Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The capping and reduction of GHG emissions will start officially on January 1, 2013. Starting on January 1, 2013 some 75 operators, primarily in the industrial and electricity sectors, whose annual GHG emissions equal or exceed the annual threshold of 25 kt CO2e (25 thousand tonnes of carbon dioxide equivalent), will be subject to the capping and reduction of their GHG emissions.

Starting on January 1, 2015, the operators of businesses that distribute fuel in Québec or import fuel for their own consumption, and whose annual GHG emissions due to its combustion reach or exceed the annual threshold of 25 kt CO2e, will also be subject to capping and reduction.

The Government of Québec has stated that, unlike traditional regulation, where companies must not exceed an emission standard (a strict limit on the discharge of pollutants), the cap and trade system will give companies flexibility in planning their short, medium and long term investments. In effect, the system will allow companies to buy emission allowances on the market until they are ready to modernize or replace certain equipment. Companies that reduce their GHG emissions below the regulatory requirement would have an allocation of emission units that is higher than what they actually produce. By selling their excess units, such companies could either recover part of their investments or use the proceeds to engage in further optimization.

Links to our previous blogs on this Regulation are available here.

Amendments are also proposed to calculation methods applicable to many other industry sectors in order to harmonize them with WCI requirements introduced in 2010, and a section on the estimation of missing data is added to all calculation methods.

Many articles are modified to clarify the scope of the regulation, applying reporting thresholds by establishment rather than enterprise, except for certain enterprises in the energy sector, which are considered as establishments under the proposed changes.  In addition, the number of years during which the emissions of an establishment must be below the reporting threshold to exempt it from reporting is proposed to be increased from 3 to 4 consecutive years.

Pursuant to the draft regulation, filing of the verification report will be required at the same time as the emissions report, on June 1st, whereas the current regulation allows the verification report to be filed three months after the emissions report, on September 1st. Furthermore, in addition to the current requirement for the verifying organization to be ISO 14065 accredited, the verification will have to comply with an ISO 17011 program.

Before the implementation of the OGAA, the regulatory framework governing oil and gas activities was over 40 years old. Since then, oil and gas activities have expanded, new technologies have developed and expectations relating to stakeholder input and environmental responsibility have evolved. As a result, the OGAA attempts to address these changes by balancing economic goals with environmental and socially responsible development.

The new legal regime consists of the OGAA itself as well several regulations passed under the Act. The Oil and Gas Commission, the regulatory agency that oversees oil and gas operations in British Columbia, is continued under the OGAA. The Commission has expanded compliance and enforcement powers and has the ability to set technical safety and operational standards. The Board of the Commission as well as the Provincial Cabinet has the power to make regulations under the OGAA. The Board has exercised this power to make regulations related to consultation and notification requirements, geophysical activities, drilling and production activities, pipeline and liquefied natural gas facilities, and fees, levies and security. The Provincial Cabinet has introduced the Oil and Gas Activities Act General Regulation and the Environmental Protection and Management Regulation. The Cabinet also amended regulations which fall under other acts, such as the Petroleum and Natural Gas General Regulation.

A key aspect of the OGAA framework is the expanded consultation and notification requirements that set out who must be consulted before an application is submitted to the Commission. These requirements do not replace the established processes for consultation by the Commission with First Nations.

The framework also establishes a new administrative appeal and review process. Specified eligible persons have the ability to request a review of certain administrative decisions under the OGAA. For example, industry participants can request a review or appeal of a Commission decision regarding a permit and private land owners can appeal a decision regarding the issuance or amendment of a permit that covers their land.

The OGAA and the Environmental Protection and Management Regulation implement environmental standards for oil and gas activities. The regulation sets forth the Provincial Government’s environmental objectives for water, riparian values, wildlife and wildlife habitat, old-growth forests, resource features and cultural heritage resources. The Commission is required to consider these objectives when deciding whether to authorize an oil and gas activity.

The framework also gives the Commission expanded compliance and enforcement tools. For example, the Commission can now levy penalties that reflect the gravity and magnitude of a contravention, including consideration of the operator’s compliance history.

The OGAA website contains detailed information about the OGAA framework and provides a variety of training materials for industry participants.
 

This legislative silence has caused uncertainty as to ownership of coalbed methane on freehold lands where mineral title is split between the coal owner and the natural gas rights holder, and where the instruments at issue do not refer expressly to coalbed methane. In some instances, this has resulted in litigation between the coal owner and the natural gas rights holder, with both parties claiming ownership of coalbed methane.

