Minister’s Directive

To: The Independent Electricity System Operator

I, Todd Smith, Minister of Energy ("Minister"), hereby direct the Independent Electricity System Operator ("IESO") pursuant to sections 25.32 of the Electricity Act, 1998 (the "Act") with regard to procurement of electricity resources to ensure the reliable operation of Ontario’s electricity system in response to ongoing and growing electricity needs expected in the future, as follows:

Background

After more than a decade of stable electricity supply, and at times, a surplus, IESO has forecasted an emerging supply need that grows through the latter part of the decade. This is a result of the expanding electrification and increasing business investment in the province, upcoming closure of the Pickering Nuclear Generating Station and refurbishment schedules of other nuclear facilities. Fulfilling this forecasted supply need will require IESO to procure electricity products and services from both existing and new resources. The government remains committed to an electricity system that is clean, reliable and affordable. Both initiatives contained in this Directive advance those goals and will support Ontario’s economic growth and job creation, help the province meet our environmental goals and give businesses the certainty they need that our system will remain clean, reliable and affordable over the decades to come.

Oneida Energy Storage Project

The government is committed to a procurement framework that ensures Ontario has an clean, reliable and affordable electricity system. Non – greenhouse gas emitting sources of electricity generation such as wind and solar PV can be intermittent. Large scale energy storage can play an important role in successfully integrating these intermittent generation sources into the electricity system, while ensure its reliability.

IESO’s Resource Adequacy Framework proposes a multi-pronged approach to acquire products and services from electricity resources to meet reliability needs. This approach includes complementary competitive procurement mechanisms while recognizing the role of policy and programs to meet Ontario’s system needs and broader government objectives.

The Ministry of Energy and IESO have also received several unsolicited energy project proposals from proponents prior to the development of IESO’s Resource Adequacy Framework. In response, the Ministry of Energy and IESO have developed a project assessment framework to determine if the unsolicited proposals could provide ratepayer and system benefits that are unique or innovative and which did not at the time have a clear pathway to be acquired through a competitive process.

The Oneida Energy Storage Project (OESP) is a proposed 250 megawatt (MW), 1,000 megawatt-hour (MWh) Lithium-Ion based energy storage project that aims to provide capacity, frequency regulation, energy and operating reserve services to Ontario’s power grid.

On January 27, 2022, through Order in Council O.C. 137/2022, I directed IESO to enter into a procurement contract with Oneida Energy Storage LP (OESLP) for the OESP substantially in the form of a draft contract submitted by IESO to me on November 30, 2021.

Subsequently, OESLP proposed revisions to the draft contract. Based on the project’s potential system benefits, as well as recognizing the potential to enhance the integration of storage technologies into Ontario’s electricity market, the proposed changes continue to ensure with a reasonable degree of certainty that the project would bring a net benefit to electricity consumers.

Bruce Power

The Bruce Nuclear Generating Station (BNGS) supplies about 30% of Ontario’s electricity needs and has been a driver of innovation and economic growth in the province.

The availability of clean and reliable electricity from BNGS was instrumental in phasing out coal from Ontario’s electricity supply mix. Harnessing existing resources such as BNGS, in addition to new resources, will be critical to addressing the emerging supply gap as forecasted by IESO in its 2021 Annual Planning Outlook.

Nuclear is the largest source of baseload power in Ontario. In 2021, it represented over 55% of Ontario’s total electricity generation. Nuclear and hydroelectricity are currently the only two sources of abundant emissions-free energy in Ontario and are needed to provide baseload power to complement intermittent generation like wind and solar or energy-limited storage.

Investment in nuclear power ensures Ontario has clean, reliable and affordable energy for the future.

Over the coming decades, the planned Bruce refurbishments will secure a supply of clean, reliable and affordable power, while supporting thousands of jobs and billions of dollars in economic activity.  In addition, Bruce refurbishments will secure a stable, long-term supply of life-saving medical isotopes such as Cobalt-60 and create opportunities for innovative new cancer-fighting isotopes such as Lutetium-177.

The Bruce refurbishment contract between IESO and Bruce Power – the Amended and Restated Bruce Refurbishment Implementation Agreement (ARBPRIA) – includes the refurbishment of six reactors (i.e., Units 3 - 8) and the long-term operation of BNGS to 2064.

