Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The 3^rd Annual Canadian Power Finance Conference held in Toronto last week brought together a number of executives from some of the leading developers, investors and lenders in the Canadian energy market. Most of the sessions focussed on renewable energy, particularly wind, solar and hydro.

The tone was relatively optimistic for growth for a number of reasons including attractive medium-term renewables targets in provinces like Nova Scotia and Ontario and the need for large amounts of new energy infrastructure across Canada. Members of the developer panel were confident Canadian power purchase agreements will be attractive to lenders and other financing parties in late 2012 and beyond as procurement programs elsewhere in the world slow down. Most panelists anticipate significant consolidation and a lot of M&A activity this year. Still, there were concerns raised about the lower demand for energy and increasing government scrutiny over ratepayers’ costs.

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The outlook for M&A activity in the Canadian power sector is positive, according to participants in a panel discussion at the Canadian Power Finance Conference on January 25th. Factors cited by the panel, which was moderated by Lewis Smith of Stikeman Elliott's Toronto office, included:

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James Klein and Annie Pyke -

On January 4, 2012, Ontario amended O. Reg. 282/98 under the Assessment Act to provide new rules with respect to the assessment of property taxes on renewable energy installations. These amendments apply to facilities that generate electricity using solar energy, wind energy or anaerobic digestion of organic matter. The amendments differentiate between rooftop and ground solar installations, as well as between entities whose primary business is the generation, transmission or distribution of electricity (corporate power producers) and persons who are not ordinarily in the business of electricity generation (ancillary producers).

For rooftop solar installations the amendments provide that the assessment and tax classification of property will not change due to the addition of a renewable energy installation on the rooftop of a building. For ground-mounted installations, the property tax treatment will depend upon the size and location of the facility as well as who is conducting the generation.  Corporate power producers will be taxed at the industrial rate, regardless of the size of the facility. With respect to ancillary producers, no changes were made with respect to ancillary producers up to 10 kW. Ancillary producers of greater than 10 kW of solar or wind energy will be taxed at the surrounding land use rate for up to 500 kW and then at the industrial rate for the proportion over 500 kW. On-farm anaerobic digesters over 10 kW, which are operated by farmers, will be taxed at the surrounding land use rate regardless of size. These amendments took effect as of January 1, 2011.

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Patrick Duffy and Christopher Yung -

On December 8, 2011 the Ontario Energy Board dismissed a motion by the Consumers Council of Canada (CCC) challenging the constitutionality of the Board’s assessments to recover costs in respect of energy conservation or renewable energy programs.

The assessment is made under the  Ontario Energy Board Act, 1998, to recover costs associated with the Home Energy Savings Program and the Ontario Solar Thermal heating Initiative.  It is imposed on licensed electricity distributors and the Independent Electricity System Operator (IESO). In turn, distributors and the IESO pass the assessment onto their customers. 

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Patrick Duffy and Daniel Suss -

Grand Renewable Wind LP (GRW) has received approval from the Ontario Energy Board to construct a new transmission line and associated facilities for the Grand Renewable Energy Park (GREP) located in Haldimand County.  The Board’s approval is subject to GRW obtaining all other necessary approvals, including its Renewable Energy Approval for the GREP, and complying with certain mitigation measures.

GRW’s application was one of first leave to construct applications since the enactment of the Green Energy and Green Economy Act, 2009 and it raised novel issues that the Board has not considered before. Of particular interest in this case was a request from Haldimand County Hydro Incorporated (HCHI) for access to GRW’s transmission facilities so that HCHI could connect a new transformer station for its distribution system. GRW denied that it had an obligation to provide HCHI with access to its transmission facility.

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Annie Pyke -

A bill introduced by Todd Smith, MPP for Prince Edward – Hastings, proposes amendments to the Green Energy Act, 2009 (the Act) to allow municipalities to regulate green energy projects through by-laws. The bill, which has been titled the Local Municipality Democracy Act, 2011, would amend the sections of the Act which make by-laws inoperative with respect to designated green energy activities and would provide that by-laws respecting “…health, safety and well-being of persons or respecting public assets of the municipality…” would continue to apply to designated green energy activities. Currently, municipalities participate in the planning process for green energy activities through the Renewable Energy Approval process, which requires municipal and local authority consultation. The bill received its first reading on November 28, 2011 and is expected to receive its second reading on December 1st, 2011. While private members' bills rarely become law in a majority government, the fact that Ontario currently has a minority government may increase the chances of success for private members' bills. 

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Patrick Duffy -

The Ontario Energy Board has ordered that the transmitter licence for TransCanada Transmission (TCT) be amended to change the effective date to the earlier of: (i) the date on which TCT is designated as a developer of transmission assets in Ontario pursuant to a Board designation process: or (ii) the date on which TCT applies for approval to own and/or operate specific transmission facilities in Ontario.

The order is effectively a reversal of the Board’s earlier decision denying TCT an exemption to certain obligations under the Board’s Affiliate Relationships Code for Electricity Distributors and Transmitters (ARC). TCT was particularly concerned with a requirement in the ARC that prohibited it from sharing employees that have access to confidential customer information with other TransCanada affiliates. TCT argued that this requirement drove-up costs and was unnecessary as newly licenced transmitters do not yet have any customers in Ontario. 

