Minister’s directive

To: The Independent Electricity System Operator

I, Todd Smith, Minister of Energy (“Minister”), hereby direct the Independent Electricity System Operator (“IESO”) pursuant to section 25.32 of the Electricity Act, 1998 (the “Act”) in regards to procurement of electricity services that are capable of providing enhanced demand management to the system, to ensure the reliable operation of Ontario’s electricity system while also providing innovative pricing options to consumers in recognition of these services, and require the IESO, pursuant to section 25.4 of the Act, to report back on certain questions respecting electricity as set out in this Directive, as follows:

Background

In Spring 2019, the Ministry of Energy (ENERGY) held a stakeholder consultation on industrial prices in response to stakeholder concerns and received considerable feedback from stakeholders in all sectors of the economy. Among the concerns most noted by stakeholders was that consumers found it challenging and costly to curtail frequently to achieve benefits under the Industrial Conservation Initiative (ICI) provisions of Ontario Regulation 429/04 made under the Electricity Act, 1998 (the “Global Adjustment Regulation”).

In responding to these concerns, the government worked with the IESO to investigate the feasibility of implementing an interruptible rate as a pricing option that could be offered in the future.

An interruptible rate pilot (IRP) would be designed to provide consumers with reduced electricity rates in exchange for agreeing to temporarily reduce demand, as directed by IESO. A program offering such rates would have the potential to provide significant benefits to the electricity system by enhancing demand management capabilities of IESO to respond to reliability and operability challenges.

In Winter 2021 and Spring 2022, ENERGY held stakeholder engagements where it proposed to facilitate an IRP. The consultation held in Spring 2022 was intended to explore interest in the IRP as an option to promote growth in the hydrogen sector. The feedback received from stakeholders at the two engagements was positive, with support for the IRP conveyed by a diverse group of consumers.

In my letter of August 29, 2022, I asked the IESO to work with ENERGY to design and report back on a potential three-year IRP, with the objective of exploring the potential of offering an enduring program providing interruptible rates. As outlined in my letter, the design of the potential pilot is to adhere to specific principles to ensure that it is administered fairly and can provide a system benefit through enhanced demand management.

The IRP would follow the government’s past practice of using pilots to explore pricing options that could be developed into permanent programs. The success of the OEB’s rate pilots for Regulated Price Plan (RPP) customers led to the introduction of the Ultra- Low Overnight Electricity Rate, which would be available to eligible consumers as early as May 1, 2023. Similarly, the government expects that the new rate pilots for Class B consumers that are not charged under the RPP will provide valuable learnings for a potential permanent program.

In support of the IRP, the IESO held a stakeholder consultation in Fall 2022 to receive feedback on pilot design options. The consultation included information sessions on pilot design elements, as well as a focused session on pricing. The IESO noted that developers of hydrogen projects expressed interest in the IRP, with several requesting a defined program stream that offered long-term contracts.

While in the pilot, participants would continue to be charged Global Adjustment costs as set out under the Global Adjustment Regulation, and IESO would administer a price adjustment to ensure that participants are charged the rate agreed upon under contract based on their performance in the pilot.

Directive

Therefore, pursuant to my authority under sections 25.32 and 25.4 of the Act, I hereby direct the IESO as follows:

