its revised Regulated Price Plan (“RPP”) Roadmap which sets out a multi-year plan to ensure that the RPP is able to meet challenges of the future such as changing consumer preferences and increased distributed generation.

November 19, 2015 - Markham Council voted on the proposed merger of PowerStream, Enersource and Horizons Utilities and the joint acquisition of Hydro One Brampton. This was the final shareholder approval which was required to complete the transaction.

November 23, 2015 – The IESO selected nine new energy storage projects through their RFP for 16.75 MW of capacity. This marked the completion of the procurement of a total of 50 MW of energy storage as called for by the 2013 LTEP.

December 2, 2015 – The Auditor General released her Annual Report, which included criticism of Ontario’s electricity system planning and procurement processes for lack of regulatory oversight. The report claimed that at least $37 billion was paid above the market price for power over the past eight years.

December 3, 2015 – The Ministry of Energy announced an updated contract with Bruce Power (the Bruce Power Refurbishment Investment Agreement) to proceed with the refurbishment of six nuclear units totally 6,300 MW at the Tiverton-based generation station. The revised timelines means that the refurbishment of Bruce Unit 6 will commence in 2020, rather than 2016 as previously estimated in the 2013 LTEP.

December 10, 2015 – The IESO announced the results of their first Demand Response Auction. The auction had been under development and consultation since 2014. The announcement of the results marks a substantial achievement for the IESO as it is their first of such programs to use the auction mechanism.

December 14, 2015 – The IESO received a Ministerial Directive which: a) re-enforces the IESO’s assessment report on NUGs stating that, with the exception of NUGs that may have system benefit, the IESO will not re-contract additional NUGs and defer to the capacity auction; b) re-enforces the IESO’s recommendations regarding future CHP projects, deferring again to the capacity auction; c) directs the IESO to enter into negotiations for a power purchase agreement (“PPA”) for Hydro Ottawa’s Gatineau No. 1 and Hull No. 2 stations, subject to conditions defined in the directive; and d) directs the IESO to enter into negotiations for a PPA for the Whitesand First Nation Biomass Cogeneration facility, subjects to conditions defined in the directive.

December 17, 2015 – Following the conclusion of a consultation period, the IESO opened the application window for the new Energy-From-Waste Standard Offer Program.

December 17, 2015 – TransCanada announced that it has filed amendments to its existing application with the National Energy Board that adjusts the proposed route, scope and capital costs based on feedback received during consultation.

As evidenced above, 2015 has been full of activity and opportunities for many in the energy sector. As the Wynne Liberal Government moves into the third year of its majority mandate, we can expect continued movement on implementation of their strategic priorities throughout 2016, such as:

1)

Finalizing the cap and trade regulation for implementation in 2017. This is expected to include ongoing consultation with the electricity sector and other industrial sectors. Draft regulations are expected to be posted on the Environmental Registry Q1 2016.

2)

It is expected that the IESO will announce selected renewable projects from the LRP I RFP in March 2016. The announcement will be of particular interest for Ministry of Energy as they commence consultations on the revised LTEP. Once the LRP I RFP is concluded (although perhaps beforehand – this remains a matter of discussion), the IESO is to commence consultation on the LRP II RFP. We are likely to see a Request for Qualifications launched in Q2/Q3 2016, as well as further clarity on future procurement for renewable power generation in Ontario to achieve the 2013 LTEP targets

3)

Leading up to LTEP consultations, the Ministry of Energy and IESO are expected to confirm the decommissioning schedule for the Ontario Power Generation (“OPG”) owned nuclear generation facilities at Darlington following OPG board approval for the $12.5 billion refurbishment of the four reactors this past fall.

4)

Terms of reference to be concluded for the Natural Gas Expansion Programs, a $230 million commitment that has been made, and hopeful inclusion of the program in the 2016-17 Budget.

5)

The Ministry of Energy is expected to move forward with proposed revisions to the Net Metering Regulation and further consultation throughout the year with respect to transitioning the microFIT program towards this new paradigm. It is also anticipated, following the FIT 4 contract awards that the IESO will conduct brief consultation before launching the FIT 5 application window.

6)

In 2016 the Ministry of Energy is expected to formally commence consultation on the LTEP. We can expect that the IESO and other agencies will make available reports and information for stakeholder consideration. As we saw with the last LTEP, the preparation of the plan is an all encompassing exercise of the Ministry of Energy and its agencies. This will be an exciting exercise, as it is predicted that between 2 GW – 12 GW of new capacity and energy will be required in Ontario between roughly 2020 and 2030. Issues of particular importance for this LTEP review include:

– Incorporating Province-wide greenhouse gas emissions reduction targets and carbon pricing;

– Role of demand side resources to reduce dependence on natural gas generation;

– Coordination with federal government on transmission expansion projects;

– Amount of new renewable energy to be procured beyond the current LTEP targets;

– Role of imports to suppress reliance on natural gas generation; and

– Role of energy storage resources and electric transportation.

7)

Throughout the year, we expect that energy consumers will remain the focus of engagement by the Ministry of Energy and its agencies. In particular, consumers will see the removal of the Debt Retirement Charge, removal of the Clean Energy Benefit and will be notified about various programs for new conservation and support programs (e.g., OESP). This also includes consultation on proposed new rate structures under the OEB’s RPP.

8)

Ongoing market discussions with respect to the capacity auction mechanisms. Having launched their first auction for Demand Response resources, we anticipate that the IESO will continue to work with stakeholders to refine and improve upon these mechanisms.

We look forward to working with stakeholders in the energy sector and can provide more information on any of these matters upon request.

Thank you again.

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