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Matthew Cameron -

Announced the same day as the Ontario Power Authority’s review of the Ontario Feed-in Tariff program, the UK Department of Energy and Climate Change (DECC) announced the start of its review of its Feed-in Tariffs scheme (FITs) on October 31, 2011 by releasing a comprehensive review document and requesting responses in respect of its solar PV program.  The review is open for responses until December 23, 2011.

The review document proposes to reduce the prices offered to solar PV generating projects under 250kW commissioned after December 12, 2011 (projects between 250kW and 5MW will continue to be offered 8.5p/kWh, subject to adjustment per the Retail Price Index). Solar PV has led the FITs in terms of volume deployed and has had a substantial increase in the pipeline of potential FITs projects. That, coupled with the dropping cost of solar PV components and the rising cost of energy, has led to returns beyond the 5% originally envisaged which, in the DECC’s view, is not sustainable and thus requires a revised price.

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On October 31, 2011, the Ontario Government announced its first review of the FIT program. The review, which will be led by Deputy Minister Fareed Amin, aims to tackle issues including price reduction, long-term sustainability, job creation, new technologies and local consultation.

Ontarians are invited to participate in the review during the consultation period from October 31, 2011 to December 14, 2011. The OPA will also be holding a webinar tomorrow, November 2, 2011 at 10 a.m. in order to provide additional information.

Any FIT contracts awarded subsequent to today’s announcement will be subject to the new rules and pricing schedule that result from the review. Existing contracts will not be affected. The OPA is offering to refund application fees for those who wish to withdraw their application as a result of today’s announcement.

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Royal Dutch Shell PLC (“Shell”) has made a move to enter the competition of exporting Canadian natural gas to Asia by purchasing a marine terminal near Kitimat, British Columbia. Shell currently has partners in South Korea and Japan that are the world’s top liquefied natural gas buyers. This move is part of Shell’s “early stage” work to determine whether to construct a LNG export facility to export Canadian resources to Asia. Shell’s newly purchased site is near land where Apache Corp. and partners are poised to construct a $5 billion-plus export terminal, a project that received a regulatory license last week.

Canadian natural gas companies are suffering from low prices as a result of strong supply from all the recent shale gas discoveries in the United States. Canada’s only export customer for natural gas is the U.S. and these shipments to the U.S. have been halved in recent years. However, prices in Asia are far higher than they are in North America.

Shale gas discoveries in British Columbia’s northeast are massive and the industry is of the view that these discoveries would easily supply exports and domestic consumption. Companies such as Shell believe that this shale gas might be left in the ground if exports to Asia are not opened.

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Daniel Suss -

On October 20, 2011, Dalton McGuinty revealed his new, and slimmed down, cabinet. Chris Bentley, former Attorney General of Ontario, was named Minister of Energy, while Brad Duguid, former Minister of Energy, became Minister of Economic Development and Innovation. The energy portfolio came under much scrutiny during the provincial election and Bentley will now be responsible for running Ontario’s FIT program, as well as the negotiations regarding the natural gas plants originally planned for Mississauga and Oakville. In addition, Bentley will oversee the phase-out of coal power generation in the province, expected by 2014, and will be a key decision-maker with respect to the future of nuclear energy in the province.

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Patrick Duffy -
 
Wind farm developers in Ontario are being threatened with litigation from neighbouring residents who claim property values are suffering because of the perceived health concerns associated with wind turbines.  These claims were recently the subject of an investigation undertaken by the CBC that reported homes near wind farms were selling for less and taking longer to sell than other homes.  The issue has also been raised before the province's Assessment Review Board by property owners seeking to lower their property tax assessments.
 
A recent ruling from the Ontario Court of Appeal in Ellen Smith v. Inco Limited will provide the province's wind developers with  stronger hand in fighting back against such claims.  The claimants in the Inco case alleged that their property values were reduced by nickel contamination that originated from Inco’s refinery in Port Colborne.  They succeeded at trial and Inco was held liable for the tort of nuisance and under strict liability imposed by the rule in Rylands v. Fletcher.   The ruling was notable as the refinery had adhered to the applicable environmental regulations during its operation and the level of nickel contamination did not present a threat to human health or otherwise impact the complainants' ability to use and enjoy their property.  Nonetheless, the trial judge held Inco liable for the loss of property value because the contamination led to a negative public perception about the contaminated land.

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The Ministry of Finance is proposing amendments to Ontario Regulation 282/98 that will alter the property tax treatment of certain renewable energy installations for the 2011 tax year. A summary of the proposed changes can be found in the table below.

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On August 2, 2011, the Ministry of Energy directed the OPA to allow Suppliers under Ontario’s Feed-In Tariff (FIT) program to obtain a waiver of the OPA’s termination rights contemplated in section 2.4(a) of the FIT Contract.

Obtaining a waiver of this termination right is meant to expedite issuance of a Notice to Proceed (NTP) by reducing contractual termination risk and allowing Suppliers to procure financing for equipment orders. 

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Andrew Sullivan -

Beginning November 1, 2011, many wind and solar PV generators will be required to submit real-time meteorological and output data to the IESO.

The market rule amendment is part of IESO plans for renewable integration. As part of this integration, the IESO is seeking to implement centralized forecasting. Instead of providing energy forecasts, renewable facilities will be required to submit real-time, site specific data (“dynamic data”) to the IESO that will be used to produce variable generation forecasts provided by a third-party.

The requirements will apply to all wind and solar facilities connected to the IESO-controlled grid in addition to embedded non-market participants with an installed capacity over 5MW.