The history of coalbed methane ownership in Alberta originates in late 1800s, when the Crown granted 25 million acres of surface and mineral land to Canadian Pacific Railway (“CPR”). The CPR subsequently sold this land to settlers, but reserved to itself an interest in “all coal”, “all coal and petroleum” or “all coal, petroleum and valuable stone”. Since natural gas was not reserved it was sold with the lands. This has resulted in the split title situation that exists today, where freehold landowners hold natural gas rights and the CPR’s successors and assigns hold the rights to coal.

Because the initial grants and subsequent instruments did not until recently speak to coalbed methane, Bill 26 aims to clarify ownership of coalbed methane in split title situations. By declaring coalbed methane to be and at all times to have been natural gas, Bill 26 provides certainty as to the inclusion of coalbed methane in initial natural gas grants.

Coalbed methane is a natural gas found in coal. Coal seams with coalbed methane potential are found underneath much of Alberta, especially in southern and central Alberta. Notably, a study by the Alberta Geological Survey found that Alberta’s coalbed resource may contain approximately 500 trillion cubic feet (Tcf) of coalbed methane. In contrast, the estimated ultimate potential of marketable conventional natural gas in Alberta is between 205-253 Tcf.

The Bill will come into force on Royal Assent. Depending on the amount of questioning from opposition, this could take anywhere from two weeks to several months.
 

Existing agreements entered into by the natural gas mineral owner, or their lessee, that specifically granted coalbed methane rights to the coal owner, or their lessee, will not be affected. The Bill also protects the Crown, coal owners, or their lessee, and surface owners from being sued by the natural gas owner, or their lessee, for coalbed methane extraction, production or removal prior to the Bill coming into force.

Coal seams with coalbed methane potential are found underneath much of Alberta. Notably, a study by the Alberta Geological Survey found that Alberta’s coalbed resource may contain approximately 500 trillion cubic feet (Tcf) of coalbed methane. In contrast, the estimated ultimate potential of marketable conventional natural gas in Alberta is between 205-253 Tcf.

To take effect, the Bill must receive Royal Assent. Depending on the amount of questioning from opposition, this could take anywhere from a week to several months.

The most significant element of Bill 235 is that it provides for rate regulation of suite metering providers by the Ontario Energy Board. This provision was included in Bill 235 despite the opposition of smart sub-metering providers, who argued before the legislature that the industry is competitive and does not require rate regulation. However, the legislation does provide the government and the Board with the ability to rate regulate some segments of the industry while leaving others subject to competition. It remains to be seen how the government and the Board will exercise that power.

In addition, the provisions of Bill 235 will empower the government to regulate issues such as:

• Specifications for suite meters
• Designating when the installation and use of suite meters is permitted or required
• Creating energy efficiency requirements for units with sub-meters
• Information obligations for suite meter providers and landlords to customers and tenants

Bill 235 will also add significant amendments to the Residential Tenancies Act, 2006, including new rules for landlords that intend to transition their units to suite metering. This includes requirements to obtain a tenant's consent, to provide a rent reduction, and to maintain a rental unit's energy efficiency in terms of insulation and major appliances.

The other major goal of the legislation is to provide greater consumer protection. According to the Minister, the Ontario Energy Board receives on average between 100 and 150 consumer complaints about the practices of gas marketers and electricity retailers every week. The new Energy Consumer Protection Act created by Bill 235 will provide greater protection to energy consumers and enable the Board to "crack-down" on industry practices that violate the new Act.

The Board will also have the power to regulate issues such as the form of contracts and invoices, the availability of information in other languages, contract renewals, extensions and amendments, and enhanced rights for contract cancellation including a 10-day cooling off period. The Board will also be able to make regulations on security deposits and service cancellations.

Finally, the legislation will also empower the Board to make regulations respecting the employees of energy providers. This includes the power to issue directives on employee training, identification requirements such as badges, and background checks on employees. Employees may also be subject to new licensing and insurance requirements.

Canadian industrial emitters face deadline for emissions reporting

The Department of the Environment has given notice that Canadian industrial emitters of GHGs have until June 1, 2010 to report their 2009 GHG emissions. The reporting deadline, which was established by Environment Canada, applies to facilities that emit over 50,000 tons of carbon dioxide equivalent (CO_2e) per year. Environment Minister Jim Prentice has indicated that more detailed regulations will be released prior to the Copenhagen talks.

The Western Climate Initiative releases essential requirements of mandatory reporting

The partners of the Western Climate Initiative (WCI) are comprised of seven U.S. states and four Canadian provinces, namely British Columbia (B.C.), Manitoba, Ontario and Quebec. Other U.S. states and Canadian provinces (Saskatchewan and Nova Scotia) are currently WCI observers.

