On May 14, 2009, the Ontario Energy Board (the “OEB”) released a Notice of Proposal to amend the Distribution System Code (the “DSC”). This proposal seeks to address the need to connect viable distributed generation projects (and in particular, renewable generation projects) to distribution systems in a timely manner, and to ensure that generation projects that are not likely to proceed do not impede the allocation of capacity to more viable projects. In particular, the amendments are meant to address the current backlog of generation projects awaiting connection to a generation system, and to accommodate what is expected to be a significant increase in renewable energy projects through the Ontario Power Authority’s (the “OPA’s”) Feed-in-Tariff (“FIT”), a key element of the recently enacted Green Energy and Green Economy Act, 2009 (Bill 150).

Current Problems

Amendments to the DSC in October 2006 included new distributed generation connection process requirements designed to facilitate the implementation of the OPA’s Renewable Energy Standard Offer Program (“RESOP”). This included the introduction of a first come, first served queuing process for capacity on the distribution system. The OEB notes that the RESOP has generated tremendous interest in the connection of renewable generation to local distribution systems, and in particular, in the rural distribution system owned and operated by Hydro One Networks Inc. (“Hydro One”). Based on its monitoring of the effectiveness of the current connection process, the OEB has concluded that the process can be enhanced and made more effective by addressing the following issues:

  • Lack of capacity: Connection Impact Assessment (“CIA”) applications have been made in locations where capacity is not presently available for new connections, allowing applicants to hold rights to future capacity long before it will reasonably develop.
  • Lack of information: Under the current DSC, distributors are not required to provide information about connection capacity to prospective generators, information which the OEB believes is vital to the latter’s ability to assess project feasibility.
  • Lack of need: Where capacity to connect is available, generators can obtain a capacity allocation without having to demonstrate a real need for that capacity.
  • Non-feasible projects: The OEB feels that there are some projects which have received capacity allocation but are not moving forward, thus preventing other viable projects from connecting in these areas.

The New Capacity Allocation System

One of the most significant proposed changes is the elimination of the first come, first served queue system and its replacement with a capacity allocation system. In a speech delivered to Guelph Hydro on May 22, 2009, OEB Vice-Chair Pamela Nowina suggested that an overhaul of the queue system is necessary due to proliferating waiting lists (thus impeding timely allocation) and a cost structure which will not facilitate the necessary investment in renewable generation required by Bill 150. The DSC will be amended to require applicants to have a “capacity allocation” to proceed with the connection process, effectively eliminating the queue. The amendments would set out requirements for the capacity allocation system, including the following application prerequisites:

  • Completion of a CIA;
  • Demonstrated current capacity to connect;
  • Availability to connect within 3 years from date of CIA completion and capacity allocation or in accordance with the timelines in an OPA contract; and
  • Demonstrated site control for the proposed project.

Capacity allocation will be removed if:

  • the Connection Cost Agreement (“CCA”) is not signed within 6 months of capacity being allocated (reduction from the current provision of 12 months);
  • a new CIA is prepared that materially differs from the initial CIA;
  • the deposits required under Section 6.2.18 of the DSC have not been paid in accordance with the rules;
  • the applicant defaults on an executed OPA contract; or
  • the applicant defaults on an executed CCA without correcting the default within 30 days.

If an applicant’s allocation is removed due to any of the scenarios described above, any security deposits paid by the applicant are forfeited to the distributor.

Requirement for Information from Distributor

Section 6.2.3 of the DSC will be amended to require distributors to provide an information package to any person who requests it. The package will contain information necessary to assess project feasibility, including the process for connecting to the distributor’s system, and information regarding the necessary approvals from the Electrical Safety Authority, the IESO, the OEB or other bodies. Section provides a list of further information provision requirements for distributors where project proponents request a meeting regarding potential connection to that distributor’s system.