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Yesterday the Ontario Power Authority offered Feed-in Tariff contracts to 19 large scale on-shore wind projects and 6 ground-mount solar projects, totalling nearly 1,046 MW of new renewable energy projects. 750 MW of wind-based contracts were offered in the Bruce Area and the remaining 296 MW were offered in the West of London Area, 27.5 MW for ground-mount solar and 268.4 MW for on-shore wind.

The biggest winner of the contract offers is Boulevard Associates Canada, Inc., with 335 MW offered in the Bruce Area. International Power Canada, Inc. received offers for 198 MW in the West of London Area.

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Calgary partner Stuart Olley will be speaking at the Andean Energy Summit  in Bogota on July 13 and 14. In its 5th year, the Andean Energy Summit will address the financial, regulatory, technological and operational challenges facing oil & gas, electric power and renewable energy operators in the Andes and Central America. For access to a 25% discount (tickets only) on attending the summit, please send an email to sstone@stikeman.com.

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Patrick Duffy

Ian Hanna, an Ontario anti-wind crusader, has been denied permission to appeal an earlier court decision that dismissed his judicial review application. 

Hanna’s application challenged Ontario Regulation 359/09 that governs renewable energy approvals in Ontario. The Regulation requires a 550 meter distance between wind turbines and noise receptors such as residences.

Hanna argued that there was no scientific basis for the 550 setback. He challenged the regulation on the basis that the Minister of Energy had not followed the necessary process required by Environmental Bill of Rights (EBR). Section 11 of the EBR requires the Minister to consider the Statement of Environmental Values (SEV) when making decisions that might significantly effect the environment. In turn, the SEV requires the Ministry to “use a precautionary, science-based approach in its decision-making”. Hanna argued the Ministry had failed to meet that requirement when it determined the setback distance.

Hanna’s application went before the Ontario Divisional Court and was dismissed in March 2011. The court was satisfied that the Minister complied with the process required by the EBR and SEV. In support of this, the court cited public consultation and a science-based ministerial review using World Health Organization reports and acoustic engineering experts. 

Hanna vowed to fight on and sought leave to appeal the decision to the Ontario Court of Appeal, but on June 20 the court denied his application.

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Eric Bremermann -

The international renewable energy and general electricity generation community that gathered at Intersolar Europe from June 8 to 10 was abuzz digesting the news of the German parliament releasing its plan to have the country’s electricity generation fully withdraw from nuclear energy by 2022. I attended the Intersolar Europe and observed optimism among solar industry participants that Germany’s nuclear exit will bring new opportunities in the German solar market. That country’s solar market had begun to lag in recent times due to solar feed-in-tariffs being curtailed. However, as Germany today only relies on roughly twenty percent nuclear power, the German government’s announcement was primarily seen as producing significant new opportunities for development of substitute base load capacity, which is thought will have to come from utility scale offshore wind parks, as well as natural gas fired plants

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Alberta Electric Systems Operator (AESO) forecasts the province will spend $13.5 billion in the next decade to keep pace with growth in electricity demand. Within 20 years, Alberta will require 13,000 megawatts of new generation capacity, with much of the growth fuelled by oilsands developments.

However, AESO reduced the province's planned expenditures by $1 billion compared to its 2009 draft budget by eliminating or reducing the scale of certain projects. In the latest forecast, $8.3 billion will be committed towards 50 regional projects serving 200 customer connections. The remaining $5.2 will be directed towards four transmission infrastructure projects outlined in The Electric Statutes Amendment Act, 2009.

As well, earlier plans for two North-to-South high voltage direct current lines between Edmonton and southern Alberta will be scaled down, leaving the option to build up as demand requires. 

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Andrew Sullivan -

Angela Merkel’s collation government has pledged to decommission all of Germany’s seventeen nuclear reactors by 2022. This historic announcement comes in the wake of a global reaction to the events in Fukushima, Japan. The crippled reactors have caused many governments to rethink their nuclear strategy.

Before the Fukushima disaster, resurgence in the popularity of nuclear energy had been characterized as “the nuclear renaissance”. The industry had finally recovered from the Chernobyl disaster, over quarter-century before. Around the world, nuclear energy appeared to be a viable solution in the effort to reduce greenhouse gas (GHG) emissions. Globally, 2010 saw fourteen new reactors under construction, compared with three in 2005. That number will assuredly fall this year as governments rein-in their enthusiasm for nuclear energy.

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A new directive by the Ministry of Energy to the Ontario Power Authority will give hope to FIT program applicants in the Bruce and West of London areas. The OPA was instructed on June 3, 2011 to issue contracts for large projects within the Bruce to Milton Transmission project as part of the province’s FIT program. As a result of this directive, over 1,000 MW of renewable energy contacts are to be offered - up to 750 MW in the Bruce transmission area and up to 300 MW in the West of London area.

These new FIT contracts are available to projects already on the FIT Priority Ranking list for the Bruce or West of London transmission areas. The OPA has granted a five business day window for proponents to change connection points (though the project location cannot change). The change of connection window begins on June 6 and closes June 10, 2011 at 5:00 pm.

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Patrick Duffy -

In issuing an electricity transmitter licence to Chatham-Kent Transmission Inc. (CKT), the Ontario Energy Board made some important comments that will be of interest to any transmitters seeking to participate in the Board's upcoming transmitter designation process for the East-West Tie.