  1. The IESO shall design and administer an “Interruptible Rate Pilot” (Pilot) to explore opportunities to enhance demand management on the electricity system with the potential to reduce the cost of electricity service for all consumers.
  2. The Pilot shall commence on July 1, 2023, and conclude on June 30, 2026 (the “Pilot Term”), and procure up to a total of 200 megawatts of interruptible demand from no more than 15 distinct facilities through a competitive application process.
  3. Despite paragraph 2, the IESO may procure additional interruptible demand under the Pilot if, at the time the final facility is selected for the Pilot, the total amount of interruptible demand procured under the Pilot is less than 200 megawatts. However, the IESO shall only procure the additional amount of interruptible demand necessary to achieve as close to the 200 megawatt threshold as is practicable.
  4. The IESO shall put in place a process to facilitate changes in participating loads’ demand throughout the Pilot Term. At no time shall the total amount of interruptible demand under the Pilot exceed 300 megawatts.
  5. In designing and administering the Pilot, the IESO shall ensure that the following eligibility requirements are met:
    1. The Pilot should be limited to market participants that have one or more registered load facilities in the Province of Ontario.
    2. The facilities must have been connected to the transmission or distribution system as of May 1, 2022.
    3. The amount of interruptible demand procured from each facility shall not exceed 50 megawatts.
    4. The Pilot should be limited to facilities that have an average monthly peak demand of at least 1 megawatt, over a specified period of up to 12 months as determined by the IESO, prior to the start of the Pilot.
    5. The Pilot should be limited to facilities that can provide an interruptible demand that is greater than or equal to 25 percent of their average monthly peak demand as set out in subparagraph 5.d. above.
    6. Each facility must participate with the entirety of its peak demand (i.e., no ‘partial participation’ is permitted).
    7. Other than in respect of a participation agreement required under the IESO market rules, participants that are party to any existing contract or obligation for energy, capacity, demand response or ancillary services with the IESO, a transmitter or a distributor may not participate in the Pilot, unless such existing contract will expire or is terminated prior to the participant’s first year of participation in the Pilot, or as otherwise consented to by the IESO in writing in its discretion.
    8. Facilities should not be the subject of a capacity obligation in the IESO’s capacity auction during the period of time the facility is participating in the Pilot.
  6. Participants may begin participating in the Pilot on July 1 of each calendar year of the Pilot Term. Participants may opt to exit the Pilot annually by notifying the IESO in writing in accordance with the terms of the contract.
  7. In respect of (a) Pilot participants that would normally qualify as, and be charged Global Adjustment as, a Class A market participant under the Global Adjustment Regulation and that have a lower peak demand factor as measured in the last applicable base period prior to entry into the Pilot than the peak demand factor calculated under that Regulation for the adjustment period after exiting the Pilot, and (b) Pilot participants that have non-performance adjustments or incentives owing, contract settlement may continue through June 30 of the following year. Over that period, contract settlements should ensure that Pilot participants described in (a) would be effectively charged Global Adjustment based on their peak demand factor as measured in the last applicable base period prior to their entry into the Pilot.
  8. The interruptible rate charged to participants in the Pilot shall be in addition to all electricity related charges payable under the market rules or under applicable law including the wholesale electricity price and should be designed to recover more costs, on average, than the Global Adjustment charged under the ICI. The charge shall comprise:
    1. A demand charge that would align with the Global Adjustment value under the ICI provisions of the Global Adjustment Regulation that would have been allocated for the contracted demand for each respective month; and,
    2. A fixed rate charge based on the value as bid by the participant, pursuant to a minimum normalized price bid of $500 per megawatt of average monthly peak demand.
  9. The IESO shall enter into procurement contracts with successful applicants of the Pilot, following an assessment of applications that follows a process that is fair and transparent and that prioritizes applicants based on the following criteria:
    1. The fixed price bid of the applicant.
    2. The applicant’s ability to opt in to short-notice events.
    3. The quality of the applicant’s load reduction plan.
    4. The location and sector of the applicant, where the facilities with the highest fixed price bid in distinct electrical zonal locations and sectors (based on NAICS code to three digits) are prioritized.
  10. Procurement contracts issued in respect of the Pilot will include the following key features:
    1. The contract will have objective performance requirements related to the interruptible demand if the IESO determines that an interruption event has occurred. The participant will be subject to a non-performance adjustment or incentive for under and over performance, respectively.
    2. Any one facility participating in the Pilot is required to provide a maximum of 60 hours of interruptions, when directed by the IESO, over a maximum of 15 events in each 12-month period commencing on July 1.
  11. The IESO shall provide the Ministry of Energy with any information or data it may require, including but not limited to that related to the evaluation of applications, participant non-performance adjustments or incentives and other outcomes of the Pilot, such as electricity consumption of the participants in the Pilot. The IESO shall obtain all necessary rights and permissions to enable the IESO to receive Pilot-related information and data from applicants and participants and share such information or data with the Ministry of Energy, on an anonymized or aggregated basis as required.
  12. The IESO shall report back by September 15, 2023 on a plan to design and implement an interruptible rate pilot for Global Adjustment charges that is tailored for hydrogen producers in Ontario that employ electrolyzers. The report-back should build off the IESO’s interruptible rate pilot design for non-hydrogen loads, but should also consider the capabilities and needs of hydrogen production loads, such as longer pilot term. To support this report-back, the IESO will engage with hydrogen production stakeholders to solicit feedback on pilot design features that would support participation by and leverage the flexibility of electrolyzer-based hydrogen production facilities.

General

This Directive is effective on the date it is issued.

Order in Council 171/2023