Contested Service Area Amendments: The Battle for New Electricity Customers

On June 21, 2016, E.L.K. Energy Inc. (“ELK”) filed a service area amendment application under Section 74 of the Ontario Energy Board Act1, to amend its service area in its electricity distribution licence ED-2003-0015 to include, inter alia, lands associated with a proposed commercial development by Sellick Equipment Limited (the “Customer”) currently located within the licensed service area of Hydro One Networks Inc. (“HONI”) (the “Application”).2

The Application was contested by HONI, which disputed many of the facts led by ELK in support of the Application.

The OEB approved ELK’s application to expand its licensed service area to supply electricity distribution services to the Customer in its Decision and Order dated April 27, 2017 (the “Decision”). 3

Although the Application related to a service area amendment for a single customer, the Decision articulates how the OEB will review similar applications and the criteria it will consider in making its determination.

Principles Articulated in RP-2003-0044

In its Decision with Reasons in the combined service amendments proceeding RP-2003-0044 (the “Combined Proceeding”)4, the OEB examined the guiding principles in evaluating different types of service area amendments. In connection with service area amendments at the borders between contiguous distribution companies, the OEB stated:

The Board finds that amendments that involve contiguous distribution companies, but that are opposed by the incumbent distributor, may be in the public interest where the amendment results in the most effective use of existing distribution infrastructure, and a lower incremental cost of connection for the customer or group of customers.5

The OEB held that applications for service area amendments ought to be in conformity with the following five principles, the last three of which apply to contiguous distribution companies, as was the case in the Application:

  1. Overlapping service areas will not generally be found to be in the public interest. Applicants for service area amendments that propose overlap should provide clear evidence that in the particular case, the advantages of overlap outweigh the disadvantages.
  2. New embedded service areas will not generally be found to be in the public interest. Applicants for service area amendments that propose embedding should provide clear evidence that in the particular case, the advantages of embedding outweigh the disadvantages.
  3. Amendments to service areas at the border of contiguous distributors may be in the public interest. Applicants should file evidence demonstrating that the proposed amendment is in the public interest, addressing economic efficiency, the impacts on the distributors involved and their customers, both inside and outside the amendment area, the mitigation of these impacts, and customer preference.
  4. Applicants for service area amendments are encouraged to obtain the consent of all affected parties before filing the application. Consent applications will be expeditiously processed, and the evidence required will be less than for an opposed application.
  5. Economic efficiency is a primary consideration in assessing a service area amendment application. All applicants should address the effects of the proposed amendment on economic efficiency.6

In contested applications, the onus falls on the applicant to demonstrate that the amendment is in the public interest.7

At the same time, the Board expects incumbent distributors to give proper consideration to rational and efficient service area realignment, even where it results in the loss of some territory. Amendments should not be resisted where the proponent is clearly the most efficient service provider for the affected customer. The distributors affected by a proposed amendment should evaluate a proposal in light of the principles in this decision, and respond in a reasonable fashion. 8

The OEB cited the example of discouraging the creation of new points of supply to facilitate the distribution of electricity to an existing or new customer by an incumbent distributor, when a contiguous distributor can provide the same distribution service more efficiently. In these circumstances, a service area amendment could facilitate the more efficient use of existing infrastructure, and avoid passing on to the customer the additional metering costs.

Customer Preference vs Cost Efficiency

In its decision in RP-2003-0044, the OEB stated that its duty is to protect the interests of consumers and that the interest of any particular market participant must cede to the system’s requirements where these interests conflict.

Insofar as the Board has indicated elsewhere in this decision that it does not generally support the fostering of competition in the distribution activity, in its consideration of service area amendments, it will favour those applications which show that a given connection proposal represents the most economically efficient use of existing resources within the distribution system.9

In addressing the weighing to be attributed to various principles articulated above, the OEB held that while significant weight should be given to economic efficiency, customer preference is generally not an overriding consideration in the decision-making process:

… the Board finds that customer preference is an important, but not overriding consideration when assessing the merits of an application for a service area amendment. Customer choice may become a determining factor where competing offers to the customer(s) are comparable in terms of economic efficiency, system planning and safety and reliability, demonstrably neutral in terms of price impacts on customers of the incumbent and applicant distributor, and where stranding issues are addressed.10


… the Board finds that significant weight should be given to economic efficiency when assessing an application for a service area amendment. Failure on the part of an applicant to adequately demonstrate the economic efficiency of a service area amendment application will generally constitute sufficient grounds for the Board to turn down the application.11

The ELK Decision

The OEB approved ELK’s Application to expand its licensed service territory.

