The LDC's role in CDM: The proposed new CDM Code
An IndEco articleBy: Sura Abdul-Razzak
Update 2010-06-25: A draft of the code was released earlier this week. Click here for a summary of the key components.
Since our article “Gearing up for the Green Energy Act: The LDC and CDM” was published in the EDA Distributor in November 2009, there have been some new related developments that we explore in this update. The OEB is continuing to work on these matters and things may change between now and when the Draft Code is expected at the end of June 2010. We present our most current understanding of the evolving framework.
Ministerial Directive to the Ontario Energy Board
The Minister of Energy signed the long-awaited Directive on conservation and demand management (CDM) to the Ontario Energy Board (OEB) on March 31st, 2010; the OEB posted the Directive on its website on April 28, 2010. The Directive directs the OEB to specify reductions in electricity consumption and reductions in peak electricity demand to be met through CDM programs (the “CDM Targets”) as a condition of each LDC’s licence. Each LDC must achieve its CDM targets over the four-year period beginning January 1, 2011.
The OEB will distribute the targets among the LDCs based on the total reduction target of 1330 megawatts (MW) of provincial peak reduction and 6000 gigawatt hours (GWh) of reduced electricity consumption over the four-year period. The Minister has directed the OEB to establish the LDC targets without a hearing. In setting the targets the OEB must take into account the information the OPA has obtained regarding peak reductions and electricity consumption achieved by each of the LDCs in delivering their CDM programs to date.
LDCs may meet their targets through Board-Approved CDM Programs, OPA-Contracted Province-Wide CDM programs, or a combination of both. The OEB is expecting that LDCs will implement at least some of the OPA-Contracted Province-Wide CDM programs. The LDC must deliver a mix of CDM programs to all consumer types in the distributor’s service area.
The OEB intends to issue a letter to LDCs describing the proposed allocation of the CDM targets and the methodology used for allocation. The letter will invite LDC and broad stakeholder comment on the targets and the methodology. Taking into account the comments received, the OEB will finalize the targets and target-setting methodology and expects to release the final targets and methodology by mid-September.
The LDC licence will require that distributors use the same common Provincial brand that will be identified by the Board or Ministry as the provincial mark/logo for its conservation programs for all Board-Approved CDM programs. This brand will be the same as that used by the OPA and distributors for OPA-Contracted Province-Wide CDM Programs. LDCs will use the provincial brand with or co-branded with the distributor’s own brand.
The CDM Code and its requirements
The Ministerial Directive also directs the OEB to issue a CDM Code that will set the rules for LDCs regarding CDM. The Code will include rules relating to reporting requirements and performance of CDM programs and to the planning, design, approval, implementation, and the evaluation, measurement, and verification (EM&V) of Board-Approved CDM Programs. The Code will define CDM to include load reductions from geothermal heating and cooling, solar heating, and fuel-switching, but exclusive of initiatives associated with the OPA Feed-in Tariff Program and the Micro Feed-in Tariff Program. Board-Approved CDM Programs can include the delivery of CDM programs to low-income consumers to meet a portion of the distributor’s CDM target.
The Code will indicate that Board-Approved CDM programs cannot duplicate OPA-Contracted Province-Wide CDM Programs and will encourage opportunities for coordinating CDM Programs between the distributor and other relevant entities. The Directive precludes the Board from not considering CDM programs or funding if the distributor's targets have been or are likely to be exceeded. The Code will require LDCs to use OPA cost-effectiveness tests for assessing the cost-effectiveness of Board-Approved CDM Programs and to use the OPA protocol process and the third-party vendor of record list when conducting EM&V of Board-Approved CDM Programs. The Board will conduct targeted audits of EM&V carried out by the distributor or its third parties.
As a condition of the LDC licence, each LDC will be required to file a CDM strategy. The strategy is to be a high-level roadmap of the distributor’s 4-year strategy to achieve its CDM targets. It should indicate which OPA programs are to be implemented in years 1, 2, 3, and 4 of the strategy and the proposed program budget and savings. Similar information is expected for the Board-Approved CDM Programs.
The OEB will review the CDM strategy and provide a letter to the LDC to indicate whether or not the strategy conforms to the Code. This letter will not constitute approval of any LDC-designed programs contained in the strategy. These programs will require a separate approval by the OEB. The level of detail required and approval rigour is expected to be similar to that required for the OEB approval of supplemental third tranche funding for programs. There is a possibility that for some proposed programs, the Board may hold a hearing.
We expect that LDCs will have to develop an EM&V plan for each of their OEB Board-Approved CDM Programs. The plan will have to be consistent with the OPA EM&V framework and use the OPA Assumptions and Measures List. LDCs may opt to use different assumptions and measures than those provided by the OPA if they are able to provide justification for doing so.
LDCs will be required to submit an Annual Report which will provide an overview of the activities undertaken during the calendar year (this includes both Board-Approved CDM Programs and OPA-Contracted Province-Wide CDM programs), reporting on progress made towards achieving their CDM targets based on verified savings, and a description of any changes made or proposed to the CDM strategy along with rationale for the changes.
The Minister has established a tiered performance incentive mechanism for CDM for verified electricity savings with incentives beginning once a distributor meets 80% of its CDM target and capped once 150% of the target is met. The Board must have regard to the objective that lost revenues that result from CDM should not act as a disincentive to the distributor.
Opportunity for comment on draft CDM Code, proposed targets and target-setting methodology
The OEB expects to release the draft CDM Code and the letter soliciting comment on the proposed targets for individual LDCs and the methodology for deriving these targets for comment by the end of June. LDCs and other stakeholders will have four weeks to comment on the Draft Code, the proposed targets and target-setting methodology. The final CDM Code, along with the final targets and target-setting methodology is anticipated to be released by end of September.
“Gearing up for the Green Energy Act: The LDC and CDM" published in the The Distributor in November 2009: