On June 18, 2024 (revised on July 11, 2024), the Ontario Energy Board (OEB) issued its updated Handbook to Electricity Distributor and Transmitter Consolidations: Rate-making Considerations and Filing Requirements for Consolidation Applications(2024 MAADs Handbook). The 2024 MAADs Handbook provides guidance on consolidation, which includes mergers, acquisitions, amalgamations and divestitures (MAADs).
The 2024 MAADs Handbook is applicable to both electricity distributors and transmitters filing consolidation applications under applicable sections of the Ontario Energy Board Act, 1998 (OEB Act) as of January 1, 2025, or later.
The 2024 MAADs Handbook is a revision of the previous 2016 MAADs Handbook and was updated through a consultation process that began with stakeholder meetings discussing consolidation-related decisions, barriers to consolidation and consolidation policy. This was followed by the issuance of an OEB Staff Discussion Paper which set out key issues and proposed changes to the 2016 MAADs Handbook, and a series of meetings with stakeholders discussing comments about the OEB Staff Discussion Paper.
The 2024 MAADs Handbook largely reflects the comments and suggestions from the OEB Staff Discussion Paper. A brief summary of key components of the 2024 MAADs Handbook can be found in the OEB's Cover Letter. As explained, the 2024 MAADs Handbook includes some notable changes and updates, but overall the contents and approach are very consistent with the 2016 MAADs Handbook.
Summary of Key Topics
Several of the key topics in the 2024 MAADs Handbook are summarized below. Some of these are consistent with the 2016 MAADs Handbook, and some are new.
- The OEB will continue to apply the "No Harm" Test, first established in 2005 by the OEB in the Combined Proceeding, when approving transactions and the rebasing of consolidated utilities to ensure that customers are not adversely affected. The "No Harm" Test assesses impact based on the OEB's statutory objectives found in section 1 of the OEB Act.
- Applications are assessed within the Renewed Regulatory Framework, where distributors must meet established OEB performance standards and report their achievements against these standards.
- Consolidation applications will include a rate harmonization plan and/or customer rate classifications post-consolidation. Both will use the "No Harm" test to demonstrate that customers will not be negatively impacted quantitatively, based on rates, or qualitatively. This is an update from the previous handbook.
- To address distributor concerns regarding transaction and transition costs, the OEB allows distributors to defer the rebasing period for a maximum of 10 years. The OEB has decided that the 10-year period will remain unchanged because there is insufficient experience to adjust.
- During the deferred rebasing period, distributors have three rate-setting options under the Renewed Regulatory Framework: Price Cap Incentive Rate-Setting, Custom Incentive Rate-Setting, and Annual Incentive Rate-Setting Index.
- The OEB has implemented monitoring and reporting requirements for consolidated distributors that balance regulatory and financial requirements on utilities with increased transparency for customers. This is new.
- The monitoring framework for post-consolidation activities during deferred rebasing periods shall include a midterm report to enhance the OEB's current reporting framework. This is new and in response to recommendations and comments from the auditor general (click here to see our previous article). These reports will increase transparency for customers and help stakeholders assess the consolidated distributor's rebasing application.
- The OEB has implemented reliability reporting at the rate zone level post-consolidation that requires distributors to report feeder-level reliability data or another similar reporting mechanism. This is new.
- The final section of the 2024 MAADs Handbook sets out the procedural filing requirements for consolidation applications in detail.
Moving forward, the OEB will review adjustments to its Incremental Capital Module and Z-factor policies, as well as section 86 of the OEB Act (change of ownership or control of utilities and assets) performance standards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.