The WCI has recently released its final version of the first group of Essential Requirements for Mandatory Reporting (ERMR). The ERMR requires owners and operators that are subject to the mandatory reporting requirements to submit annual GHG emission reports by April 1 of each year for emissions in the previous calendar year. The initial reporting requirements will apply to the owner or operator of a facility that emits 10,000 metric tons of CO_2e or more per year in combined emissions, from one or more of the listed source categories, in any calendar year starting in 2010. Accordingly, companies subject to the ERMR that commenced operations prior to 2010 will be required to report their 2010 GHG emissions by April 1, 2011.

Subsequent to the year 2010, the ERMR contemplates that the reporting requirements will also apply to: (1) all importers of electricity (both retail providers and marketers) that import electricity into the WCI region, (2) any supplier that within the WCI region distributes transportation fuels in quantities that when combusted would emit 10,000 metric tons of CO_2e per year or more, in any calendar year starting in 2010, and (3) any supplier that distributes within the WCI region residential, commercial and industrial fuels in quantities that when combusted would emit 10,000 metric tons of CO_2e per year or more, in any calendar year starting in 2010.

The impact of the ERMR regime

In order to comply with the WCI-imposed obligations, the B.C., Manitoba, Ontario and Quebec provincial governments are each moving forward with legislation designed to implement the ERMR regime. For example, the B.C. government has announced its intention to introduce a mandatory GHG-emissions reporting regulation during the fall of 2009. The Ontario government has recently stated that its intention is to harmonize Ontario reporting requirements with those of the WCI (as well as with any U.S. federal trading system). Quebec has passed Bill 42 (An Act to amend the Environment Quality Act and other legislative provisions in relation to climate change), which establishes the reporting of GHG emissions by certain categories of emitters to be determined by regulation.

It should be noted that other Canadian provinces have also moved towards the adoption of legislation that will require companies to report GHG emissions. For example, in 2004, Alberta passed the Specified Gas Reporting Regulation, which continues to require industrial facilities that emit more than 100,000 tons of CO_2e in a calendar year to submit annual emission reports. Additionally, on August 14, 2009, the government of Nova Scotia released the Greenhouse Gas Emission and Air Pollutant Regulation. This regulation requires facilities located in Nova Scotia that emit more than 10,000 metric tons of CO_2e in a calendar year to submit annual emission reports.

Measuring and reporting GHG emissions is a labour-intensive process

In order to comply with the various provincial and/or federal legislation that may apply to them, companies will need to determine whether or not they emit the quantity of GHGs that triggers the various legislative reporting requirements. In order to do so, companies will need to measure their GHG emissions in accordance with the prescribed methods set out in the various legislation applicable to them. Measuring GHG emissions will be labour-intensive and will require that a detailed and mapped-out process be followed. Additionally, while governments have generally recognized the importance of standardized measuring methods (so as to help ensure the fair operation of multi-jurisdictional carbon cap-and-trade programs), there is no certainty that all legislation will contain common measuring techniques.

In the event a company is subject to GHG reporting requirements, the applicable legislation will also set out other obligations that the company will need to spend time considering. Typically, these obligations will include monitoring, record-keeping and retention requirements, as well as data-verification requirements. It can also be expected that GHG legislation will increasingly require emitters to reduce their GHG emissions towards established targets and/or to cover their GHG emissions with prescribed emission allowances, units or credits. 

Canadian reporting issuers and the impact of climate change

As was stated by the Canadian Institute of Chartered Accountants (CICA) in a Management's Discussion and Analysis (MD&A) disclosure guide published in November 2008 (the Guide), investors are increasingly seeking more detailed and nuanced information about how reporting issuers view the impact of climate change, in order to assess its effect on a company's current and future financial conditions, results of operations and cash flows. The CICA noted that the business impact of climate change will require reporting issuers - even those that do not directly produce GHG - to implement strategies, both to adapt to the effects of climate change on the reporting issuer's business and, in other cases, to take action to mitigate the extent of their GHG emissions. The CICA Guide outlines five types of information in MD&A that should address climate-change issues:

Business strategy. MD&A should present investors with an overview of the climate-change factors that the reporting issuer has factored into its business strategy.

Risks. MD&A should describe the risks presented by climate change on the reporting issuer, including physical risks (e.g. changes to weather patterns), regulatory risks (e.g. heightened regulatory oversight and scrutiny), reputational risks (e.g. negative customer perceptions of reporting issuers failing to address climate-change issues), litigation risks (e.g. lawsuits against heavy GHG emitters) and any other material risks.

