Path Forward

State of the Canadian Electricity Industry 2022 Accelerate Net Zero

Theme 3 Regulating and Policymaking for Net Zero: Moving from Ambition to Transition

Overarching recommendation 1. Establish a mechanism for federal, provincial and territorial electricity policy coordination: This recommendation is a holdover from 2020. As no progress was made on it in 2021, we once again recommend that current federal, provincial and territorial ministerial forums on energy (Energy and Mines Ministers Conference, or EMMC) and the environment (Canadian Council for

Ministers of the Environment, or CCME) prioritize discussions on collaboration in support of national Net Zero objectives.

Moreover, Electricity Canada recommends that this policy coordination be prioritized as a standing item at all future First

Ministers’ Conferences. Provinces and territories should do the same at all future Council of the Federation meetings.

Provincial and territorial governments and regulators 1. Create legislative and regulatory pathways for utility innovation:

Utilities should be enabled to participate in competitive markets for energy services. Regulators should also adopt sandbox mechanisms to enable novel energy projects, which should include a policy modernization component that makes regular pathways for new types of projects or technologies that start through sandbox streams.

In addition, regulators and governments should consider implementing established mechanisms to create incentives for innovative investments. For instance, performance-based regulation principles provide utilities with outcomes-based earnings opportunities that are technology agnostic. This approach can enable solutions such as energy storage-based non-wires alternatives (NWAs), which defer costly investments. An international example is New York State, which implemented such mechanisms in its Reforming the Energy Vision (REV) framework, begun in 2015.40

2. Value environmental outcomes: To be more agile, the mandates of regulators should be extended to include environmental and social considerations in their regular utility review processes.

This mandate extension can avoid the need for onerous legislation to enable regulatory approvals of projects critical to climate ambitions. It will also serve to better value firm clean energy projects. An excellent international example of progress on this front is recent legislation in the State of Maryland, which mandates that utility commissions consider the climate change effects of projects under review.41 Another innovative policy mechanism is carbon contracts for difference. It has been used by the German government to compensate companies and sectors for the difference between the market cost of a process and the cost of implementing a climate-friendly option.

The German government has targeted this mechanism for hydrogen deployment. 3. Streamline regulatory processes: Initiatives aimed at reducing regulatory lag and providing certainty in regulatory processes are critical. Efficiency will be critical as the grid expands and modernizes at a rapid pace. The initiatives in place in Alberta and Ontario are critical in this regard and should be replicated across the country.

Federal, provincial, and territorial governments 1. Support emerging baseload and dispatchable technologies: In addition to supporting research and development, the federal government should work with provinces to identify energy projects deemed to be of strategic importance to Canada’s energy transition and assist in socializing the costs. This move will be critically important, given that provinces and territories will be challenged both financially and politically to support these costs themselves, especially for investments made in support of national climate ambitions. 2. Support the siting, planning and cost/benefit allocation of grid expansion projects: In November, the United States passed the

Infrastructure Investment and Jobs Act, which has a number of provisions, including a measure that requires the Department of Energy (DOE) to carry out periodic research aimed at designating National Interest Electric Transmission Corridors.42 DOE and Federal Energy Regulatory Commission are granted special regulatory and support authorities in relation to these projects, many of which are not replicable in Canada.

Nonetheless, the broad policy vehicle should be considered— that is, regular funding should be provided to relevant federal departments to identify national grid expansion projects that are in the national interest. In coordination with provinces and territories, the federal government should grant such projects expanded regulatory and financial support measures.