The new CDM framework should…

The new CDM framework should consider an integrated and coordinated energy strategy and framework that is customer-centric, drives economic growth, reduces system costs, and meets climate change objectives.

This new framework should be integrated and consistent with the government’s future energy planning framework, the IESO’s resource adequacy consultation (including how to procure capacity in the future) and planning outlooks, as well as OEB policy development, including Distribution System Plan requirements, the Regional Planning Process, DSM and DERs.

Further, the new CDM framework should include a clear, sound, and transparent process for the establishment of targets and budgets related to both provincial bulk system needs (primarily peak demand reductions) and local/regional system needs so that ratepayer savings and system efficiency benefits can be optimized. Achieving optimized ratepayer and system savings, in turn, requires that the new framework should ensure the independent oversight of program delivery and results.

This approach should examine the potential gains to be made from facilitating collaboration between natural gas and electric utilities, as well as third party providers to deliver integrated conservation programs. For example, Heating and Cooling Programs, which primarily influence peak demand, are likely to be an effective platform for an integrated energy approach.

In addition, conservation policies for gas and electricity are developed largely in silos under different evaluation criteria and regulatory timelines that are not aligned. Greater harmonization between the two sectors would benefit ratepayers and the government’s ability to meet policy goals.

Currently, the OEB is responsible for the guidelines, approval, and evaluation of natural gas conservation programs while the IESO, under the Interim Framework is responsible for CDM, including evaluating and verifying program results.

The lack of alignment (e.g., agency responsibility, different EM&V) between natural gas and electricity conservation programs is preventing cost effective collaboration between natural gas and electric energy efficiency programming, as well as preventing customers from benefiting from integrated programs.

Further, at a broader policy level, energy policies and environmental policies with respect to conservation and emissions reductions are being developed in silos. The OEA believes that much could be gained through greater cooperation and coordination between Ministries within government, the OEB, and the IESO.

In addition to a more coordinated energy strategy, OEA members have identified additional improvements, and administrative burden and program cost-reduction ideas to be explored in developing a new framework:

• Reduce or eliminate unnecessary management, Ministerial directives, OEB license and reporting requirements, and decision making on planning and program design by IESO
• Ensure that any directives/program design elements align with both the province’s energy and climate change objectives (e.g., the definition of CDM; ensuring that the evaluation of cost effectiveness properly accounts for policy goals, such as reducing system peak, minimizing system costs, GHG emission reductions, etc.)
• Update the IESO’s assumptions for determining the avoided costs of CDM programs, including alignment with government policy goals
• Explore options to allow for tailored regional conservation programs and incentives
• Explore moving fully to a pay-for-performance model to delivery agents for all conservation programs (i.e., incentives set at a $/kilowatt-hour (kWh) rate for savings with incentive payments based entirely on performance)
• Explore alternative program cost accounting for programs delivered by regulated utilities (e.g., allowing the capitalization of conservation costs to accurately reflect the persistence of benefits, instead of the current requirement of expensing costs fully in the period they are incurred)
• Explore alternative program funding models (e.g., on-bill financing/repayment)
• Explore alternative procurement models (e.g., Regional competitive RFPs for the delivery of conservation services; the role of conservation in the IESO’s potential need to acquire capacity for 2023, and the IESO’s Capacity Auction)

The OEA also notes that the IESO is currently designing a pilot auction to procure energy efficiency. Specific pilot learning objectives are to assess the interest and ability of different sectors to participate, discover the price for energy efficiency when competition for delivery is enabled, and gain a better understanding of various implementation issues. The work on this consultation should continue and compliment the learnings of the previous conservation frameworks and the future frameworks, all while recognizing that ‘competing’ procurement streams may limit efficiency of procurement.

Further, a new framework can increase the benefits it provides to all ratepayers and the system by focusing greater attention on reducing system demand, thereby reducing or eliminating future capacity needs through more expensive resources.

For example, in its recent history, CDM programs have been oriented towards reductions in energy consumption with LDCs being given kWh targets. However, these programs have also contributed to reducing peak.

Therefore, the OEA believes that there are many opportunities to achieve greater flexibility and cost-effective peak demand reductions under a new framework:

• Identify existing cost effective CDM programs (e.g., Heating and Cooling; Business Retrofits) that deliver peak demand reductions and directing greater funding to those programs;
• Explore options for reducing barriers for residential demand response in the IESO’s Capacity Auction including efficient data access protocols;
• Continue to procure DR through the IESO’s Capacity Auctions to ensure capacity resources are competitively procured to meet short-term system needs;
• Assess pilots currently being undertaken through the Smart Grid Fund and RPP Roadmap for potential programs able to reduce peak demand cost effectively;
• Explore and facilitate the role of cost-effective in-front of the meter technologies in reducing capacity needs;
• Explore how to treat and value conservation as a resource on equal footing with traditional transmission and distribution solutions and other NWAs;
• Explore how to facilitate and enable utilities and third-party providers to expand the role of NWAs, including Combined Heat & Power (CHP), which have the ability to meet peak electricity demand, avoid other infrastructure costs, and drive down GHG emissions; and,
• Explore opportunities to facilitate behind the meter battery storage and distributed generation.