GHG emissions. To the extent that it is material to evaluating the performance and future prospects of a reporting issuer, a reporting issuer's direct and indirect GHG emissions and related intensity data should be discussed in MD&A.

Financial impacts. The impact of climate change on financial operations, cash flows and the financial condition of the reporting issuer should be discussed in MD&A, along with the future financial implications.

Governance processes. MD&A should describe the governance and organizational processes used by the reporting issuer in identifying and managing climate-change issues.

While Canadian securities regulators have not yet specifically mandated the disclosure of climate-change strategies in a reporting issuer's public disclosure record, the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102), including the requirements applicable to a reporting issuer's MD&A, are sufficiently broad so as to capture such issues.

A reporting issuer's MD&A, for example, is required to discuss the effect of "known trends, demands, commitments, events or uncertainties" on the reporting issuer's "financial condition, results of operations and cash flows." Moreover, a reporting issuer's annual information form (AIF) is required to disclose such things as the "financial and operational effects of environmental protection requirements" on its financial position, including capital expenditures. An AIF is also required to detail risk factors, such as environmental risks, and "regulatory constraints.and any other matter that would be most likely to influence an investor's decision to purchase" the securities of the reporting issuer. As climate-change concerns continue to escalate and, as a result, increasingly stringent legislation is enacted , regulatory authorities may in the future require Canadian reporting issuers to provide more prominent and expansive disclosure with respect to the impact that climate change will have on their business.

In February 2008, the Ontario Securities Commission (OSC) issued Staff Notice 51-716 - Environmental Reporting, outlining the results of a targeted review by OSC staff of the degree to which Canadian reporting issuers were adequately disclosing information about so-called "environmental matters" in their annual financial statements, MD&A and AIFs. The OSC's written findings suggest that, at the time, the disclosure of certain Canadian reporting issuers with respect to potentially material environmental matters was inadequate and, in certain instances, consisted of insufficient, boilerplate disclosure.

Staff Notice 51-716 should continue to serve as a signal to Canadian reporting issuers that, regardless of whether or not they are subject to specific GHG-emission or other environmental reporting requirements, it is necessary for them to seriously consider the effect of environmental matters and climate change on their business and to ensure that such matters are adequately disclosed to investors. 

The stated purpose of the discussion paper entitled Staff Discussion on the Regulatory Treatment of Infrastructure Investment for Ontario's Electricity Transmitters and Distributors (Discussion Paper) is to fulfill the objectives of the GEGEA by incentivizing investment in distribution and infrastructure while ensuring that the interests of ratepayers continue to be protected. The Discussion Paper draws heavily on FERC's Rule 679, Promoting Transmission Investment through Pricing Reform, by identifying a range of mechanisms for alternative cost treatment of infrastructure investment, some or all of which could be applied in the context of a cost of service review, a multi-year rate adjustment mechanism or a specific rate application (or in the course of approving distributors' or transmitters' infrastructure investment plans as mandated by the GEGEA). The alternative mechanisms for cost recovery identified in the Discussion Paper include recovery of costs for abandoned facilities, accelerated cost recovery, the inclusion of construction work in progress (CWIP) in rate base, accelerating depreciation and providing for incentive-based ROE.

Similarly, in accordance with FERC's view, OEB staff suggest that beyond identifying certain investments that would be presumed to qualify for alternative cost treatment, it is not appropriate to be more prescriptive. Staff suggest that establishing more prescriptive criteria would limit flexibility by pre-judging which projects are eligible for alternative treatment and limiting the ability of applicants to request a combination of alternative cost mechanisms. Accordingly, staff suggest that the Board "should exercise its discretion to allow alternative treatment on a case-by-case basis for appropriate infrastructure investments by electricity transmitters and distributors in a manner that facilitates the achievement of the Government's policy objectives as reflected in the GEGEA while protecting the interests of ratepayers".

OEB staff have outlined 26 issues for written comment. These issues include the appropriateness of the foregoing alternative cost mechanisms and whether the OEB should be more prescriptive as to which types of investments qualify for alternative treatment and which do not. Staff have asked that written comments be filed by July 7, 2009 and have outlined the framework for cost award eligibility.

Feed-in tariffs

Arguably the most fundamental element of the GEA is that it paves the way for North America's first feed-in tariff program (FIT) which aims to simplify current procurement methods and provide incentives for investments in renewable energy technologies through standardized prices and long term contracts. FITs will replace the Ontario Power Authority's current request for proposal process and standard offer program.  On March 13, 2009, the Ontario Power Authority released draft FIT rules and a draft FIT price schedule.   It is anticipated that the Ontario Power Authority will finalize its FIT program this summer with the passage of the GEA.

