OEB Seeks Input on Review of Electricity Distributor Merger Process

On February 8, 2024, Ontario Energy Board (OEB) staff issued a Discussion Paper titled Evaluation of Policy on Utility Consolidations. The Discussion Paper is an important step in the OEB’s Evaluation of Policy on Utility Consolidations consultation that is intended to determine what changes should be made to the OEB’s Handbook to Electricity Distributor and Transmitter Consolidations (MAADs Handbook). Overall, the Discussion Paper makes only modest suggestions as to how the MAADs Handbook should be updated. Interested parties are invited to provide submissions to the OEB by February 29, 2024.

Background

The OEB issued the MAADs^[1] Handbook in January 2016, providing guidance to applicants and stakeholders on applications to the OEB for approval of distributor and transmitter consolidations and subsequent rate applications. There have been around 20 decisions on MAADs issued since 2016.

In November 2022, Ontario’s Auditor General issued a Value-for-Money Audit of the OEB titled Electricity Oversight and Consumer Protection. In that review, the Auditor General raised concerns about how the OEB monitors the performance of amalgamated utilities after MAADs approvals, and recommended that the OEB implement enhanced monitoring and reporting. The OEB indicated in response that it would add reporting standards and requirements, and would consult with stakeholders about the appropriate balance to be struck.

In July 2023, the OEB launched its consultation to consider the MAADs Handbook. In its launch letter, the OEB noted that its focus will be on electricity distributor consolidations, and would include not only the items noted by the Auditor General but also a more general review of what updates should be made to the MAADs Handbook.

Over the fall of 2023, OEB staff met with nine interested parties to get different perspectives on the MAADs Handbook and related processes. The OEB has now published the discussion materials used in those meetings.

Taking the feedback gathered through the stakeholder meetings, as well as their own perspectives, OEB staff prepared and published their Discussion Paper.

OEB Staff Recommendations

In the Overview of the Discussion Paper, OEB staff note that there are 58 electricity distributors in Ontario, with a huge range in sizes. The view of OEB staff is that these distributors will face challenges from net-zero carbon initiatives and electrification, as well as the need for resiliency in the face of climate change, the evolution required to consider distributed energy resources, and considerations of distribution system operator models. These challenges may require utilities to increase their service capabilities, with consolidation being one solution. This is the “perspective” that underlies OEB staff recommendations.

OEB staff note that its meetings with stakeholders did not identify any significant barriers to consolidation, or major gaps in consumer protection from existing OEB policies. OEB staff are not proposing major changes to the MAADs Handbook. Instead, the proposals advanced are primarily related to areas of clarification on current policy, evolving certain language, and additional detail required as part of MAADs applications. Also, new requirements to address the recommendations outlined in the Auditor General’s report have been proposed.

OEB staff recommendations are summarized in a seven-page table in the Overview section of the Discussion Paper. The recommendations address a broad range of topics, including the “no harm” test, cost structures, deferred rebasing period, performance metrics and reporting, and cost recovery for amalgamation-related costs.

Here are three recommendations that could be of interest:

• The MAADs policy should adopt a more expansive view of the “no harm” test to include not only quantitative factors (cost) but also qualitative factors (reliability and resilience).
• Utilities should continue to be able to request a deferred rebasing term of up to 10 years, though there should be more flexibility to later request a shorter or longer term, with appropriate justification. The appropriate deferred rebasing term for amalgamating utilities where one is already in a deferred rebasing term from another merger should be dealt with on a case-by-case basis.
• Amalgamated utilities with a deferred rebasing term of more than five years should be required to file a mid-term report on the status of integration activities and achievement of synergies, as well as compliance with conditions of approval.

Details about the basis for and contents of each of the OEB staff recommendations are set out in the body of the Discussion Paper.

Next Steps

Parties who are participating in the OEB’s consultation are invited to provide written comments on the Discussion Paper by February 29, 2024. The OEB will determine next steps for this consultation following its consideration of stakeholder comments.

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