The agreement has two types of refurbishment off-ramps that allow IESO, with government approval, to forego future refurbishments if they are no longer cost-effective:

  1. Performance Off-ramps prior to each unit refurbishment allow IESO to stop refurbishment based on specific cost and schedule thresholds built into contract.
  2. Discretionary Economic Off-ramps prior to the third and fifth unit refurbishment allow IESO to stop the remaining unit refurbishments due to availability of more economic alternatives or low electricity demand.

A directive to IESO to waive the first economic off-ramp reaffirms the government’s continued support for the role of BNGS in meeting Ontario’s projected electricity needs. It also signals longer-term policy certainty to enable Bruce Power initiatives that could benefit Ontario and its ratepayers (e.g., reactor power uprate initiatives to meet projected electricity system needs, new medical isotope production).

The Bruce refurbishments will continue to be subject to cost and schedule requirements to ensure that they are only undertaken if they are cost-effective for Ontario ratepayers (i.e., through the performance off-ramp provisions in the contract).

A directive to IESO to waive its first economic off-ramp will also address the requirement in the Letter Agreement dated October 17, 2005 between the Minister of Energy and Ontario Power Authority (“OPA”) (now the IESO), (“Letter Agreement”) that the OPA not terminate, make any material amendments to, or make any material waiver or consent with respect to key agreements related to the Bruce refurbishment contract without the prior written consent of the Ministry of Energy (“Ministry Consent”).

IESO and the Ministry of Energy will continue to work together to ensure Ontario’s electricity system continues to be ready to meet the needs of Ontario’s residents and businesses.

Directive

Therefore, in accordance with the authority under sections 25.32 of the Act, IESO is hereby directed as follows:

  1. Oneida Energy Storage Project
    1. I hereby direct that paragraph 8 of the Directive issued by me pursuant to sections 25.32 and 25.4 of the Act, approved and ordered on January 27, 2022, Order in Council O.C. 137/2022, be hereby revoked as of the date hereof.
    2. I hereby direct IESO to enter into a procurement contract with Oneida Energy Storage LP (“Oneida LP”) for the Oneida Energy Storage Project (“Project”), substantially in the form of the draft contract submitted by IESO to me on November 30, 2021, as revised to reflect the proposed changes submitted to me on April 1, 2022, that includes the following:
      1. A term of no more than fifteen years, which is to be automatically extended for an additional two years if the Project achieves commercial operation within twenty-four months of contract signing.
      2. Provision of contracted capacity and regulation services to the grid through the Project.
      3. A requirement that eighty percent (80%) of the funding received by Oneida LP from Natural Resources Canada (NRCan) (net of any mandatory repayments) be credited to IESO for the benefit of ratepayers.  However, the amount of the credit is to be subject to adjustment based on changes in the prevailing average market price of lithium carbonate over time.
    3. Paragraph i 2 of this Directive hereby replaces and becomes the new paragraph iv 8 of the Directive issued by the Minister of Energy pursuant to sections 25.32 and 25.4 of the Act, approved and ordered on January 27, 2022, Order in Council O.C. 137/2022.
  2. Bruce Power
    1. I hereby direct IESO to waive its right, under Section 9.2 (“Termination of Refurbishment Due to Counterparty’s More Economic Alternative”) of the Amended and Restated Bruce Power Refurbishment Implementation Agreement (“ARBPRIA”), to make an election on or before the date that is ninety (90) days after Bruce Power has delivered to IESO the final Basis of Estimate Report for the Third Unit in accordance with the ARBPRIA, that Bruce Power not proceed with the Refurbishment of all Units that have not yet been Refurbished.
      For greater certainty, this waiver is to apply only to the election available after Bruce Power delivers the final Basis of Estimate Report for the Third Unit, and it does not apply to the election available on or before the date that is 90 days after Bruce Power delivers its final Basis of Estimate Report for the Fifth Unit.
    2. I direct IESO to comply with paragraph ii 1 on or before April 30, 2022.
    3. For greater certainty, my directive under paragraph ii 1 shall be deemed, for the purposes of the Letter Agreement, to be the Ministry Consent to IESO giving the waiver set out in that paragraph.
    4. Capitalized terms used in paragraphs ii 1, 2 and 3 above that are not otherwise defined in those paragraphs have the meanings ascribed to such terms in the ARBPRIA.

General

This Directive takes effect on the date it is issued.

Order in Council 990/2022