Project approval streamlining

The approvals process for renewable energy projects will be streamlined through a one-window, one-permit process with province-wide standards. The GEA also creates a Renewable Energy Facilitation Office within the Ministry of Energy for the purposes of facilitating the development of renewable energy projects, including working with proponents of renewable energy projects and other ministries to shepherd projects through the various approvals processes and through engagement with local communities.   

Transmission and distribution

The GEA requires transmitters and distributors to connect renewable energy generation facilities provided that certain requirements are met. The GEA further empowers the Minister to direct the Ontario Energy Board  to take such steps, including through license amendments, to require transmitters, distributors and others to reinforce, enhance or expand their transmission, distribution or other systems to accommodate the connection of renewable energy generation facilities.

Conservation

The GEA will help promote a culture of energy conservation in Ontario by setting energy conservation targets for consumers and distributors and encouraging the development of small-scale renewable energy projects.

Smart grid

The GEA expands the Ontario Energy Board's objects to include the facilitation of the implementation of a "smart grid" in Ontario. In addition, every licence issued to a transmitter or distributor under the Ontario Energy Board Act will be required to prepare plans, in the manner and at the times mandated by the OEB, for approval for the development and implementation of the "smart grid" in relation to the licensee's transmission or distribution system. A licensee will be required in connection with any approved plans to make investments for the development of the "smart grid" in relation to the licensee's transmission or distribution system. 

The GEA provides the framework for a green energy renaissance in Ontario. The bulk of the detail regarding the implementation of that framework will only be known once draft regulations are released.  Current expectations are that such regulations will be released later this summer.

In developing Bill 185, the Government has consulted with environmental groups, as well as with nine industrial sectors expected to be involved in cap-and-trade that collectively represent approximately 40% of Ontario's total 2007 emissions¹. While the Bill sketches the broad outlines of the province's commitment to cap-and-trade as a strategy in the fight against climate change, much of the detail of the province's plan is still to be worked out in forthcoming regulations. To this end, the Government has produced a discussion paper that presents design issues and options for the key elements of a cap-and-trade system. It is seeking stakeholder comments to be used in the development of the proposed regulations. The discussion paper has been posted on the Environmental Registry for a 60-day public comment period ending July 26, 2009.

Key elements of Bill 185

Ontario's Environmental Protection Act (EPA) provides the Government with broad authority to implement emissions trading systems for contaminants (authority that has previously been used to establish cap-and-trade programs for nitrogen oxides and sulphur dioxide). In providing for the development of a GHG cap-and-trade system, Bill 185 deals with a number of key issues, including:

• Greenhouse gases: the Bill adds a definition of GHGs to the EPA, adding within its purview of contaminants gases including carbon dioxide, methane, and nitrous oxide.
• Market-based approaches: the Bill sets forth regulation-making powers with respect to establishing the scope of a cap-and-trade system, the persons and facilities to which such system would apply as well as monitoring and reporting requirements.
• Allowances and credits: the Bill includes regulation-making power with respect to the establishment of allowances and offset credits and well as the distribution, use, trading and retirement of such credits.
• Regional linkages: the Bill explicitly contemplates integration with other cap-and-trade systems, and further notes in its preamble that such linkages can provide emissions reductions at a lower cost, while improving the pace of innovation and allowing for larger trading volumes and improved liquidity. Significant action on this front has already been taken. In June 2008, the Governments of Ontario and Quebec signed a Memorandum of Understanding to collaborate on a GHG cap-and-trade initiative, while in July 2008, Ontario joined the Western Climate Initiative (WCI), a multi-sector trading program which includes British Columbia, Quebec and Manitoba and seven U.S. states. As noted below, it is also possible that Ontario would link to a future North America-wide trading system if and when such a system is developed.

Next steps

Bill 185 leaves numerous regulatory details to be determined, including whether allowances will be auctioned, sold or distributed free of charge, as well as the exact nature of the emission caps and to whom the legislation would apply. As noted above, the province has posted a discussion paper which incorporates feedback received from stakeholders to date, and is seeking further public comment until July 26, 2009 as it develops proposed regulations.

Ontario would be the third province to adopt a GHG cap-and-trade system, after British Columbia and Quebec. On May 12, 2009, Quebec introduced Bill 42 to create a cap-and-trade system in the province. Ontario Premier McGuinty recently commented that Ontario and Quebec have a responsibility to "put in place a carbon-exchange register" that will "serve as kind of a pilot project" in other jurisdictions. The manner in which these two jurisdictions plan to harmonize their approaches is something else to look out for in the coming months.