While the primary purpose of CKT's application was to own and operate a transmission line that will connect a wind generation facility within the Municipality of Chatham-Kent to the grid, CKT also indicated its longer term intention to participate in the Board's transmitter designation process.  A number of intervenors questioned whether CKT had the financial and technical capability to qualify for a full transmitter licence and requested that the licence be limited to the specific facility proposed by CKT.

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Patrick Duffy -

In case with strong echoes of Rio Tinto Alcan Inc. v. Carrier Sekani Tribal Council, the Ontario Energy Board has recently denied a request from a group of twelve First Nations for intervenor status in a licensing application.

The application seeks licence amendments related to eight hydroelectric generating stations owned by AbitibiBowater. The amendments will facilitate the sale of the generating stations to Bluearth Renewables, which intends to take advantage of incentives for upgrades and expansions offered by the Ontario Power Authority's Hydroelectric Contract Initiative (HCI). The First Nations group requested intervenor status with the intention of exploring the adequacy of the Crown’s consultation efforts with respect to potential infringements of their Aboriginal rights. The group argued that the sale of these facilities to Bluearth would result in increased or expanded hydroelectric generation under the HCI, which would change water levels and flows and impact their ability to harvest wild rice.

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This morning, the Ontario Power Authority announced contract offers for 40 large scale renewable energy projects under the Feed-In Tariff Program, representing over 872 megawatts of renewable power.

Although only four of the contracts offered are for on-shore wind projects, on-shore wind is the energy source for over 70% of the capacity offered.  Thirty-five solar projects (33 groundmount and two 500kW rooftop) represent over 29% of the capacity. A single water-power project of 500 kW makes up the balance. By region, 49% of the capacity is in the central region, 22% in the east and 28% in Niagara.

The announcement reflects the long anticipated results of the OPA’s transmission and distribution availability tests (so called TAT and DAT). Contract offers for smaller capacity allocation exempt(or CAE) projects are expected to follow over the coming weeks.

The list of contracts offered is available from the OPA FIT website.

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The Ontario government has published amendments to the Renewable Energy Approvals Regulation (O. Reg. 359/09) that will take effect on January 1, 2011.  We reported on an earlier version of the proposed amendment in an October blog posting.

The most significant changes in the amended regulation concern noise receptors and setback requirements for wind faculties. As a result of the amendments, the term “overnight accommodation” in the definition of noise receptors will be replaced with a definition of “dwelling” based on the definition in the Building Code. The definition of “dwelling” was also modified by replacing the words “intended to be used” with “capable of being used”.These changes appear to set a higher threshold for what structures qualify as a dwelling.

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Lanette Wilkinson

In 2006, the Minister of Energy directed the Ontario Power Authority (the OPA) to develop an Integrated Power System Plan (the IPSP) that focused on creating a sustainable energy supply in the Province over the next twenty years. In 2007, an IPSP was introduced to the Ontario Energy Board (the OEB), but the hearings were subsequently suspended. On November 23, 2010, the Province released a long-term energy supply plan (the Plan) that is intended to address developments in technology, the uptake of renewable energy arising out of the Province’s feed-in tariff program (the FIT Program), and shifts in demographics and the economy since the release of the IPSP in 2007. A proposed supply mix directive based on the Plan has been posted on the Environmental Registry for a forty-five day comment period ending January 7, 2011, after which time the directive will be finalized and issued to the OPA. The OPA is to develop an IPSP to be submitted to the OEB for review. Once finalized, the IPSP will constitute the new system plan for the next 20 years and will be updated every three years as required by regulation. The Plan contemplates the following:

Eliminating Coal by 2014

The Province remains committed to eliminating coal generation by shutting down two units in Nanticoke in 2011 and converting Thunder Bay Generating Station and Atikokan Generating Station to respectively use natural gas and biomass by 2013. The Province is also considering accelerating the closure of the remaining six units of coal-fired generation (at Nantioke and Lambton) and converting these units to natural gas.

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John Lorito

The following is a brief summary of the main Canadian federal income tax considerations applicable to windpower and solar power projects in Canada and, in particular, the accelerated capital cost allowance rates for qualifying depreciable property and the Canadian renewable conservation expense regime. 

Accelerated Capital Cost Allowance Rate

“Capital cost allowance” (CCA) is essentially depreciation for Canadian federal income tax purposes. CCA deductions are discretionary and are taken on a declining balance, class-by-class basis. For example, if the capital cost of depreciable property of a particular class is $100 and the CCA rate for the class is 30%, CCA to a maximum of $30 may be claimed in respect of the property in the first year (subject to the half-year rule discussed below). If $20 of CCA is claimed, this amount is deducted from the capital cost to arrive at the “undepreciated capital cost” (UCC) and the 30% rate is applied to this amount to determine the maximum deduction in the following year (in this example, $24). The cost of newly acquired property of the same class is added to the UCC and proceeds from the sale of property in the class (up to the original cost of the property) is deducted from the UCC. If the UCC is negative at the end of a year, the negative amount (known as recapture) is included in computing income in that year.

CCA classes 43.1 and 43.2 of the regulations (the Regulations) under the Income Tax Act (the Act) provide enhanced CCA rates for various renewable asset properties. Certain assets of a qualifying wind energy conversion system or photovoltaic system that are included in class 43.1 will be entitled to an accelerated CCA rate of 30% per year. Such assets that are acquired after February 22, 2005 and before 2020 and that would otherwise be included in Class 43.1 are included in class 43.2, which has a CCA rate of 50%. 

