Q4 | Torys QuarterlyFall 2022

Energy regulation for the approaching energy transition: report from Alberta and Ontario

Governments and energy regulators in Alberta and Ontario have been working to support their provinces’ energy transition to cleaner fuels. Among other things, the major tactics can be grouped into three key areas: accelerating growth in hydrogen energy, reducing barriers to net metering/self-supply, and facilitating the adoption of electric vehicles (EVs).


Accelerating growth in hydrogen energy

Alberta

Blending hydrogen with the natural gas used to heat and fuel homes and businesses has the potential to significantly reduce greenhouse gas emissions. Some jurisdictions have launched pilot projects of hydrogen blending in their natural gas distribution systems. However, to date, the Alberta Utilities Commission (AUC) has been reluctant to approve projects without further direction from the provincial government. In March 2022, the government ordered the AUC to conduct an inquiry relating to hydrogen blending into gas distribution systems in Alberta. The report was released publicly on September 6, 20221.

In keeping with Alberta’s largely deregulated market, the AUC suggested that competitive markets can provide services relating to many hydrogen market segments (production, storage and transportation), and that regulated utilities should generally be limited to hydrogen blending and distribution functions.

Since costs associated with hydrogen blending are currently higher than the associated carbon tax savings, the AUC noted that the government of Alberta may need to establish a clear policy allowing the AUC to place a greater emphasis on social and environmental factors or consider supports for customers to help reduce the burden of any increased costs, particularly during early stages of hydrogen blending. The AUC hinted that the costs of hydrogen blending will be hard to justify without such government policy or subsidization. The government will be working with stakeholders in the coming months to build on this report and develop a hydrogen blending framework2.

Ontario

One of the obstacles to low-carbon hydrogen (made from carbon-free electricity sources like nuclear, hydroelectric, wind or solar) in Ontario has been the cost differential between producing hydrogen using electricity versus using natural gas. To promote growth in Ontario’s low-carbon hydrogen economy, the Ontario government is considering several options that would provide reduced electricity rates for hydrogen producers. The proposal filed on the Environmental Registry of Ontario features the following three options:

  1. Amend the Industrial Conservation Initiative (ICI) rules to adjust the eligibility criteria such that all hydrogen producers with an average monthly peak demand of above 50 kilowatts would become eligible to participate. Hydrogen producers’ facilities would be able to qualify for ICI in the first year of operation with a peak demand factor determined based on a deemed consumption profile, using a method yet to be determined by the Ministry of Energy. To ensure other consumers would not be adversely impacted, hydrogen producers may be required to place a security deposit for their facilities’ first year of operation with the IESO or their local distribution company.
  2. Allow businesses to co-locate hydrogen electrolysers at electricity generation facilities to make use of curtailed generation. A developer for the hydrogen production facility would be required to be a separate legal entity from the one that owns or operates the electricity generation facility. A hydrogen developer would be required to pay the electricity generator for the electricity supply.
  3. Adjust the interruptible rate pilot currently under development with the IESO to include a dedicated stream for hydrogen producers, which could take into account their unique circumstances and the importance of the hydrogen sector. Under the proposed pilot, participants would be given advance notice by the IESO to reduce demand over a fixed number of hours, several times per year. Ultimately, the pilot would support low-carbon hydrogen production by offering large electricity consumers, such as hydrogen producers, reduced electricity rates in exchange for reduced consumption during system or local reliability events.

The proposal is currently under consideration by the Ministry of Energy following a comment period.

Advancing net metering/self-supply

Parties in Alberta have historically been able to build generation to serve their own needs and export any surplus to the grid. However, in 2019, the AUC determined that existing legislation did not support that practice. As a result, subject to certain limited exceptions, the power either had to be used entirely to meet their own needs (known as self-supply), or entirely exported to the grid.