Finally, the province anticipates that a North American cap-and-trade plan could be in place as early as 2012 - another development that will undoubtedly be the subject of future updates.

When adopted, Bill 42 will establish:

• the reporting of GHG emissions by certain categories of emitters determined by regulation, so that an inventory of GHG emissions may be taken and updated;
• the ability of the Québec Government to set by order GHG reduction targets using 1990 GHG emissions as the baseline. It is currently expected that reduction targets will be phased in from 2012 to 2015 for certain electricity-producing companies and other major industries that emit more than 25,000 tonnes of GHG a year, and after 2015 for other emitters;
• requirements for certain categories of emitters determined by regulation to cover their GHG emissions with an equivalent number of emission allowances, including emissions units, offset credits, early reduction credits and other specified emission allowances;
• a cap-and-trade system to assist emitters to achieve the GHG reduction targets and to mitigate the cost of reducing or limiting GHG emissions. It is expected that the cap-and-trade system will allow persons and municipalities to trade emission allowances;
• the ability of Québec's Minister of Sustainable Development, Environment and Parks to enter into agreements with foreign governments, international organizations and agencies for the harmonization and integration of cap-and-trade systems;
• that all funds collected by the Government under the legislation will be used to finance GHG reduction, limitation or avoidance measures, the mitigation of the economic and social impact of emission reduction efforts, public awareness campaigns and adaptation to global warming and climate change, or to finance the development of and Québec's participation in related regional and international partnerships.

It is currently expected that Bill 42 will be adopted by the end of June and that the first set of regulations under the legislation will be implemented in Fall 2009. It is also expected that emission credits will be traded on the Montreal Climate Exchange (MCex) that was launched last year.

The genesis of many of these changes is based on European initiatives, some of which were initiated 15 to 20 years ago in countries such as Germany, Denmark and Spain.  The Ontario government has expressed a willingness to learn from these initiatives in order to develop a "made-in Ontario" renewable energy economy.  While the proposed GEA is short on detail, which may be frustrating for some, there is no doubt that the essential principles of the government's position are firmly in place. This principled commitment of the McGuinty government is reflected in the manner in which this legislation has been presented.  The government retains a strong central role in being able to issue directives, set priorities and regulate as necessary, in order to ensure that conservation and renewable energy retain the highest priority in Ontario.  It is clear that this initiative is critical to this government and the impact of the proposed legislation is intended to bring about change quickly and throughout a wide range of sectors and consumers.

The stated objectives of a number of the affected statutes are to be modified to ensure that all discretionary decision-making not otherwise directed by the government takes into account this new government priority.  With the framework clearly outlined, with details to follow, there is now a sense of urgency that is being placed upon the OPA, the IESO, the OEB, the transmitters and distributors and other stakeholders within Ontario to act quickly to take steps that will bring real change and results.  There are enough hints in the speeches, leading up to the introduction of the proposed legislation, such as the Minister's announcement at the Board of Trade in front of 750 people on Friday morning, that the government understands the practical side of implementing this major new policy initiative. Some key provisions of the proposed legislation include:

Conservation

• Individual Consumers.  The GEA would encourage energy conservation by individual consumers through real property energy audits and appliance and product efficiency requirements.  The GEA includes a broad requirement that sellers or lessors of real property must provide information regarding energy consumption and efficiency in respect of the real property to buyers or lessees.  The GEA would also require that prescribed appliances and products meet energy efficiency standards.  While the regulations defining such standards have not yet been released, the Minister has indicated that the government will continue to support EnergyStar ratings.
   
• Industrial Consumers. The Minister has clearly indicated that conservation must occur on every level of energy consumption.  The proposed GEA does not speak directly to specific emission or energy consumption reductions, but does amend the Ontario Energy Board Act to require that the OEB assess consumers, gas distributors, licensed distributors, the IESO and any other person prescribed by regulation, an amount, as prescribed by regulation, incurred by the Ministry in respect of its energy conservation programs.  The extent of these potential assessments remains unclear until further defined in the regulations.

Feed-in tariff

• A key component of the proposed GEA is the government's renewed and expanded commitment to feed-in tariffs.  Ontario experimented with feed-in tariffs in the last couple of years through the OPA's Renewable Energy Standard Offer Program (RESOP), which was originally directed by the Ministry.  However, issues with implementation, particularly from a transmission and distribution perspective, caused the RESOP to be put on hold in May 2008.
   
