Bringing a Positive Charge Back to Ontario’s Housing Economy: Province & OEB Announce Efforts to Reduce Regulatory Barriers and Costs for Housing Developers

Bringing a Positive Charge Back to Ontario’s Housing Economy: Province & OEB Announce Efforts to Reduce Regulatory Barriers and Costs for Housing Developers

On November 18th, the Ontario Energy Board (“OEB”) published a Notice of proposed amendments to the Distribution System Code (“DSC”), which amendment are intended to facilitate the connection of housing developments in Ontario. The amendments will, for “qualifying housing developments”, increase the forecast period which electricity utilities apply in estimating revenues from a system expansion, which in turn will reduce the payments that developers have to contribute to offset the utilities potential losses. Specifically, going forward, the connection forecast horizon can be up to 15 years instead of 5 years, and the revenue forecast horizon will be 40 years instead of 25 years.

The OEB is seeking feedback from stakeholders on the proposal by December 9, 2024. The final amendments will come into force 2 months after the date that the OEB publishes those amendments on the OEB’s website. However, once finalized, the longer forecast periods will be able to be applied retroactively to any development where an Offer to Connect was not accepted on or before November 18, 2024.

Details, Impacts & Next Steps

Forecast horizons are the calculations that electric utilities use to determine how much of a contribution or deposit developers must pay for utility expansions. The extension of the revenue forecast horizon will be automatic, but the extension of the connection forecast horizon will only be upon request by a developer. Further, the change will apply only to projects where an Offer to Connect was not accepted on or before November 18, 2024.

As a result, for housing developers who have received, but not yet accepted, an Offer to Connect on a project, it is recommended to write to the utility provider requesting that, in light of the Notice of Proposal to Amend a Code issued by the OEB on November 18, 2024 under Board File No. EB-2024-0092, the utility provider re-run the economic model using a [X] year connection horizon, and a 40 year revenue horizon, and advise of any changes from the figures set out in the current draft Offer to Connect.

The requested connection horizon [X] should be the number of years between the request to connect/energization date and the date the final residential customer in the development is expected to connect to the grid (between 5 and 15 years). If there is also a non-residential customer connecting, like a school or commercial customer, then then the requested period [X] should be the longest connection horizon applicable to any one of them. If the latest expected connection is less than 5 years after energization, then this part of the request can be omitted, but the developer should still request that the utility provider recalculate the Offer to Connect with a 40-year forecast horizon.

Going forward, for all new Ontario housing projects, it is recommended that developers, in reaching out to the local utility provider for the first time, formally request in writing that they apply a connection horizon of [X] years instead of the default 5-year horizon.

Context:

The proposed DSC amendments flow from the OEB’s recommendations set out in its Report to the Minister on System Expansion for Housing Developments (June 2024), which the Minister of Energy and Electrification (“Minister”) endorsed in a letter to the OEB dated October 21, 2024.

The Province has since issued a number of Provincial News Releases respecting plans to align the energy sector “behind the government’s pro-growth agenda,”[1] and “[remove] barriers that slow the construction of new homes and businesses by making it easier and more affordable to connect to the province’s world-class clean electricity grid.”[2]

Specifically, the Minister plans to put forward the Province’s “first-ever integrated energy resource plan” (the “Plan”), which will aim to advance the Province’s broader goal of improving supply, production, and distribution in the Province’s energy sector between present day and 2050.[3] Implementation of this Plan will largely be facilitated by (i) the adoption of the Affordable Energy Act (Bill 214, which passed 2nd Reading on November 6, 2024 and is expected to become law in the next few weeks), which will “lay the groundwork for large-scale energy expansion, more affordable homes, [and] expanded energy efficiency programs”[4], and (ii) the amendment of the Ontario Energy Board Act, 1998 to allow regulation-making authorities, such as the OEB, to “protect existing ratepayers while reducing upfront capital costs of new lines that would otherwise increase the costs to new homes and businesses”.[5]

If approved, the Province would aim to launch the Plan in 2025. The Province outlines the following objectives of the Affordable Energy Act, which would start to implement the vision of the Plan:[6]

• Establishing the Province’s First Integrated Energy Plan: Introduce a new framework for integrated energy planning that would coordinate all energy resources, including electricity, natural gas and other fuels to ensure energy remains affordable.
• Prioritizing Nuclear Power in Generation Build Out: For the first time in legislation the province will prioritize the role of reliable, affordable and zero-emissions nuclear power generation to meet future increases in demand.
• Expanding Energy Efficiency Programs to Save Families Money: Ahead of the government introducing a significant expansion of energy efficiency programs to save families and businesses money the government is expanding the mandate of the Ontario’s Independent Electricity System Operator (“IESO”) so they can deliver programs to help even more customers reduce costs and emissions.
• Getting More EV Chargers Built: Supporting the adoption of EVs by providing EV charging companies with a regulatory environment that supports and enables further deployment of EV charging stations.
• Reducing Costs for Last Mile Connections: Provide government with new regulation-making authority that would work to ensure more timely and cost-effective electricity system connection for new homes and industry.

In order to achieve these goals, the Affordable Energy Act would effectively empower the Minister to unilaterally amend the OEB’s Distribution System Code and the Transmission System Code, which until now had been reserved to the OEB’s discretion. In combination with the numerous “directive” powers originally granted to the Minister by the previous Liberal government and later expanded by the current government (i.e., the power to direct the OEB and the IESO to take actions and make decisions specified by the Minister), the notional “independence” of Ontario’s electricity regulators and agencies is now almost completely discarded, although the government’s stated purpose for relieving the agencies of that independence is one that should appeal to developers and consumers alike: more housing projects connected to the grid faster and cheaper, and electricity generation built to power those new homes, faster and cheaper.

Conclusion

If you have questions about how the OEB and Province’s proposed amendments may impact you, please contact the authors of this bulletin. We equally welcome any opportunity to assist in advancing your feedback or concerns during future public or commercial forums and consultations with the OEB and the Province.

[1] Ontario Tackles Energy Demand by Introducing Affordable Energy Act.
[2] Ontario Reducing Costs for Future Homeowners.
[3] Ontario’s Affordable Energy Future: The Pressing Case for More Power.
[4] Ontario Tackles Energy Demand by Introducing Affordable Energy Act.
[5] Ontario Reducing Costs for Future Homeowners.
[6] Ontario Tackles Energy Demand by Introducing Affordable Energy Act.

by Mike Richmond, Kailey Sutton and Courtney Aucoin-Holubowsky (Student-at-Law)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024