In a recent decision issued in a relatively minor application by Hydro One Distribution, the Ontario Energy Board (the Board) has clarified the regulatory status of connection cost recovery agreements entered into between electricity generators and the distribution or transmission utilities to whose systems the generators connect, and of the cost estimates supporting those agreements. The Board has found that connecting generators should be able to rely on the connection cost estimates that the host utility is required to provide in support of the connection cost agreements offered, and should not be charged costs for work subsequently identified as required.

In an application brought at the end of June of last year [EB-2010-0229, Decision and Order dated December 20, 2010], Hydro One essentially sought to clarify how it would recover previously unanticipated but material costs for work required to connect and manage the connection of a number of renewable generation facilities. Hydro One's evidence was that the problems caused in certain connection configurations which were now apparent could not have been reasonably foreseen at the time that the connection agreements with the subject generators were entered into. Hydro One sought recovery of the previously unanticipated costs through the regulatory mechanism for socialization of certain green energy connection costs across all electricity ratepayers in the province.

Hydro One indicated that, should the Board not approve recovery of the costs of the required remediation as it had proposed, it would seek to recover the costs from the connecting generators (though this was not Hydro One's preferred outcome). The Association of Power Producers of Ontario (APPrO) had intervened and argued that seeking payment of these late discovered costs from the connecting generators would be contrary to the principles of fairness. APPrO argued that fairness requires that generators be entitled to rely on the detailed connection cost estimates provided to them in support of the connection cost agreements that they are required to sign in order to move their projects forward. All of the generators in issue in this application had already signed connection cost agreements, based on which they had planned and financed their projects. A number of the projects were already connected and operating.

The Board found that Hydro One should undertake the work necessary to address the remediation requirements identified, and directed that the costs be tracked for subsequent consideration. However, the Hearing Panel determined that it would be guided by earlier policy statements by the Board to the effect that socialization of renewable connection costs would be considered only for projects for which connection costs agreements were executed on or after October 21, 2009, the date that the provisions of the Board's DSC which allow for such province wide recovery came into force. The projects that were the subject of this application all executed their connection cost agreements before the effective date of these DSC provisions. The Hearing Panel rejected arguments that socialization of these costs should nonetheless be permitted since the costs themselves were all prospective, and thus post-dated the effective date of the relevant DSC provisions. However, the Hearing Panel also found that charging these additional costs through to the connecting generators after the fact would be unfair.

The Board found that Hydro One should undertake the work necessary to address the connection concerns identified. The Board directed that the costs incurred should be recorded for future consideration. The Decision indicates that material costs which cannot reasonably be absorbed into Hydro One's existing budgets will be considered for recovery from Hydro One's ratepayers. The Board accepted evidence that the remedial measures will benefit Hydro One customers whose electricity service could be compromised by the technical issues arising as a result of the connection of the subject generators.

Hydro One's application also sought exemption from provisions of the DSC which would have required revocation of capacity allocations that had been granted to generators prior to the date on which the generators received transmission level connection cost assessments. The Board found that additional time is necessary to develop complete connection cost estimates in support of the offers to connect these generators, and granted the exemption requested. The finding on this aspect of the application is consistent with the principle earlier described that generators are entitled to complete and reliable connection cost estimates before being required to execute connection cost agreements. The Hearing Panel recommended that the Board review the rules associated with large generator connections, to ensure the overall integrity of the capacity allocation, connection assessment, cost estimating and connection offer process.