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.

Background

As part of the government’s commitment to providing competitive electricity rates and increasing consumer choice, the government is interested in exploring electricity pricing structures that encourage consumers to reduce their demand in peak hours and have the potential to deliver electricity system benefits.

Following Ontario’s successful residential rate pilots for Regulated Price Plan (RPP) customers conducted by the Ontario Energy Board (OEB), which outlined the system benefits that alternative pricing structures can provide, the government has required the OEB to implement an Ultra-Low Overnight Electricity Rate for residential consumers. Once fully implemented, this new rate plan will further expand customer choice and empower homeowners, farms and small businesses with additional options to lower their electricity bills, while also helping to support decarbonization of the electricity system, reduce peak electricity demand and support electric vehicle adoption.

In a similar vein, the government is proposing to implement dynamic pricing pilots for medium-sized commercial, farm and small industrial customers to test alternative rate plans, called the “Class B Dynamic Pricing Pilots”. Similar to how the RPP residential rate pilots helped to inform the implementation of the Ultra-Low Overnight Electricity Rate, the “Class B Dynamic Pricing Pilots” are intended to help inform the government on the potential of alternate pricing options that could provide electricity system benefits and in turn, lower electricity bills for this customer class as well.

In November 2021, I sent a letter to the Chair of the OEB to ask that the OEB work with the Independent Electricity System Operator (IESO) to develop a plan to design and implement a dynamic pricing pilot for Class B consumers that are not charged under the Regulated Price Plan (RPP).

With my support, in July 2022, the OEB, in conjunction with the IESO, began to engage stakeholders on their plan to deliver dynamic pricing pilots. The demand management benefits from the pilots are expected to be offered by successful proponents who would enter into contracts with the IESO, following assessment by the IESO and the OEB.

Directive

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

  1. The IESO shall work with the OEB to assess proposals made for the purposes of the dynamic pricing pilot for Non-RPP Class B electricity consumers (“Class B Pilots”) initiative to ensure that:
    1. Each Class B Pilot has the potential to offer a clear system benefit through opportunities for demand management that would reduce generation costs for all consumers in the longer term via reductions in peak demand; and
    2. The Class B Pilots include dynamic pricing options which have the potential to be offered on a broader scale to other non-RPP Class B electricity consumers, with the goal of improving demand management through the provision of more efficient price signals.
  2. The IESO shall enter into procurement contracts with successful proponents for the Class B Pilots following the above-noted assessment and selection of applicants. The IESO shall structure its procurement activities with respect to the Class B Pilots to ensure that the contracts terminate no later than December 31, 2026 .
  3. The IESO shall ensure that the total amount paid to successful proponents for the Class B Pilots does not exceed $40 million over the full life of the Class B Pilots.
  4. The IESO shall ensure that the procurement contract includes all necessary rights and permissions to enable the IESO to receive Class B Pilots-related data and information from the proponents and share such data or information with the OEB and the Ministry of Energy, on an anonymized or aggregated basis as required. The data and information related to the Class B Pilots to be provided to the IESO by the proponents will include, but is not limited to, information or data related to the evaluation of price, price plans and other outcomes of the Class B Pilots, such as electricity consumption of the participants in the Class B Pilots and financial settlement data for the Class B Pilots.

General

This Directive takes effect on the date it is issued.

Décret 1740/2022