Bill 40, Protect Ontario by Securing Affordable Energy for Generations Act: key changes that will affect Ontario’s energy sector and data centre industry

On June 3rd, the Government of Ontario introduced the Protect Ontario by Securing Affordable Energy for Generations Act, 2025 (Bill 40)¹, new legislation which aims to encourage economic growth in the province’s energy sector. It comes at a time when the Independent Electricity System Operator (IESO) is forecasting that electricity demand will grow 75% over the next 25 years², driven by electrification and augmented by artificial intelligence and data centres.

Bill 40 builds on past provincial energy announcements, including October 2024’s “Ontario’s Affordable Energy Future: The Pressing Case for More Power” vision paper (discussed in a previous bulletin), and supports future energy planning documents, including Ontario’s first Integrated Energy Plan, which is to be produced later this month. It outlines several changes to existing energy legislation, most notably creating new regulation-making powers to set out requirements for data centres looking to connect to Ontario’s distribution or transmission systems. While Bill 40 has not received royal assent, sector participants should be aware of the proposed changes and the Ontario government’s direction on both future energy growth and data centre connectivity.

What you need to know

• New “economic growth” mandate. “Economic growth” is codified as a formal objective for the IESO and the Ontario Energy Board (OEB). Both agencies will be statutorily required under the Electricity Act, 1998 (the Electricity Act) and the Ontario Energy Board Act, 1998 (the OEB Act) to consider this objective in their planning and regulatory processes respectively (in the case of the OEB, as it relates to its role to regulate the electricity sector). The amendments also add a new purpose to the Electricity Act to facilitate the growth and development of a hydrogen market and economy in Ontario. This will expand the IESO’s mandate to include hydrogen development.
• Data centre connectivity requirements to be set out in regulation. New section 28.1 of the Electricity Act details that transmitters or distributors shall not connect (or reconnect) a “specified load facility” (e.g., data centre) onto the transmission or distribution system unless connection requirements that are specified in the regulations are met.
• Facilitating and encouraging energy growth investment. Bill 40 will support the Hydrogen Innovation Fund and the integration of low-carbon hydrogen onto Ontario’s electricity grid. The Ontario government also announced support for its Future Clean Electricity Fund, expanding its eligibility criteria to include nuclear generation and transmission.
• Building a more secure energy system. Bill 40 will support the restriction of foreign participants, “enabling [utilities] to fund investments necessary to implement new restrictions on hostile foreign participants in Ontario’s energy sector”. The Bill also creates consistency with other proposed legislation, the Protect Ontario by Unleashing our Economy Act, 2025 (Bill 5).
• New powers for the OEB’s Chief Executive Officer. Bill 40 enhances the role of the OEB’s Chief Executive Officer to issue internal procedural policies to OEB commissioners and staff, including timelines for conducting a hearing and making a determination.
• Legislation is still just proposed, with further June announcements. Bill 40 has only passed first reading, so it is still far from being enacted. The Government of Ontario’s first Integrated Energy Resource Plan and the IESO’s final LT2 procurement documents will also be released this June.

Key changes to Bill 40

“Economic growth” as an objective for the Electricity Act and Ontario’s energy agencies

Ontario’s energy sector comprises several key actors. The IESO is involved in directing the flow of electricity, balancing electricity supply and demand, and system planning to ensure Ontario has enough energy into the long term. This includes procurement planning, such as the agency’s upcoming Long-Term 2 request for proposals procurement³. The OEB regulates the sector, which includes licensing generators, transmitters and utilities, setting reasonable rates for these actors, and protecting rate-payers. The Electricity Act and Ontario Energy Board Act outline the key objectives for these agencies as they make decisions for the sector. Bill 40 amends these Acts, codifying “economic growth” as a formal objective for these two agencies. These agencies are now statutorily required to consider economic growth and job-creation in their planning and regulatory decision-making. For the OEB, this objective only relates to its role in regulating the electricity sector.

The IESO’s role has also been expanded to facilitate provincial hydrogen development in the electricity system. New section 1(d.1) outlines that a new objective of the Electricity Act is to “to facilitate the development of a hydrogen market and economy in Ontario in order to support potential uses and applications of low-carbon hydrogen, including for purposes directly or indirectly connected to the electricity system or electricity sector, in a manner consistent with the policies of the Ontario Government”.

Regulation-making powers relating to data centre connectivity requirements

One of the driving features of Ontario’s electricity system is the principle of “non-discrimination”. This allows participants to have equal access to connecting to the transmission or distribution network, regardless of their location, size or type of electricity.

Bill 40 creates an exception to non-discriminatory access with new section 28.1 of the Electricity Act. This section provides that transmitters or distributors shall not connect (or reconnect) a “specified load facility” onto the electricity system unless connection requirements that are specified in the regulations are met. A “specified load facility” refers to a data centre, or a facility (or class of facilities) that meets set criteria, such as having an expected electricity demand above a regulatory threshold and meeting any additional requirements set out in the regulations. Bill 40 outlines that regulations for potential connection requirements could relate to criteria respecting economic development or job creation.

The transition to these requirements will not apply to any specified load facility which made a connection request to a transmitter or distributor before June 3, 2025. Sector participants and data centre proponents should remain vigilant to any future announced regulations which further define a “specified load facility” or outline “specified connection requirements”.

Security and restricting foreign participants

Bill 40 will support Ontario utilities to “buy Canadian” and build a more secure energy system. This includes “enabling [utilities] to fund investments necessary to implement new restrictions on hostile foreign participants in Ontario’s energy sector”. Amendments to restrict foreign participants aims to create consistency with the other proposed legislation, Bill 5: Protect Ontario by Unleashing our Economy Act, 2025⁴. Bill 40 is in addition to the Ontario government’s Procurement Restriction Policy⁵, and the Minister’s letter to the Ontario Energy Board and the IESO requesting they apply the Policy to prohibit U.S. businesses from participating in new procurements for the provisions of goods and services that support the energy sector.

Encouraging and facilitating energy growth

The Ontario government also announced other changes in Bill 40 that will encourage energy investment, including by supporting the hydrogen economy and the Hydrogen Innovation Fund⁶. Developing a hydrogen market and economy in Ontario has been explicitly codified in the Electricity Act. The Ontario government notes that this will enable the IESO to fund innovation projects—including the Hydrogen Innovation Fund, which supports projects that integrate hydrogen into the electricity grid—and enable hydrogen’s broader energy and other sector applications. The Ontario government also announced more support for the Future Clean Electricity Fund, expanding the eligibility criteria to include nuclear generation and transmission⁷. This is deemed “necessary to meet the province’s growing electricity demand”.

Amended powers for the OEB’s Chief Executive Officer

Last, Bill 40 enhances the role of the OEB’s Chief Executive Officer to issue internal policies respecting procedural matters to OEB commissioners and staff. New section 13.1 of the OEB Act allows the Chief Executive Officer to issue policies respecting timelines for conducting a hearing and timelines for making a determination (if made by an employee); requirements for information/documents considered in conducting a hearing or making a determination; and any other matter prescribed by the regulations.

Next steps

Bill 40 has only passed first reading as of June 3^rd and has not received royal assent. The announcement of Bill 40 coincided with the Government of Ontario stating that the province’s first Integrated Energy Plan will be announced later this month. Both Bill 40 and the Integrated Energy Plan will provide a “coordinated, long-term approach to ensure Ontario has the energy it needs to power homes, businesses, and industry without relying on other jurisdictions”. Sector participants should be aware of these potential legislative changes and remain vigilant to further announcements later this month.