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The Ontario Ministry of Energy has released a Long-Term Energy Plan (LTEP), which is a 20-year plan to guide the province's electricity system. The LTEP forecasts demand growth of 15 percent between 2010 and 2030. Key features of the LTEP include a recommitment to eliminate coal-fired generation by 2014, refurbishment and expansion of nuclear capacity, continuation of FIT and microFIT programs, and the development of a Combined Heat and Power standard offer program for projects under 20 MW. The government will also be proceeding with five priority transmission projects immediately.

As part of the LTEP, the government will be posting a proposed supply mix directive on the Environmental Registry for a 45 day public comment period. Once this process is complete, the directive will be finalized and sent to the OPA and will form the basis for the OPA's new Integrated Power System Plan (IPSP).

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The Ontario Government recently released O. Reg. 389/10, made under the Energy Consumer Protection Act, 2010 (the Act). This regulation will govern the conduct of energy retailers and gas marketers and provides for increased consumer protection. The regulation also contains rules regarding the implementation and use of smart meters by individual units in multi-residential buildings. Both the Act and the regulation come into force on January 1, 2011.  For more information on the Act and regulations please see our post of June 17, 2010.

On a related note, the Ontario Energy Board issued a Revised Notice of Proposal (the Proposal) on October 15, 2010 to revoke and re-issue the Electricity Retailer Code of Conduct and the Code of Conduct for Gas Marketers, and to amend the Gas Distribution Access Rule. The Proposal will implement the consumer protection provisions of the Energy Consumer Protection Act, 2010. Comments on the Proposal are due on October 29, 2010.

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Ontario's Minister of Energy Brad Duguid announced today that the Ontario government has directed the Ontario Power Authority not to proceed with plans to build a highly controversial gas-fired power plant in Oakville.  The government has decided that changes in demand and supply in ontario electricity sector mean the plant is no longer needed and that the needs of the Southwest Greater Toronto Area can be served by investing in a new transmission. 
 
The proponent of the facility, TransCanada, has issued a statement that it will begin discussions with the OPA "where both sides mutually agree to terminate the contract and discuss reasonable payments TransCanada is entitled to."

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The Ontario Ministry of the Environment has posted a draft amend to the Renewable Energy Approvals Regulation (O. Reg. 359/09) to provide clarity with respect to the regulatory requirements that proposed renewable energy projects must satisfy.  The proposal notice and a draft of the regulation can viewed on the Environmental Registry.
 
Perhaps the most notable amendments include changes to the definition of noise receptors and clarification of the noise receptor setback prohibitions for wind facilities. Uncertainty over the proper interpretation of the current requirements has been a concern of the developers of these facilities.   Other changes of note include stronger requirements for mandatory consultations with the public, Aboriginal communities, municipalities and the Niagara Escarpment Commission, and changes to the assessment of protected properties, protected properties, archaeological and heritage resources, and natural heritage assessment and water assessment.

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On September 15th, 2010, the Ontario Power Authority released instructions on applying for Notice to Proceed ("NTP") under the Feed-In Tariff Program (the "FIT Program"). The NTP is used to provide confirmation to begin building a project under the FIT Program. The OPA  will issue an NTP when it is reasonably confident that a Project has (i) secured proper financing; (ii) completed all necessary Impact Assessments; (iii) received any applicable environmental and site plan approvals; and (iv) there is sufficient evidence that the Project will be capable of meeting any Domestic Content Level requirements.

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On September 20th, 2010, the Ontario government began the process of updating the Long-Term Energy Plan (the “LTEP”). The LTEP was first introduced in 2006 and directs the development of new generation and transmission capacity in the Province. The 2006 plan led to the development of approximately 8,000 megawatts of new generation in Ontario. The new LTEP will incorporate the Province’s commitment to shutdown all coal-powered generating stations by 2014. The general public is invited to comment by answering a series of questions regarding demand, price, generation, transmission and conservation,  on the Ministry of Energy website. The government will also conduct more formal consultations with key stakeholders such as utilities, environmental organizations, businesses, First Nations and Métis organizations, and consumer groups.

The end result of this consultation will be the issuance of a new Supply Mix Directive, which will be posted for comment on the Environmental Registry. Once the Minister of Energy finalizes and issues the Supply Mix Directive it will be used by the Ontario Power Authority to inform the development of the Long-Term Energy Plan which will be submitted to the Minister for approval and then submitted to the Ontario Energy Board for review. The Minister anticipates the LTEP will be finally approved in 2011.
 

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Under B.C.’s Clean Energy Act, the feed-in tariff (“FIT”) program will involve BC Hydro and Power Authority (“BC Hydro”) entering into supply contracts with small-scale electricity providers producing power from clean sources such as biomass, biogas, geothermal heat, hydro, solar, ocean, wind and other prescribed resources.

The B.C. government will seek to pass FIT program regulations by early 2011, and is currently accepting comments regarding its Feed-In Tariff Regulation Consultation Paper released last month.

According to the Consultation Paper, FIT programs are intended to support investment in emerging clean technologies in the earlier stages of commercial deployment, as well as to spur growth in areas of the province that would benefit from greater grid integration and job creation. 

