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 resources, including transmission systems, as follows:

Background

The Ministry of Energy (“ENERGY”) and IESO have received several unsolicited energy project proposals from proponents. In response, ENERGY and IESO developed a project assessment framework to determine if the unsolicited proposals could provide ratepayer and system benefits that are unique or innovative and which did not at the time have a clear pathway to be acquired through a competitive process. The Lake Erie Connector (LEC) Project (the “Project”) is one of the projects that proceeded through this unsolicited proposal process.

The Project is a proposed 1,000 MW, bi-directional, 320kV high-voltage direct current underwater transmission line under Lake Erie that will provide the first direct interconnection between the wholesale electricity markets operated by the IESO in Ontario and PJM Interconnection LLC (“PJM”) in the USA. PJM is a regional transmission organization that coordinates the movement of electricity through its electricity market, which is the largest electricity market in North America.

As an unsolicited proposal, the Project underwent successively more detailed assessments by IESO with support from independent analysts. These assessments highlighted the value that a new transmission interconnection with the PJM electricity market would bring to Ontario, including enhanced electrical grid reliability associated with being connected to the largest market in North America, along with a net reduction of greenhouse gas emissions in Ontario and across the broader region as Ontario exports clean energy and enhances our ability to avoid starting up our natural gas generating stations.

Furthermore, these assessments demonstrated that the Project will induce more efficient trade between Ontario and its other neighbouring markets, which is expected to result in financial benefits to Ontario ratepayers. This is aligned with the government’s goal of developing a more efficient electricity system by creating opportunities to extract more value from Ontario’s clean electricity resources, including during periods of surplus. ITC Lake Erie Connector LLC and Lake Erie LP, the proponents of the Project, continue to engage local Indigenous communities on opportunities for economic participation that would bring local economic benefits.

On the strength of these assessments and anticipated benefits, and at my request in a letter dated May 13, 2021, the IESO prepared a detailed term sheet to inform the terms that could be included in a contract for the Project that preserves the expected benefits of the Project. Furthermore, and also at my request in the same letter, IESO has engaged in discussions with PJM in relation to a potential interconnection agreement, or joint operating agreement, that will establish arrangements and protocols to ensure that the operation of the Project sustains, to the satisfaction of IESO and PJM, the reliability and efficient market operations in both markets.

Directive

In accordance with the authority under section 25.32 of the Act, IESO is hereby directed as follows:

  1. Subject to the prior fulfillment of the requirements set out in paragraphs 2 and 3 below, I hereby direct IESO to negotiate and enter into a procurement contract, on or before August 15, 2022, with Lake Erie LP, acting by its general partner LEC GP Inc., for the transmission capabilities of the Lake Erie Connector Project.
  2. The IESO shall not enter into the procurement contract provided for in paragraph 1 where the IESO is unable to negotiate a final agreement with Lake Erie LP that includes terms that are consistent with the terms set out in the term sheet submitted by the IESO to me on March 22, 2022, provided that any unresolved issues as noted in the term sheet are resolved in a commercially reasonable manner. 
  3. The IESO shall not enter into the procurement contract provided for in paragraph 1 if, at the time of the planned execution of the contract, the expected terms of a proposed interconnection agreement to be entered into between the IESO and PJM would materially reduce the ratepayer benefits of the Project, as compared to the Project’s expected ratepayer benefits that were assessed by IESO in its report submitted to ENERGY dated March 22, 2022, or materially adversely impact the operation of the IESO-controlled grid.
  4. The IESO shall enter into an agreement with Lake Erie LP governing the potential reimbursement by the IESO of certain amounts in respect of Lake Erie LP’s procurement of the transmission line cable for the Project. The terms of such agreement shall be consistent with the relevant terms of the term sheet referred to in paragraph 2.

General

This Directive takes effect on the date it is issued.

Order in Council 877/2022