The Ontario Energy Board and Demand-Side Management

1. The Ontario Energy Board and Demand-Side Management Cathy Spoel Ontario Energy Board Toronto, Ontario September 8, 2004

2. The Ontario Energy Board • Independent crown corporation established under the Ontario Energy Board Act, 1998 • Economic regulator of electricity and natural gas • Conducts open processes to address energy regulation • Issues Orders, Rules, Licences and Codes that are binding on energy sector participants

3. The Board’s Natural Gas Experience • Since 1993, the two major gas utilities in Ontario have managed Demand Side Management portfolios within the framework set out in Board Decision EBO169-III. • programs are offered through the gas utilities, energy services companies, and channel partners • commitments set and monitored through DSM consultative process • The Board approves the ratemaking implications of utilities’ DSM investments and expenditures

4. Earlier Electricity Experience • In 1990, Ontario Hydro’s DSMactivities generated net annual system savings of approximately 220 MW • programs were offered through Ontario Hydro, energy services companies, and channel partners • several Municipal Electric Utilities cooperated with Ontario Hydro, or acted independently, in the promotion and delivery of DSM • The Board reviewed Ontario Hydro’s plans and supported the utility’s direction

5. Electricity DistributionRate Adjustment and Conservation • May 31, 2004 • Minister of Energy authorized electricity distributors to apply to the Board for their final rate adjustment effective March 1, 2005 (so-called “3rd tranche” of Market Adjustment Revenue Requirement, MARR) • Eligibility conditional on distributor spending one year’s worth of the monies on conservation and demand management (approx. $225 million if all distributors apply) • July 16, 2004 • The Board issued preliminary guidelines and instructions for deferral accounts • August 30, 2004 • The Board issued information bulletin on pre-approval of activities

6. Board Process forDistributor “3rd Tranche”

7. Key Issues • Prudence Review of “3rd Tranche” Spending • Distributors have until September 30, 2007 to complete “3rd tranche” spending • Prudence review will focus on whether: • funds have been spent in accordance with the distributor’s plan; and • whether the commitments in the distributor’s conservation and demand management plan have been met

8. Key Issues • Revenue Protection for Distributors • Distribution revenues vary with energy consumption of a distributor’s customers • Successful conservation can erode a distributor’s bottom line • The Board intends to develop an “interim” revenue protection mechanism in time for distributor applications for May 2006 distribution rates

9. Key Issues • Cost Recovery After 3rd Tranche Spending • A distributor’s conservation and demand management expenditures might exceed their 3rd tranche allowance • The Board intends to develop an “interim” cost recovery mechanism in time for distributor applications for May 2006 distribution rates

10. Key Issues • Distribution Line Losses • Power consumers bear the full cost of energy losses in distribution systems • Distributors have no financial incentive to take steps to reduce these losses • The Board may identify and remove any disincentives that distributors have to improve their losses as part of rate making for 2006

11. Progression to Sustainable Regulatory Framework • Consultation and review on progression to a sustainable regulatory framework • Expect to commence work after interim solutions on revenue protection and cost recovery are developed for 2006 distribution rates • Take into account the activities of the Ontario Power Authority’s Conservation Bureau (including monitoring and evaluation methodologies) • Learn from experience with the revenue protection and cost recovery mechanisms to be used in 2006

12. Thank you!