FIT programs will not finance clean power projects, but rather create a marketplace for clean power by offering rates of return of about five to ten per cent. Rates paid to FIT operators are expected to vary depending on the project's size, resource type, location and other factors.

The Consultation Paper states that the B.C. Ministry of Energy, Mines and Petroleum Resources has made the following proposals regarding FIT projects:

1. To cap the size of FIT projects at five megawatts, meaning that FIT projects will not function as general power procurement tools for BC Hydro;
    
2. To limit annual spending on all power acquired under FIT projects to $25 million above the cost of acquiring the same volume of electricity through BC Hydro’s Standing Offer Program, a similar BC Hydro initiative to support clean energy but with fixed rates paid to program participants; and
   
3. To limit the term of most FIT projects to five years, with the option of securing an Electricity Purchase Agreement with the project at the end of term at the rates under the Standing Offer Program.

The comment period for the Consultation Paper will close September 30, 2010. 

Nova Scotia is presently developing its own FIT program, and Ontario's FIT program (see here, here and here) is entering its second year.

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The Ontario Power Authority has been directed to enter an agreement to purchase biomass power that will be produced at the Ontario Power Generation’s Atikokan station starting in 2012.

This development is part of the OPA’s 20-year plan that began in 2007, and proposed that the province phase-out coal-based electricity by 2014 and invest approximately $14.6 billion in renewable energy sources. Pursuant to Ontario Environmental Protection Act regulations made under the OPA plan, the Atikokan station is one of several coal facilities that will cease coal-fired steam electricity generation. 

However, unlike the Lambton and Nanticoke stations that will be permanently decommissioned, OPG will convert the Atikokan station to use wood pellets as a biomass fuel source.

Frank Chiarotto, OPG’s Senior Vice-President (Thermal), acknowledged the benefit to the community by converting the Atikokan station, as opposed to shutting its doors.

Atikokan can provide Ontario with a new source of renewable energy and Northwestern Ontario with economic benefits for years to come ... This is good news for OPG, Northwestern Ontario and the province.

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Over the last week, the OPA has posted the following amendments and updates to the FIT Program to its website:

• Price category for ground-mounted solar PV microFIT projects finalized

On August 13, 2010, the OPA announced that it finalized the 64.2 cents per kWh price category for ground-mounted solar PV microFIT projects.  The revised price applies to all microFIT ground-mounted solar applications submitted after 12 p.m. on July 2, 2010.  In addition to changes to the contract price, the OPA has announced that:

(1) commercial aggregators that lease land or rooftops from individuals for multiple renewable energy projects will no longer be able to participate in the microFIT program;

(2) the OPA will be setting up a microFIT advisory panel to provide advice on the evolution of the microFIT program; and

(3) the advisory panel will be charged with making recommendations regarding the appropriate contract provisions that should apply to aggregators (outside the microFIT program).

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On July 5, 2010 the Ontario Ministry of Natural Resources has approved revisions to its Onshore Windpower Development on Crown Land policy and procedure.

The revisions apply to all onshore Crown land windpower applicants and are part of the MNR’s broader review of Ontario’s Crown land release process applicable to renewable energy projects begun in September 2009.

The aim of the new revisions for onshore wind projects is to eliminate duplication with renewable energy approval processes, provide procedural clarity to applicants currently within the site release process and to align with Ontario’s Green Energy initiative. Revised policy and procedure for offshore windpower projects will follow the government’s broader decision on draft rules regulating off-shore wind turbines proposed by the Ministry of the Environment. The window for new renewable energy applications for Crown land will remain closed until the completion of the phased review.

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The Federal Energy Regulatory Commission (“FERC”) is seeking feedback regarding recent developments in the field of electricity storage.

Electricity storage technologies like rare earth metal batteries, pumped hydro and pre-compressed gas turbines can increase the value of renewable assets, such as solar and wind, by making supply coincide with periods of peak consumer demand. For grid management purposes, electricity storage can also provide “ride-through” during outages, reduce harmonic distortions, and eliminate voltage sags and surges.

FERC is seeking stakeholder input regarding how FERC’s accounting and reporting requirements should account for the capital and operating costs associated with new electricity storage facilities.  FERC is also seeking guidance on the rate-setting treatment for facilities that serve multiple purposes, some in and some outside of FERC’s jurisdiction, as well as the regulatory implications of open-access electricity storage services.

Comments are due July 26, 2010.

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Patrick Duffy

On April 22, 2010, the Ontario legislature passed Bill 235, which when it comes into force will create a new Energy Consumer Protection Act and amend the Electricity Act, 1998. The principal aim of the legislation is to enhance consumer protection and energy conservation through new rules for gas marketers, electricity retailers, landlords, and condominium developers.

The new legislation sets the framework for increasing the use of smart meters by individual units in multi-residential buildings (referred to as "suite metering"). According to the Minister of Energy and Infrastructure, empirical data indicates that energy consumption drops between 12%-22% when unit owners are responsible for personal power bills. The legislation will enable the government to provide guidance on suite metering, and also addresses concerns related to suite meter companies and tenant rights.

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Glenn Zacher

In a decision released on June 3, 2010, the Ontario Court of Appeal upheld orders of the Ontario Energy Board and the Divisional Court that deny Great Lakes Power (GLP) recovery of approximately $15 million from its customers because the underlying costs had not been subject to a prudency review.

