Ontario’s PULSE response: attracting investment in electricity distribution

Ontario’s electricity distribution sector needs to attract significant capital investment. According to the Electricity Distributors Association, the sector could require up to $120 billion in investment over the next two decades. On October 27, 2026, the Ministry of Energy and Mines (the Ministry) released the final report of the Panel for Utility Leadership and Service Excellence (PULSE or the Panel)¹ and announced a phased response. The government also introduced Bill 140, the Building Ontario Faster Act, 2026 (Bill 140), proposing amendments to the Ontario Energy Board Act, 1998 (OEB Act). The measures could reshape local distribution company (LDC) governance and regulation. Their success will depend on whether they give investors confidence in utility decision-making, investment plans, and achievable returns.

What you need to know

• Implementation will proceed in phases. The government’s response focuses on governance, readiness planning, and regulation. Permanent tax reform, streamlined transaction approvals, and public financing measures recommended by the Panel remain unaddressed.
• Independent boards would reshape governance. Bill 140 would require skills-based LDC boards of 7 to 11 directors and limit each municipal shareholder to one non-voting board participant. Regulations could extend similar requirements to municipal holding companies.
• Long-term planning would strengthen investment readiness. Proposed 10-year asset, funding, and workforce plans and Certificates of Readiness would connect investment needs with delivery capacity.
• Dividend stress tests would align distributions with investment needs. The Ministry proposes testing whether utilities can meet capital requirements while paying dividends. Bill 140 would separately require published dividend policies.
• Regulatory reform would shape utilities’ ability to earn their allowed returns. The Ontario Energy Board’s (OEB’s) Next Generation Rate Framework will help determine how regulation supports timely investment, competitive returns, and appropriate risk allocation as demand grows.

What the reforms mean for utilities and investors

Governance built for outside capital

The Panel heard that investors want confidence in independent board decisions and directors’ commitment to the utility’s interests. Municipal representatives on utility boards can face competing obligations that put those interests in tension with municipal priorities, creating governance risk for outside investors.

Bill 140 would address that concern by requiring boards of 7 to 11 independent directors and limiting each municipal shareholder to one non-voting, uncompensated participant. It would also remove geographic restrictions on directors and require public disclosure of board membership, compensation, and recruitment criteria. Together, these measures could broaden recruitment, strengthen transparency, and give investors greater confidence that boards will act in the utility’s interests. Regulations could extend similar requirements to municipal holding companies.

Long-term planning and readiness

Bill 140 would authorize the Minister to direct the OEB to require 10-year asset plans, funding strategies, and workforce capacity assessments. Proposed Certificates of Readiness, signed by the board chair and CEO, would confirm the plans’ feasibility. These measures would address the Panel’s concerns about funding and delivery constraints by linking investment needs to financing and workforce capacity. Investors could gain a clearer view of utilities’ long-term capital needs and ability to deliver their capital programs.

Dividends aligned with investment needs

The Ministry announced dividend stress tests to assess whether utilities can meet capital requirements while paying dividends. These tests require further implementation measures. Separately, Bill 140 would require municipally owned LDCs to publish dividend policies from January 1, 2027, with content prescribed by regulation. Aligning dividends with long-term investment needs could strengthen investor confidence in funding capacity.

Earning the allowed return

Investors told the Panel that Ontario’s allowed return on equity is reasonable, but many utilities do not consistently earn it. Investors and utilities pointed to productivity and stretch factors, regulatory lag, and post-approval adjustments that constrain cost recovery and achievable returns. The Panel found that these pressures can discourage investment.

The Ministry’s response is a commitment to a framework supporting competitive returns, appropriate risk allocation, and investment ahead of need. The OEB’s Next Generation Rate Framework consultation and the planned ministerial directive will determine the details.

Recommendations awaiting a government response

The Panel’s recommendations also target tax, transaction, and financing barriers to investment. The initial government response did not address the measures below, and their adoption and timing remain uncertain.

• Tax treatment of growth capital. Tax rules affect the cost and structure of new investment. The Panel recommends treating new equity raised for growth differently from sales of existing municipal interests in permanent Departure Tax reform. That could improve the economics of raising capital without requiring a municipal exit. No permanent reform has been announced; temporary relief from the capital gains component of the Departure Tax and from the Transfer Tax runs through 2028.
• More predictable transaction approval. Transaction-related regulatory approval affects timing and execution risk. The Panel recommends risk-based regulatory reviews, including a notice-based pathway for low-risk transactions and greater recognition of scale and investment readiness. This could make investment and consolidation more predictable, but Bill 140 does not amend the OEB Act’s provisions governing mergers, acquisitions, amalgamations, and divestitures.
• Public capital to attract institutional investment. Mid-size utilities may struggle to attract private investors. The Panel proposes using the Building Ontario Fund, including partnerships with other public funds, to support LDC infrastructure, consolidation, and expansion. Public capital could help bridge that financing gap, but the initial response did not announce this measure.

Supporting investment and delivery

Bill 140 also proposes changes relevant to operating costs, delivery capacity, and investment structures. LDCs could share services directly rather than only through affiliates, while regulations could require joint procurement and favour Ontario or Canadian sourcing. Incremental sourcing costs could be recorded for potential recovery in rates, subject to OEB review. Amendments would also clarify the OEB Act’s application to partnerships and limited partnerships, supporting greater clarity for alternative ownership structures.

The proposed procurement reforms also reflect a broader policy objective of using the sector’s growing infrastructure needs to support Ontario and Canadian supply chains. By aggregating demand across multiple LDCs, joint procurement initiatives could improve purchasing scale and supply-chain resilience while creating greater opportunities for domestic suppliers and manufacturers serving the electricity sector.

Prepare now

Municipal shareholders should review shareholder agreements and board composition against the proposed governance requirements, scheduled to commence January 1, 2027. Utilities and shareholders should also assess whether capital plans, funding strategies, and dividend policies are aligned as readiness requirements take shape.

The test: will capital follow?

The decisive test is whether implementation turns Ontario’s investment needs into opportunities investors can confidently fund. Independent governance and credible long-term plans are a starting point; achievable returns, predictable cost recovery, and workable tax and transaction rules will determine whether capital follows. Success means attracting investment at the scale and pace needed to keep electricity distribution from constraining Ontario’s economic growth.