On May 31, 2022, the Alberta legislature passed new legislation to enable parties to build generation to meet their own needs and export the excess to the grid. This is a welcome change for industry, although it came with a price tag in the form of a new tariff requirement to pay for a just and reasonable share of costs associated with the transmission system. While not limited to clean energy projects, it will enable parties to build wind and solar plants on location, use the clean energy to meet their own power demands, sell any excess to the grid, and generate environmental attributes.

The legislative changes will come into force on proclamation, which is expected to occur at the same time as related regulations are brought into force.

Ontario

In Ontario, net metering is a billing arrangement between an electricity distributor and a customer. Under a net metering arrangement, the customer generates electricity from a renewable source of energy (e.g., residential roof-top solar panels) for their own use while still drawing electricity from the grid when needed. The customer is billed only for the amount of electricity they consume from the grid. For the amount of electricity that a customer generates but does not use and sends back to the grid, a customer receives a credit on his or her bill.

On July 1, 2022, new regulatory changes came into force in Ontario that amended the Net Metering regulation (O. Reg. 541/06) under the Ontario Energy Board Act, 1998 and the General regulation (O. Reg. 389/10) under the Energy Consumer Protection Act, 2010. The new regulatory changes provide the opportunity of net metering to a broader pool of industrial and residential electricity customers by enabling third-party ownership of net metered renewable energy generation. In particular, the new regulatory changes enable distribution-connected electricity consumers, who were previously unable to realize the benefits of net metering due to the requirement that the customer own the generating equipment connected “behind” its meter, to seek third-party ownership arrangements like leasing, renting, financing and power purchase agreements for the provision of renewable generation equipment or to purchase renewable electricity for the purposes of net metering. Third-party ownership net metering arrangements allow a customer to participate in net metering while not owning or operating the renewable generation facility that is generating the electricity. These changes also address regulatory barriers for third-party generators to sell the electricity to a customer for net metering and introduce consumer protection measures targeting unfair practices for this type of electricity retailing and other third-party net metering ownership arrangements.

The new regulatory changes support the expanded use of net metered renewable generation to supply Ontario’s electricity needs. By enabling third-party ownership of net metered renewable generators, the changes increase the options available to both load customers seeking to add a renewable generator behind their meter that they do not own and renewable generation developers seeking additional sites for projects (such as on a host facility’s rooftop or lands).

Facilitating adoption of electric vehicles

Ontario

The Ontario government is advancing its work to introduce a new price plan for electricity consumers, known as ultra-low overnight Time-of-Use (TOU) electricity price plan on May 1, 2023.

The objective of the new price plan is to support EV adoption and the province’s EV manufacturing industry by decreasing overnight charging costs when province-wide electricity demand is lower. An ultra-low overnight price plan would be distinct from the existing price plans, with a different set of price periods and different rates for at least some of those periods. Among other facets, the new design features four pricing periods: on-peak (4–9 a.m. on weekdays), mid-peak (7 a.m.–4 p.m. and 9–11 p.m. on weekdays), weekend off-peak (7 a.m.–11 p.m. on weekends and holidays), and an ultra-low overnight period (11 p.m.–7 a.m. every day), with the overnight rate proposed to be approximately 10 times lower than the on-peak rate.

A new electricity price structure would be presented as a third option to electricity customers, in addition to the existing TOU and tiered plans, and would encourage consumers to shift electricity use to overnight periods. The proposal would require regulatory amendments to various legislative instruments, and the government is currently consulting with the public on such proposal.

Alberta

At least one utility in Alberta is also taking steps to better understand the impact of EV charging on the distribution grid. The AUC approved FortisAlberta Inc.’s request to proceed with an EV charging pilot project. Under this project, FortisAlberta Inc. will work with customers to understand when and where EV charging is drawing large amounts of power, allowing for a more proactive approach to infrastructure investment. The AUC also encouraged FortisAlberta Inc. to include a proposal for an alternate rate pilot on a subset of customers within its EV charging pilot, if possible, within the existing budget.


To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2022 by Torys LLP.

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