Distributor Assessment Responsibilities

In addition to other assessment requirements, a new Section 6.2.14A would require distributors that have completed a CIA and allocated capacity to a proposed embedded generation facility to notify other transmitters or distributors connected to the same feeder or substation with respect to: the proposed in-service date, the rated capacity and the type of technology being allocated to the feeder or substation. These requirements must be met within 10 days of the distributor issuing its assessment as well as on an on-going basis whenever there are any changes in project status.

Technical Requirements for Applicants

Section 6.2.11 requires applicants to provide all necessary technical information required by the distributor to complete its CIA. This would include confirmation of meeting new requirements such as evidence of site control and an in-service date no later than three years after the completion of the CIA or in accordance with the requirements of an executed OPA contract. A new Section 6.2.18g will include a requirement in the CCA that applicants complete their engineering design and provide detailed electrical drawings to the distributor at least 6 months prior to a project’s specified in-service date.

Connection Cost Deposit and Capacity Allocation Deposit

In order to ensure that projects move forward in a timely manner following capacity allocation, the OEB is proposing two mandatory security deposits that must be paid by applicants at the time the CCA is executed. Detailed provisions on these cost arrangements are contained in proposed amendments to Section 6.2.18 – this section will also set out certain other requirements for the CCA.

The Connection Cost Deposit will be equal to 100% of the estimated total allocated connection cost and is meant to compensate distributors for the costs they incur for connecting the applicant’s project to the distribution system. The Capacity Allocation Deposit is a measure of the capacity being reserved and will be $20,000 per megawatt of capacity for the proposed project. However, if the project does not go into service within 15 months of the capacity allocation being granted an Additional Capacity Allocation Deposit of $20,000 per megawatt of capacity will be required. The capacity allocation deposits are fully refundable to the applicant upon project connection in accordance with its CCA.

Since the Connection Cost Deposit is a measure of the costs of connection, any portion not used in connecting the project will be refundable to the applicant. Likewise, if the applicant’s project is not ultimately connected to the system, it is refundable minus any costs incurred by the distributor for any work completed in respect of the applicant’s project. Conversely, both the Capacity Allocation Deposit and the Additional Capacity Allocation Deposit are forfeited by the applicant if the project is not connected to the distribution system.

For projects that are OPA contracts (such as FIT contracts) the amount of the Capacity Allocation Deposit and the Additional Capacity Allocation Deposit would be reduced to account for similar security deposits required by the OPA in order to avoid duplication.

Transition Procedures

Any existing applications where capacity is not currently available will be impermissible and effectively terminated under the new DSC. Where a CIA application has been made but not yet completed, these applications will be amended to conform to the new DSC requirements.

For CIA applications that have been completed where a CCA has actually been executed with a distributor (including RESOP contracts), project proponents will be required to pay the two security deposits described above within the specified time or have their allocation removed. A more complicated scenario is where a CIA application has been completed but a CCA has not yet been executed, including projects that have not reached the 12 month queue time limit or which have been on the queue longer than 12 months but have been hampered by the delay between the termination of RESOP and the issuance of new FIT contracts. In these cases, the CCA must be executed in accordance with the dates in 6.2.18C and applicants would have to pay the security deposits mentioned above within the appropriate timeline.

For proponents with new applications (after March 13, 2009) that are not seeking a FIT contract, their CIA must conform to the new DSC if made after its adoption and will be amended in accordance with the new DSC if made before its adoption. New applications seeking FIT contracts will be treated somewhat differently since under the OPA’s proposed FIT rules projects seeking a FIT contract must obtain their FIT contract before they can seek a CIA with the OEB. Once the FIT contract is obtained, project proponents can then make CIA applications which must conform to the new DSC.

What’s Next

Interested parties have until June 10, 2009 to comment on the OEB’s proposed amendments. The OEB will not be making cost awards in this matter. The amendments are proposed to come into force on the date the final amendments are published on the OEB website, a date the OEB anticipates will be prior to the OPA issuing FIT contracts. Consequently, project proponents seeking to make new CIA applications with FIT contracts will have to wait for the OPA to adopt its new FIT contract rules before making their CIA applications, whereas proponents of non-FIT projects will be able to get an earlier start.