The Ontario Energy Board’s (OEB) 2011 decision¹ denying Toronto Hydro Electric System Limited’s (Toronto Hydro) request for $600,000 to fund an electric vehicle (EV) pilot project raises the interesting issue of where energy regulators should draw the line between competitive and monopoly services. At a time when “smart grid” technologies are evolving and distributors are naturally adapting and leveraging their businesses to integrate these technologies and take advantage of the opportunities they present, this is an issue that will invariably continue to surface.

The impetus for Toronto Hydro’s request was the Ontario government’s 2009 pronouncement that one in every 20 vehicles in Ontario be electric by the year 2020.² The 2009 Green Energy and Green Economy Act (GEA)³ also added as an object to the Ontario Energy Board Act (OEB Act)⁴ that the OEB facilitate the implementation of a smart grid in Ontario, including the accommodation of emerging innovative and energy saving technologies. This was followed by new deemed license conditions requiring distributors to file plans for the development and implementation of the smart grid as part of their distribution systems and a subsequent 2010 ministerial directive⁵ requiring  the  OEB  to   provide   guidance to distributors on making expenditures to establish, implement and promote the smart grid.

Against this backdrop, Toronto Hydro applied in its 2011 rate case for approval of a $600,000 expenditure to fund an EV pilot project. Toronto Hydro proposed that it install and monitor approximately 30 to 40 EV charging stations across the  city  which  would  assist it in assessing upstream distribution system upgrades required to accommodate EVs, including understanding the real-time impacts of EVs on the distribution grid (e.g., loading, power quality). Toronto Hydro also advised the OEB that the pilot project would assist it in the development of safety, operating and control procedures and practices relating to EV charging infrastructures connected to its grid.

Toronto Hydro’s request was relatively modest –$600,000 being a small fraction of its requested revenue requirement – and was limited to a pilot project. That said, the OEB largely refused the proposed expenditure.  The OEB found merit in Toronto Hydro performing limited analytical work pertaining to the impact of EV charging on Toronto Hydro’s distribution system and the OEB therefore allowed $200,000 in costs associated with this activity provided the money not be used to “fund the provision of a service to the public.” The OEB, however, cautioned that policy development regarding ownership and operation of EV charging infrastructure had yet to take place and that it was premature to effectively determine that ownership of the charging infrastructure should fall within the monopoly business of Toronto Hydro (and other distributors). The OEB rejected Toronto Hydro’s argument that the pilot project would not pre-determine this issue and that the results would be helpful to all parties in informing the public policy debate. The OEB expressed concern that vendors and purchasers of electric vehicles might rely upon such infrastructure and, in its decision, the OEB referenced evidence of communications between Toronto Hydro and the auto vendor sector regarding the most convenient sites for locating charging stations. The OEB averted to the policy consultation process⁶ it had initiated on smart grid implementation, which included issues relating to electric vehicles, and the OEB ultimately concluded that it was premature for Toronto Hydro to proceed with a series of EV charging stations prior to completion of this policy consultation process.

In the two years since the Toronto Hydro decision, the OEB’s views on EV infrastructure have evolved. To the extent the OEB’s Toronto Hydro decision signaled a wait-and-see approach, it would appear the OEB now regards EV infrastructure, and other behind-the-meter technologies, as off-limits to regulated utility services.

Guelph Hydro also applied in 2012 for funding for an EV pilot project. The basis for its request was somewhat different than Toronto Hydro’s. Nonetheless, the OEB rejected  the  request on largely the same basis.⁷ The OEB noted that “the demarcation point between the rate- regulated entity and non-regulated service providers and the role of the distributor in non- monopoly activities have not yet been addressed by the Board”.⁸ Again, the OEB averted to the smart grid consultation process and the recently released November 2011 OEB Staff Discussion Paper: In Regards to Establishment, Implementation and Promotion of a Smart Grid in Ontario.⁹

OEB staff’s November 2011 discussion paper – and its more recent Supplemental Report on Smart Grid¹⁰    – do not definitively answer the question, but together, with the recently issued OEB Report on a Renewed Regulatory Framework  for  Electricity  Distributors,¹¹  it would appear the OEB considers behind the meter activities, including EV infrastructure, as the domain of the private sector.  In its 2011 discussion  paper,  OEB  staff  questioned  the proper demarcation point between monopoly and utility services in relation to smart grid investments  and,  in  particular,  whether  the meter was the appropriate demarcation point or  whether  a  more  flexible  and  functional approach was required.  While the smart grid consultation  process  remains  ongoing, the OEB, in its Renewed Regulatory Framework for Electricity Distributors Report acknowledged the importance of customer control in behind the meter activities and concluded that:

The Board anticipates that distributors will continue to be engaged in the provision of behind the meter services and applications that fall within the parameters set out in section 71(2) or section 71(3) of the OEB Act. In so doing, they are engaging in a non-utility activity. That activity must be accounted for separately from utility activities and be undertaken on a full cost recovery basis (in other words, not covered in rates). There is no element of natural monopoly in the market for behind the meter services and, therefore, the Board has concluded that customer control would be best served  by the forces of market competition. The Board expects that this policy conclusion will assist distributors in planning and organizing their and their affiliate’s activities.¹²

The OEB does not reference how other regulators are addressing  these  issues,  but  it is certainly not alone. The California Public Utilities Commission (California PUC I) also concluded that companies that sell electric charging services will not be treated as public utilities and therefore not subject to regulation. The California PUC l found that the regulation of EV service providers would be contrary to the purpose of public utility regulation – the protection of consumers from monopoly abuses – and to California’s goal of developing an electric vehicle infrastructure.¹³

The issue of the proper dividing line between competitive and utility service in the area of emerging technologies will continue to evolve and generate debate; and, no doubt there will be grey areas as to what constitutes behind the meter activities. Nonetheless, in Ontario it would appear that the OEB is firmly inclined towards restraining encroachment by utilities into new smart grid applications, including EVs, and leaving as much terrain as possible to be addressed by the private sector.