The appeal related to a portion of GLP's revenue requirement that had been voluntarily deferred between 2002 and 2007 to avoid rate shock to its customers.  The underlying costs did not undergo a full prudency review by the Board because of the "rate freeze" implemented by Bill 210 in 2002.  GLP refused to submit to a prudency review when it sought recovery of these amounts in its 2007 rate application.  GLP argued that the Board had approved the costs in a 2002 interim order and was foreclosed from revisiting those costs by Bill 210.  The Board disagreed with GLP's interpretation of the 2002 interim order and denied recovery in the absence of a prudency review.  The Board's decision was affirmed by the Divisional Court in July 2009. A full description of the case appeared in the August 2009 edition of our Energy Update. 

In affirming the decisions of the Board and Divisional Court, the Court of Appeal ruled that the Board is entitled to deference when interpreting its own orders as that task calls upon the Board's expertise and policy considerations.  Further, the Court agreed that the costs at issue were not approved by the 2002 interim order and could not be recovered in the absence of a prudency review by the Board.  In dismissing GLP's pleas that the result was unfair, the Court noted that GLP was ignoring those parts of Bill 210 that allowed for a prudency review of the deferred amounts and had "made a conscious decision to forego a prudency review" in its 2007 application.

Glenn Zacher and Patrick Duffy represented the Ontario Energy Board before the Divisional Court and the Court of Appeal.

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Alison Forbes

As of the end of May, project developers who had previously installed and connected in-series renewable generation projects under the FIT and microFIT programs still do not know the future of their projects.  While the current official position of the Ontario Power Authority (OPA) is that it will continue to work with the necessary regulatory bodies, including the Ontario Energy Board (OEB) and Measurement Canada, and local distribution companies (LDCs) to address systems already connected, the OEB has now directed all LDCs to stop connecting facilities using in-series meters and the OPA FIT and microFIT rules have been amended to prohibit behind-the-meter, in-series facilities.

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Glenn Zacher and Patrick G. Duffy

In the past year, the Ontario Energy Board (OEB) has issued two important decisions that provide clarity to condominium developers and landlords in Ontario on their rights to sub-meter individual units in their buildings using smart meters. As discussed below, there is also new legislation concerning smart sub-metering on the horizon that will be of interest to developers and landlords in Ontario.

At the core of this issue are the smart-metering provisions of the Electricity Act, 1998 and the related regulations, in particular Ontario Regulation 442/07. Regulation 442/07 required all new condominium buildings constructed in Ontario after August 1, 2007 to include a smart meter for each unit. Under the regulation, a condominium developer has the choice whether to have individual units metered directly by the local distributor, or to have the distributor provide a bulk interval meter for the building while having individual units sub-metered by an alternate provider. The smart sub-metering provider must be licenced by the OEB and comply with the requirements of the OEB's Smart Sub-Metering Code. Existing condominium buildings are not required to install smart meters for each unit, but can do so at the option of the condominium corporation and also enjoy the right to use the services of a licenced smart sub-metering provider.

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Glenn Zacher and Patrick Duffy

The Ontario Divisional Court recently dismissed an appeal by Great Lakes Power Limited (GLP) of a decision of the Ontario Energy Board, in which the Board refused to allow GLP to collect nearly $15 million that GLP voluntarily deferred between 2002 and 2007, but that had never been subject to a prudency review by the Board.

The roots of the appeal stretch back to GLP's 2002 distribution rate application. That application was premised on a forecast revenue requirement of $12.7 million, but to avoid "rate shock," GLP sought to recover only $9.8 million and defer the rest of its revenue requirement for recovery beginning in 2005.   The Board granted an interim order approving GLP's requested rates, but due to the passage of Bill 210 in late 2002, a full hearing was never conducted. Bill 210 deemed interim orders to be final and imposed a rate freeze on distributors.

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David Wood and Katie Slipp

On March 25, 2009, the Alberta Utilities Commission (AUC) approved an application by ENMAX Power Corporation (EPC) for formula-based ratemaking (FBR) to be applied to EPC's regulated electric distribution and transmission businesses. This is the first time that an FBR plan has been approved for an electric utility in Alberta. Unlike traditional cost-of-service ratemaking, the FBR plan approved by the AUC establishes a formula that provides incentives to EPC to increase its productivity and become more efficient. The formula includes factors for inflation and productivity. The starting point for the FBR plan is EPC's 2006 approved distribution and transmission rates, subject to some adjustments, which were established through the traditional cost-of-service ratemaking process.

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Patrick Duffy

Due to a recent Ontario Energy Board ruling, any shareholder holding more than 20% of the shares of an electricity distributor in Ontario must now seek leave from the Board before it can increase its shareholdings in the distributor.

The ruling arose from an application by the Town of Essex (Essex) to acquire all of the outstanding shares of E.L.K. Energy Inc. (ELK). Essex already held 38% of the shares of ELK, which it had acquired as part of a previous amalgamation that was not subject to Board scrutiny. Prior to a hearing on the merits of the application, Essex requested the Board rule that the transaction did not require leave from the Board under subsection 86(2) of the Ontario Energy Board Act, 1998. 

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Patrick G. Duffy

In a recent decision concerning Union Gas Limited (Union), the Ontario Energy Board (OEB) ruled that a utility has a duty to disclose, as part of its  rate application, any contemplated corporate reorganizations that have a "real prospect" of proceeding, even if the utility's board has not yet granted final approval.