In its Decision, the OEB used the principles it has articulated in the Combined Proceeding to guide its decision-making process, focusing on the following four factors in reaching its decision:

  1. The distribution infrastructure required to serve the new load;
  2. Safety, service quality and reliability;
  3. Economic efficiency; and
  4. Customer preference.

In making its decision, the OEB held that “economic efficiency is a key factor to consider with regard to the service area amendment application.”12 Conversely, following the weighing attributed to customer preference in the Combined Proceeding, the OEB stated that “although customer preference was considered, it was not a deciding factor in granting the service area amendment”.13

Although the OEB did not discuss quantitatively the weighing it ascribed to each criterion, the OEB determined that the effect on (1) distribution infrastructure required to serve the new load and (2) safety, service quality and reliability had little to no difference whether ELK or HONI served the Customer.

The OEB determined that while both ELK and HONI were well situated to provide the distribution infrastructure to serve the Customer, ELK had a slight advantage as far as the location of its existing pole. Other incremental distribution infrastructure resources and costs associated with either distributor serving the Customer and costs associated with operating, maintaining, inspecting, repairing and replacing the services provided to connect the Customer to the distributor’s network were considered minimal for both distributors.14 As far as safety, service quality and reliability considerations, the OEB determined that the difference between ELK and HONI was not significant and that, as a practical matter, all parties are likely to become accustomed to the service area amendment and any confusion and additional costs would be minimal and not be a factor over the longer term.15

The decision to approve the license amendment came down to (3) ELK proving to be the most economically efficient provider for the Customer and (4) the Customer preferring to have ELK provide it with electricity distribution service. Specifically, the OEB determined that ELK would suffer a revenue shortfall if HONI were the provider rather than ELK and ELK’s customer base would, therefore, be better off if ELK served the Customer.

During the oral hearing, the OEB undertook a comparative review of the following issues between ELK and HONI as service providers: (i) Fully-loaded connection costs; (ii) Embedded distribution charges to the Customer; and (iii) Revenue shortfall and implications for other HONI and ELK customers. The OEB concluded that (i) ELK’s one-time cost to connect the Customer was lower than HONI’s, and that the costs to relocate the pole should not be charged to the Customer nor considered in the economic efficiency evaluation; (ii) the embedded distribution charges to the Customer would not be materially different whether ELK or HONI became the service provider; and (iii) in terms of customer rate implications, ELK would be the preferred distributor to serve the Customer.16 Although it was not disputed by HONI that the Customer preferred ELK as its electricity distribution service provider, the OEB maintained that this criterion was not a deciding factor in granting the service area amendment.17


The ELK Decision articulates how the OEB will evaluate service area amendments, emphasizing the criteria outlined by the OEB in the Combined Proceeding. The Decision, issued almost one year following the filing of the Application, demonstrates the need for balancing sound regulatory decision-making against the need for expediency and timeliness in connection with service area amendment requests. Although the OEB has indicated the importance of decision criteria relative to one another, a quantitative weighing of the factors identified remains to be presented.

*John Vellone is a partner in the Toronto office of Borden Ladner Gervais LLP and is a member of the Electricity Markets and IT Groups. Mr. Vellone acted for E.L.K. Energy Inc. in the service area amendment proceeding.

**Jessica-Ann Buchta is an associate at Borden Ladner Gervais LLP in the Electricity Markets Group, practicing corporate/commercial and regulatory law with a focus on energy law and matters relating to the electricity sector.

  1. Ontario Energy Board Act, 1998, SO 1998, c 15, Schedule B.
  2. ELK Energy Inc, Application to amend licensed service area in Schedule 1 of electricity distribution licence ED-2003-0015, EB-2016-0155 (21 June 2016).
  3. Ontario Energy Board, Decision and Order, EB-2016-0155 (27 April 2017).
  4. Ontario Energy Board, Decision with Reasons, RP-2003-0044 (27 February 2004).
  5. Ibid at para 197.
  6. Supra note 3 at paras 204-208.
  7. Ibid at paras 198-199.
  8. Ibid at para 200.
  9. Ibid at para 229.
  10. Ibid at para 233.
  11. Ibid at para 249.
  12. Supra note 2 at 8.
  13. Ibid at 18.
  14. Ibid at 6-7.
  15. Ibid at 8.
  16. Ibid at 8-17.
  17. Ibid at 18.

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