Ministerial Letter Of Direction To The Ontario Energy Board

Ontario’s Minister of Energy, the Honourable Todd Smith, issued the annual Letter of Direction (formerly known as a ‘mandate letter’) to Glenn O'Farrell, Acting Chair of the Ontario Energy Board (OEB), outlining the government’s priorities and expectations for the regulator’s upcoming three-year business planning period.

This is the first letter of direction following the three-year modernization initiative that evolved the OEB’s structures and processes to match modern-day challenges better. The letter of direction underscores the magnitude of electrification and energy transition in Ontario and calls on the OEB for decisive thought leadership. The letter is action-oriented and outlines clearer expectations for tangible progress across virtually every area in which the OEB operates. In line with the government’s overall policy position on energy, the Minister highlights the importance of enhancing reliability, maintaining affordability, accessibility to electricity and natural gas, and customer choice.

The letter of direction recognized the OEB’s continued advice to the Electrification and Energy Transition Panel throughout the engagement process and noted that the panel will be submitting their recommendations to the Minister this fall. The OEB has also been directed to provide quarterly updates on the progress of the below priorities and other ongoing initiatives. The Minister has further asked the OEB to identify legislative and regulatory barriers that may hinder the OEB from delivering on its mandate.‍

SUMMARY

The nine-page letter identifies eleven near-term distinct priorities for the OEB to advance over the next year, as follows:

1. Powering’s Ontario Growth: continued collaboration between the OEB and the Ministry of Energy on several initiatives to support implementation of the Powering Ontario’s Growth plan that is focused on grid-scale nuclear, transmission, and pumped hydro.                                                                                                                                                                                       ‍

2. Housing, Transportation, and Job Creation: review electricity infrastructure costs in the electricity sector and potential models for cost recovery that could help to ensure infrastructure costs are kept low and not a barrier to support growth in the province, as aligned with overarching provincial socio-economic policy and priorities. Importantly, the letter states that “the OEB should continue to ensure that the needs of all customers are considered in its work, and that access to electricity and natural gas in an affordable manner remains central to decision-making.”

Review the electricity distribution system expansion connection horizon and revenue horizon direction to ensure that the balance of growth and ratepayer costs remain appropriate, with a report back date of June 2024.

3. Facilitating Innovation within Ontario’s Regulatory Framework: Continue to explore how to maximize program flexibility to facilitate innovation within the existing regulatory framework.

Concerning low-carbon investments, the OEB has been charged with considering what changes may be required to ensure timely investment is being made to support the right outcome. The report back should incorporate a review of models deployed in other jurisdictions and can be included within the Benefit-Cost Analysis Framework for Addressing Electricity System Needs or through another report. The Minister has asked to be updated on progress and a formal report by September 2024.

4. Distributed Energy Resource (DER) and Future Utility Business Models: Continued collaboration between the OEB, the Ministry of Energy, and the IESO toward developing and assessing local and market opportunities for DERs, including alternative energy business models, and examine the potential regulatory landscape for future utility business models, signaling a continued interest in accelerating the groundwork for potential distribution system operation model(s) via grid modernization.‍

5. Electricity and Natural Gas Conservation: Collaboration between the OEB, IESO, and Enbridge regarding a joint platform for (i) electricity, and (ii) natural gas programming report back in April 2024.

6. Electric Vehicles (EVs): The EV Delivery Rates Report considered two opportunities to support EV charging (including demand charges): a time-of-use rate and a low load factor rate, which the OEB has considered internally and with stakeholders. The Minister expects to provide guidance on next steps early in the new year.

The Minister has also asked the OEB to provide clear direction to the sector considering service standards, a standardized process with enforceable timelines for connecting EV charging infrastructure, publicly available electric distribution capacity information, and allowing LDCs to pre-invest in their infrastructure to support potential EV demand.

7. Intervenor Process: For the OEB to continue reviewing the current intervenor processes and to identify opportunities to improve regulatory efficiency and consequently reduce regulatory burden. This should include but is not limited to, consideration around a designated consumer advocate and capping intervenor costs. The Minister has asked for a report back in September 2024 with its plan to implement reforms.

8. Performance Measurement Framework Review: The Minister endorses the OEB’s proposal to launch a small working group with the sector to provide feedback on goals and performance measurement.

9. Red Tape Reduction: Following the commitment target of 5% burden reduction over the baseline measured by March 2026, the OEB has been asked to highlight their progress in the next Business Plan, and provide the Minister updates, when requested, for the Ministry of Red Tape Reduction’s annual reporting.

10. Distribution Sector Resiliency, Responsiveness, and Cost Efficiency: The Minister has endorsed the following recommendation from the OEB’s Improving Distribution Sector Resiliency report which requires local distribution companies to:

• Provide details and report on their current storm recovery planning and preparation activities;
• Incorporate climate resiliency into their asset and investment planning;
• Engage in a regular assessment of the vulnerabilities in their distribution system and operations in the event of severe weather;
• Prioritize value for customers when investing in system enhancements for resilience purposes;
• Satisfy minimum targets for customer communication regarding interruptions and restoration of service following major weather events and measure and report on restoration of service following such events.

The Minister expects significant progress on the development and implementation of its recommendations by the end of 2024.The Minister has directed the OEB to post its Distribution Sector Resiliency, Responsiveness, and Cost Efficiency (DRRCE) report online by year-end.

Additionally, the Minister endorses the OEB’s proposals related to cost-effective service, including:

• Reviewing whether the accounting and associated rate treatment of shared services should be adjusted and develop guidance on a fair approach to cost and risk apportionment for shared service provision;
• Engaging stakeholders in a scoping exercise at the outset of the Mergers, Acquisitions, Amalgamations and Divestiture (MAADs) review;
• Reviewing elements in its incentive rate-setting mechanisms and examining distributors’ spending patterns to identify where changes or incremental incentives are warranted; and
• Developing a performance incentive regime that considers aspects such as customer service, resilience, or managing peak loads to defer distribution system needs, and working with the sector to develop principles, generic designs, and other criteria for performance incentives.

The OEB is to provide stakeholders with a clear plan for the timing of any reforms over the next 12 months.

11. Electrification and Energy Transition Panel: Inform the OEB of any further initiatives to be incorporated into the OEB’s subsequent business plans following the release of the Panel’s report.

Over the coming weeks and months, there will be continued evolution of recommendations and policy in Ontario, anticipating the release of the Electrification and Energy Transition Panel report, the Annual Planning Outlook in Q1 2024, and other important milestones.