The issue arose in an application to the OEB for approval to transfer a controlling interest in Union to a limited partnership.  The purpose of the transaction was to generate $50 million in tax savings for Union's parent, which in turn would reduce Union's annual revenue requirement by approximately $1.3 million.  As part of the application, Union requested the cost reduction not be factored in to its rates until after the expiry of its Incentive Rate Mechanism Plan (IRM Plan) in 2012.  Under the IRM Plan, which was approved by the OEB in January 2008, Union's rates are set by a formula that is tied to the cost of inflation and a productivity-improvement factor.

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Reprinted with permission from the 2007/2008 Lexpert®/CCCA Corporate Counsel Directory and Yearbook, 6th Edition. © Thomson Carswell.

Lou Cusano, David Wood & Glenn Zacher

Electricity restructuring in Canada remains limited to only a few provincial jurisdictions. In those jurisdictions that have introduced private sector reforms, the results have been mixed and the process has been slow.

Alberta's electricity market is the most evolved, and it has stimulated the most private sector investment. No significant regulatory changes have interrupted the evolution of Alberta's market over the past year.

Ontario sought to introduce both wholesale and retail competition in 2002. High prices and other circumstances, however, conspired to bring a quick end to the market. Ontario has since adopted a "hybrid market." The most significant recent regulatory development in Ontario has been the Ontario Power Authority's ("OPA") release of its Supply Mix Advice Report and the provincial government's ensuing Supply Mix Directive. This was the first major step toward the OPA's development of a 20-year Integrated Power System Plan which the OPA aims to file in to file with the Ontario Energy Board ("OEB") in mid to late 2007 and have approved by the OEB the following year.

Some limited progress toward restructuring was made in British Columbia with the creation of the British Columbia Transmission Corp. ("BCTC"), whose mandate is to manage and provide non-discriminatory access to BC Hydro's transmission system. As well, in March 2007, the British Columbia Utilities Commission approved BC Hydro's Integrated Electricity Plan and Long-Term Acquisition Plan.

At the federal level, the last year has seen further progress toward the adoption of North American mandatory reliability standards. There have also been developments concerning the construction of international transmission projects.

 PDF of entire article

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The Ontario government has revived the transfer tax exemption for transfers of electricity assets within the public sector. The move is designed to encourage consolidations among municipal electrical utilities. To qualify, the transfer must be made to a municipal corporation, a municipal electricity utility, Hydro One Inc. or Ontario Power Generation Inc. or a subsidiary of either of them, that is exempt from federal income tax under subsection 149 (1) of the Income Tax Act (Canada).

The exemption applies to transfers made after October 16, 2006 where an application for approval is made to the Ontario Energy Board before October 17, 2008 and a written agreement to make the transfer is complete before October 17, 2008 and is not materially changed after that date.

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Patrick Duffy

As part of its conservation strategy, the Ontario provincial government has established targets for the installation of 800,000 smart meters by December 31, 2007 and installation of smart meters for all Ontario customers by December 31, 2010. Smart meters record hourly data for every customer and transfer that data to the distributor and a centralized database that will be made available to customers and other interested parties. The aim of the initiative is to provide customers with the incentive and the ability to control their energy costs by moving usage to off-peak periods and reducing energy use during peak periods.

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(MR-295)

The IESO Board approved amendments to clarify the local market power rules. The purpose of the amendments is to clarify that the local market power rules are not a "fault-based" or "punitive" regime whereby participants are penalized for intentionally abusing local market power. Rather, the amendments confirm that the purpose of the rules is to remedy the impacts of local market power by clawing-back congestion management settlement credit (CMSC) payments in cases where local market power exists and has been exercised (albeit unintentionally). To date, IESO staff has made CMSC adjustments (without a financial penalty) where local market power screens have indicated that participants' offer/bid prices were not consistent with their costs, including opportunity costs. The IESO has only considered imposing a financial penalty where there was evidence that a participant had intentionally sought to exercise local market power (although to date no such financial penalties have been imposed). Under the amendments, all references to the term "abuse" in the local market power rules will be removed. As well, the IESO's authority to impose a financial penalty for the intentional exercise of local market power will be removed (it being acknowledged that the investigation of abuse of market power is the responsibility of the Market Surveillance Panel, not the IESO). As such, under the amendment the IESO's authority will be limited to solely making CMSC payment adjustment where local market power has been exercised. In addition to clarifying the intent of the local market power rules, the amendments will also more explicitly identify the conditions and criteria necessary for determining whether local market power exists and whether a CMSC adjustment is warranted.

Links: 

IESO Board Decision
Technical Panel Recommendation on Amendment Proposal
Amendment Proposal R00 Request for Stakeholder Review and Comment
Amendment Submission

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Earlier this year, when the Ontario Energy Board (the OEB) considered Hydro One Networks' application for approval of transmission facility upgrades in the Niagara Peninsula, a debate emerged about the basis upon which the Board should evaluate the costs and benefits of transmission infrastructure investments. Subsequently, the OEB commenced a process to develop filing requirements for transmission infrastructure investments, and on October 14, 2005 Board staff issued a discussion paper presenting a potential test for evaluating transmission investments.

Cost/Benefit Analysis

In its discussion paper, Board staff puts forward a cost/benefit analysis framework that would be used to evaluate and rank transmission investment proposals compared to alternatives, in order to ensure that applicants offer "the most efficient transmission upgrade." Such a framework would include the principle of maximizing prospective total benefits over total costs.

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