January 2024 Ontario Electricity Market Update: Report of Ontario's Electricifation and Energy Transition Panel Released

January 31, 2024
Roy Hrab & Sarah Simmons & Avi Lipsitz

On January 19, 2024 the report of Ontario’s Electrification and Energy Transition Panel (EETP), Ontario’s Clean Energy Opportunity, was released. The EETP was first established in April 2022, with the membership finalized in November 2022, as a short-term advisory body to help Ontario’s economy prepare for electrification and the energy transition. The EETP received input from over 200 parties, including extensive engagement with energy stakeholders and Indigenous partners from March to July 2023 as well as an open call for written comment.

The Panel’s key objective was to develop recommendations that lay out the next steps for Ontario to navigate the transition towards a clean energy economy and to propose principles that should guide this work in the long term. The result is a 141-page report with 29 recommendations of varying degrees of detail, covering five primary energy transition-related topics: planning for electrification and the energy transition; governance and accountability; true partnerships with Indigenous partners; innovation and economic development; and consumer, citizen and community perspectives.
report of ontario’s electrification and energy transition panel released

Some of the key recommendations to the provincial government on energy planning include:

  • Developing a commitment and associated policy principles for achieving a clean energy economy for Ontario by 2050
  • Convening an internal clean energy economy planning and implementation body
  • Developing an energy transition policy vision that is inclusive of Indigenous perspectives and informed by clean energy economy policy principles
  • Developing and releasing an integrated long-term energy plan
  • Providing policy direction on the role of natural gas in Ontario’s future energy system as part of its next integrated long-term energy plan
  • Empowering the Independent Electricity System Operator (IESO) to independently procure electricity resources and lead bulk-system planning and regional electricity system planning
  • The Ministry of Energy, working with the IESO, Ontario Energy Board (OEB), Local Distribution Companies (LDCs), municipalities, and gas utilities, develop a formal and transparent co-ordination framework that sets out the scope and objectives for enhanced planning co-ordination at the bulk, regional, and distribution levels
  • Explore mechanisms to support broad adoption of fuel switching, decarbonization and supportive technologies such as electric vehicles, storage and heat pumps.

The EETP report is vast in scope. It makes a wide set of recommendations from government planning to industrial strategy, and from distributional impacts to engaging with the public and Indigenous partners. A dominant theme throughout the report and recommendations is the need for much greater Indigenous inclusion, economic reconciliation, and participation and partnership in the clean energy economy.

Implementing all the recommendations in the report would be a massive undertaking and would set in motion a significant change in Ontario’s energy system planning, production, consumption, and funding as well as economic transformation. Power Advisory’s assessment of the EETP’s recommendations indicates significant change to Ontario’s planning framework. For example, the framework calls for the establishment of an Integrated Long-Term Energy Plan, prepared by the Ministry of Energy and covering the gas and electricity sector. Existing planning functions, including the IESO’s (i.e., its Annual Planning Outlook, Annual Acquisition Report, and Integrated Regional Resource Plans (IRRP)), would be informed by the Integrated Long-Term Energy Plan. Further, new comprehensive local energy plans would inform both the IESO’s existing IRRPs, as well as new electrification readiness plans to be prepared by LDCs. The LDC’s electrification readiness plans would be considered within the LDC’s existing distribution system plan.

To be clear, the EETP report findings are only recommendations to government. There is no requirement for the government to implement any of the recommendations. As a result, there is significant uncertainty about which, if any, recommendations will be acted upon and, more importantly, how they might be implemented. Therefore, as with most policy, the actual implementation details and execution will determine the outcomes. On this point, the Minister of Energy’s statement accompanying the release of the EETP report stated “Moving forward, I will be working with leaders from Ontario’s energy sector to carefully review the report’s recommendations and advice. I look forward to announcing our next steps towards an integrated energy planning process later this year.”

While there are recommendations that are likely to be welcomed by LDCs and energy affordability advocates, those expecting strong, specific recommendations related to creating foundational statutory obligations (such as an economy-wide net zero mandate, sector targets, fuel-switching targets and interim milestones towards reaching a net zero economy by 2050) are likely to be unsatisfied with the report. The EETP report includes many references to sub-national jurisdictions implementing net zero visions and/or comprehensive economy-wide energy transition plans, and which have enacted into law emission reduction targets, sectoral emissions targets, requirements for comprehensive economy-wide energy planning, and/or mandates for the electrification of transportation and building heat. However, in its discussion on planning a clean energy economy, the EETP report avoids explicitly recommending that Ontario follow the example of such jurisdictions (which include other Canadian provinces, such as British Columbia). Instead, the report opts for less well-defined language such as “vision,” “commitment,” and “alignment”, leaving a significant degree of discretion to the government.

In contrast, other areas of the EETP do make explicit recommendations for the review of, or changes to, legislation or regulations. Perhaps the most striking example of this disconnect between the planning recommendations and others is where the EETP suggests adding consideration of GHG emission reductions in various ways to the OEB’s mandate. However, absent recommendations for underlying foundational legislation on broader provincial emissions targets, mandates and objectives to achieve a net zero economy as well as sector specific emission targets and mandates, it is incongruous that the EETP recommends such changes be contemplated for the OEB.

A final aspect of the EETP report worth examining is the recommendations dealing with the future the natural gas system. The EETP addresses cost allocation and recovery policies for natural gas and electricity connections, and specifically recommends the OEB conduct a review of its policies, including “examining the differences in the economic evaluation period (known as a revenue horizon) to determine capital contributions as well as the ability to collect the capital contribution as a surcharge on rates versus an upfront contribution.” This recommendation is of interest because the Minister of Energy recently announced his intention to overturn an OEB decision on precisely this matter (see article in OEB Updates section below).

Given the breadth and scope of the EETP report it will likely be many months until any concrete next steps are announced. The government’s actions in response to the EETP report will provide tremendous opportunity for leadership not just within the province’s own energy sector, but nationally. All of Canada is grappling with how to simultaneously advance the energy transition while maintaining other crucial objectives such as cost and reliability. Locally, Ontario’s energy market and the broader industry need government’s leadership in developing clear next steps for Ontario’s energy transition. This includes things like laying out clear actions; defining the roles and responsibilities of agencies and other sector participants; and solid delivery timelines for government and industry action. Ontario is fortunate to have high and growing rates of distributed energy resource (DER) deployment, extensive transmission and distribution networks for both electricity and natural gas, well-developed market and regulatory constructs, and a strong vision for power procurement. In light of these strengths, Power Advisory expects that if well-executed, Ontario’s framework for the energy transition could serve as a model to other jurisdictions even as the shift to a cleaner and more resilient energy system enables economic development and encourages investment within the province.