Development of the Smart Grid

1. Development of the Smart Grid Implementation of the Board’s Policies November 8, 2012

2. Agenda

3. First meeting of the reconvened Smart Grid Working Group • Welcome • Renewed Regulatory Framework for Electricity (RRFE) Report policies • Direction from the Board • Background to current remit • Staff’s proposed approach

4. Development of the Smart Grid • Board has determined: • For rate-setting, no distinction between “smart grid” and more traditional investments; and • Behind-the-meter services are a non-utility activity. • All other issues to be addressed in a Supplementary Report • Smart Grid Working Group to reconvene to develop appropriate regulatory documents

5. Smart Grid Working Group • Smart Grid Working Group to be reconvened for meetings in November • SGWG previously met six times in the Spring of 2011 • 9 LDCs (including Hydro One (partially as transmitter)) • Mix of sizes and from different organizational levels • 2 consumer groups • 11 technology vendors (e.g. Bell, IBM, GM, DEML, Telvent, Honeywell, Energate) • 4 agencies

6. Smart Grid Working Group • SGWG will be asked to advise on: • Staff proposals on content for regulatory documents e.g.; • recognition of benefits • Interoperability • How best to address cyber-security and privacy; and • How best to facilitate consumer access to meter data.

7. Development of the Smart Grid - Timelines

8. Ontario Statutory and Regulatory Context • GEGEA - new objective for the Board “to facilitate the implementation of the smart grid in Ontario” • Minister’s November 24, 2010 Directive - established 24 specific policy objectives of smart grid • Board required to provide Guidance to licensed electricity distributors and transmitters and other regulated entities whose fees and expenditures are reviewed by the Board • Includes Guidance on criteria by which licensee’s Smart Grid Plans will be evaluated • OEB consultation – January 13, 2011 letter • Phase 1 Smart Grid Working Group (SGWG) • Phase 2 Staff Discussion Paper and comments • November 8, 2011 • RRFE process culminating in September 16, 2012 Report

9. Minister’s Directive’s Objectives • Four types of objectives • Correspond to statutory definition of smart grid • Policy • Efficiency, customer value, co-ordination, interoperability, security, privacy, safety, economic development, environmental benefits and reliability • Customer Control • Access, visibility, control, participation in renewable generation, customer choice and education • Power System Flexibility • Distributed renewable generation, visibility, control and automation and quality • Innovative Infrastructure • Flexibility, forward compatibility, encourage innovation and maintain pulse on innovation

10. Key Messages from SGWG • Board should avoid being overly prescriptive but business case requirements should be clear • E.g. demarcation between monopoly recoverable expenses and new customer “behind the meter” services • Specify the “what” not the “how” • There are varying capabilities among distributors to implement smart grid • The smart grid is a “foundation” for new benefits • E.g. connection of renewable distributed generation, demand-response opportunities, electric vehicles, storage • These benefits may not accrue to utilities that undertake the expense and/or may be long-term

11. Staff’s Proposed Approach • Need to bridge the high-level principles in Directive to Board’s options to respond to requirement to provide Guidance • Main distinction: rate regulation (COS/IRM) and conduct regulation (codes, license conditions) • Apply threshold (yes/no) or evaluative criteria • E.g. security, privacy –yes/no; efficiency - evaluative • Distilled into eight key questions • Well-received by SGWG

12. Staff Discussion Paper • Eight key issues: • How to assess smart grid? • What smart grid benefits should the Board recognize? • How to enhance customer control • What should be the demarcation point between regulated monopoly and behind-the-meter services? • How to ensure system flexibility? • What is the appropriate level of detail in applications? • How best to ensure privacy and cyber-security? • What role should the Board play with regard to smart grid standards?

13. Staff’s proposed approach overview • Board has given policy direction on issues 1 and 4 • Remaining issues to be addressed in supplementary report • In the context of preparing regulatory documents to implement Board policy • Supplementary Report is to be a comprehensive response to Minister’s Directive • Board decided only to address part of the Directive in the RRFE Report • Task of SGWG is to assist staff to produce the appropriate regulatory documents • Filing Requirements, Code and/or license amendments

14. Overview of Process GEA Definition of smart grid New Board object Minister’s Directive 24 objectives 140 cell objectives matrix Discussion Paper Eight issues Two issues Other issues RRFE FRs, Codes etc Supp Report

15. Staff’s proposed approach; focus on regulatory documents • Filing Requirements • Guidance to distributors and transmitters on what they should file in support of their rate cases • Need to be expanded to respect the Minister’s Directive • Code amendments • Become enforceable • License amendments • Become enforceable

16. Staff’s proposed approach; parsing the Minister’s Directive • The 24 objectives apply to all distributor rate base activities • The activity-based objectives have applicability naturally limited to the subject activities • Customer control, power system flexibility • E.g. substation improvements not required to show how they improve customer control • Adaptive infrastructure concerns innovation • Either matters that have traditionally been within scope of OEB oversight (forward compatibility) or may be addressed through pilots, demonstrations etc. • Policy objectives largely reflect traditional Board oversight with some exceptions • Co-ordination • Economic development • Environmental benefits • Cyber-security

17. Spectrum of Ways of Operationalizing Directive Objectives in Rate Applications e.g. “traditional” Board criteria plus environmental benefits 10 Policy objectives Other Objectives* Other Objectives* Rationalized Policy objectives 24 objectives Evaluations *As per function, e.g. no need to evaluate customer access aspects of substation upgrades, plus innovation & future compatibility Project expenditures

18. Staff’s proposed approach: organization of SGWG meetings • This meeting: introduction to issues and approach • Second meeting: discussion of staff proposal for main categories of Filing requirements content and (if needed) preliminary code or licence amendments • Third meeting: comments on refined Filing requirements content and (if needed) preliminary code or licence amendments