• A feed-in tariff will be viewed by many as a positive response to the strong demand from the renewable energy sector.  Proponents of renewable energy had been advocating that a long-term feed in tariff was the best way to ensure a strong renewable energy sector for Ontario.

• Recent remarks by the Minister acknowledge the need for certainty for a long term commitment at "fair price" to ensure that feed-in tariffs will work.  We anticipate pricing, timing and the rules relating to the feed-in tariff will be actively developed, with opportunity for public comment, by the OPA in the coming months.

Transmission and distribution expansion

• The GEA vests substantial powers in the Minister to mandate transmission and distribution reinforcements to integrate renewable energy resources and to require transmitters and distributors to give preferential or priority access to renewable energy projects.
   
• The GEA requires the OPA and the IESO to provide information about the transmission and distribution systems' ability to accommodate renewable energy generation and mandates the IESO to complete connection assessments within prescribed periods of time.
   
• The GEA requires transmitters and distributors to connect renewable energy generation facilities provided that certain requirements are met.   The GEA further empowers the Minister to direct the OEB to take such steps, including through licence amendments, to require transmitters, distributors and others to reinforce, enhance or expand their transmission, distribution or other systems to accommodate the connection of renewable energy generation facilities.

Project approval streamlining

• The Minister promised in recent speeches that the GEA would streamline cumbersome approval processes and would coordinate approvals from the Ministries of Environment and Natural Resources through a one-window, one-permit process and that it would aim to issue permits within a six-month service window.  The Environmental Protection Act will likely provide the platform for this process, although additional reforms will come through further regulations and directives.
   
• The GEA would create a Renewable Energy Facilitation Office within the Ministry of Energy for the purposes of facilitating the development of renewable energy projects, including working with proponents of renewable energy projects and other ministries to shepherd projects through the various approvals processes and through engagement with local communities. 
   
• The GEA amends the Environmental Protection Act to provide that persons engaging in renewable energy projects shall be exempted from specified approval and permitting requirements including certificate of air and certificate of waste approvals. The GEA also amends the Planning Act to exempt renewable energy generation facilities and renewable energy projects from demolition control by-laws, zoning by-laws and other related by-laws and development permit regulations.
   
• The GEA does not specifically reference the Environmental Assessment Act.  However, based on Minister Smitherman's promise of an expedited six month process, it is anticipated that, as in the case of recent regulations regarding transit project approvals for the Greater Toronto Area, regulations may be introduced exempting certain projects # e.g. transmission reinforcements to facilitate the integration of green energy sources # from individual or class environmental assessments. 

Participation by aboriginal peoples

• In connection with the procurement of up to 2,000 MW of Renewable Energy Supply, then Ontario Minister of Energy Dwight Duncan emphasized the importance of early consultation of First Nations and Métis peoples in the planning and development stages for new renewable energy projects. The Ontario Power Authority was directed by the Minister to develop processes and guidelines in connection with that renewable energy procurement to ensure appropriate consultation with First Nations and Métis peoples.  The GEA's proposed amendments to the Electricity Act build on this theme. 
   
• The GEA would amend the Electricity Act to permit the Minister to direct the Ontario Power Authority to establish measures to facilitate the participation of aboriginal peoples in the development and implementation of renewable energy generation facilities and transmission and distribution systems.  The amendment presumably seeks to address the perceived obstacles to obtaining meaningful participation by aboriginal peoples in renewable energy procurement.

OEB mandate

• The GEA would expand the OEB's mandate to include the promotion of conservation, the facilitation of the implementation of a smart grid and the promotion of the use and generation of electricity from renewable energy sources. 
   
• The GEA would also expand the OEB's rate-making powers beyond transmission, distribution and retailing to other "prescribed activities".  As well, the GEA requires that for leave-to-construct applications, the OEB, in addition to considering the interest of consumers with respect to prices and the reliability and quality of electricity service, consider "the promotion of the use of renewable energy sources". 
   
• The GEA would vest significant powers in the government to promote its green energy policies through the OEB.  Specifically, the GEA would authorize the Minister to issue directives to the OEB to establish conservation and demand management targets to be met by distributors and other licensees, including through licence conditions or, in the case of conservation targets applicable to distributors, through contracting with the OPA.
   
• The GEA would authorize the Minister to issues directives to the OEB requiring the OEB to take steps relating to the establishment, implementation and promotion of a smart grid.  Further, the GEA provides that the Minister may direct the OEB to amend licence conditions of distributors, transmitters and other licensees to enhance or reinforce their transmission, distribution or other associated systems to accommodate the connection of renewable energy generation facilities within prescribed period of time.

Procurement

• The GEA would amend the Electricity Act to give the Minister the authority to issue directions to the OPA to undertake a request for proposal, any other form of procurement solicitation or any other initiative that relates to the procurement of electricity supply and capacity, including supply and capacity from renewable energy sources, reductions in electricity demand or measures related to conservation or the management of electricity demand.

Electricity generation and distribution by municipalities

• Through amendments to the Electricity Act, the GEA would permit municipalities to directly own renewable energy generation facilities (up to 10 MW) rather than through a corporation incorporated under a business corporations statute.

Smart grid

• The GEA would amend the Electricity Act to permit the Lieutenant Governor in Council to make regulations setting a timeframe for the development of a "smart grid" in Ontario, including assigning roles and responsibilities for its implementation and standardization.
   
• A "smart grid" would be defined in the Electricity Act as, in part, "the advanced information exchange systems and equipment that when utilized together improve the flexibility, security, reliability, efficiency and safety of the integrated power system and distribution system" for the purposes of (a) enabling the increased use of renewable energy sources and technology, (b) expanding opportunities to provide demand response, price information and load control, and (c) accommodating the use of emerging, innovative and energy-saving technologies and system control applications.
   
• The GEA would expand the OEB's jurisdiction to include the facilitation of the implementation of a "smart grid" in Ontario.  In addition, every licence issued to a transmitter or distributor under the Ontario Energy Board Act will be required to prepare plans, in the manner and at the times mandated by the OEB, for approval for the development and implementation of the "smart grid" in relation to the licensee's transmission or distribution system.  A licensee will be required in connection with any approved plans to make investments for the development of the "smart grid" in relation to the licensee's transmission or distribution system.

Pricing

• In connection with the feed-in tariff program, the GEA would amend the Electricity Act to provide standard pricing for classes of generation facilities differentiated by energy source.  Pricing is to be guaranteed for the life of the project.
   
• The GEA would expand the powers of the Ministry of Energy and Infrastructure over pricing through amendments to the Electricity Act and the Ministry of Energy Act, allowing the Minister to issue directives specifying energy pricing.

The proposed GEA provides a principled framework within which further regulations will bring about significant changes to both the generation of and the conservation of energy.  The McGuinty government has indicated that this initiative is essential to the development of Ontario's economy and will be swiftly carried through to practice. As the regulatory aspect of the GEA is developed, watch for draft initiatives and opportunities for public comment. The regulatory component to the GEA will be critical in ensuring that the new energy sector is workable, effective, and affordable.

Green infrastructure

The budget contains a pledge by the federal government to provide $1 billion over five years to support a Green Infrastructure Fund.  The Green Infrastructure Fund will be used by the government to support green infrastructure projects on a cost-shared basis.  The budget states that green infrastructure includes infrastructure that supports a focus on the creation of sustainable energy - infrastructure such as modern energy transmission lines and other projects that will contribute to lower carbon emissions.

Clean energy fund

Noting Canada's commitment to reduce greenhouse gas emissions by 20 percent by 2020, the budget lays out the government's objective to support clean energy research and the development of clean energy technologies.  The budget contains a commitment of $150 million over five years to be used for clean energy research initiatives, and a commitment of $850 million over five years for the development and demonstration of "promising technologies", including large-scale carbon capture and storage projects.  The government predicts that through this support over the next five years, a total investment of at least $2.5 billion will be generated in clean energy technologies.

Capital cost allowance for carbon capture and storage

Since 2006, the government has been a significant proponent of the development of carbon capture and storage technologies. The budget notes that $375 million has already been provided to support the development of these technologies, including $250 million in the Budget 2008 for a commercial demonstration of the technology in Saskatchewan and research in Nova Scotia. The remaining $125 million is available for carbon capture and storage projects under the ecoENERGY Technology Initiative of Natural Resources Canada.

The budget contains a pledge by the government to consult with carbon capture and storage stakeholders to identify specific assets used in carbon capture and storage technology with a view to providing accelerated capital cost allowance in respect of such investments.  Such accelerated capital cost allowance advances the timing of capital cost deductions for tax purposes thereby deferring taxation and improving the financial return from investment in an asset.

Energy efficient homes

On an individual level, the budget contains measures designed to promote energy efficiency and conservation through a retrofit program intended to provide home and property owners with grants of up to $5,000 to offset the costs of making energy-efficiency improvements. The budget states that grants will apply to a variety of measures that reduce energy consumption, from increasing insulation to upgrading a furnace.  The budget pledges $300 million over two years to this program to support an estimated 200,000 home retrofits.