History of the OEB

Energy regulation since 1907

Energy regulation has been a fact of life in Ontario from the time the Provincial legislature passed an Act in 1907 aimed, in part, at preventing the wastage of natural gas. Later styled the Natural Gas and Oil Wells Act, that piece of legislation marked the Province’s early concern for the proper management of its energy resources – a concern that has evolved, through the Natural Gas Act of 1918, the Natural Gas Conservation Act of 1921 and the Ontario Fuel Board Act of 1954 later amended in 1955, 1956, 1957 and 1958.

The OEB Act, 1960

The Ontario Energy Board Act, 1960 creating the Ontario Energy Board was proclaimed in force on September 1, 1960, succeeding the Ontario Fuel Board. The functions of the Ontario Fuel Board were partly judicial and partly administrative in nature but, after September 1, 1960, the administrative work, as described in the Energy Act, 1960, was transferred to the Ministry of Energy Resources while the Ontario Energy Board took over the judicial part of the work, as prescribed by the Ontario Energy Board Act, 1960. In summary, the Ontario Energy Board Act, 1960 and the Energy Act, 1960 authorized the OEB to set just and reasonable rates for the sale and storage of gas and authorized the OEB to make Orders granting leave to construct pipelines for the transmission of oil or gas and to expropriate land for oil or gas pipelines.

The Ontario Energy Board Act, 1964 came into force on January 1st, 1965. Among other things, it clarified certain powers of the Board and strengthened the sections dealing with gas storage provisions. An amendment to this act was passed and became law on June 22, 1965, setting out ground rules to be followed by the Board in determining the rate base of a gas utility. It also gave the Board power to make regulations prescribing a uniform system of accounts for gas companies.

Ministry of Energy established in 1973

On June 7, 1973, the Premier announced the establishment of the Ministry of Energy, to include the Ontario Energy Board. Accordingly, following approval of the legislation, the Ontario Energy Board transferred its reporting relationship from the Ministry of Natural Resources to the new Ministry of Energy. At the same time further amendments to the Ontario Energy Board Act were passed by the legislature, including provision for the appointment of additional board members and making the Board responsible for annual reviews of rate and rate-related matters of Ontario Hydro.

OEB - The middle years

During the Ontario Energy Board’s initial and middle years, it struggled with a number of problems ranging from inflation to regulatory lag. These problems were compounded by major changes in the energy and economic environment. In the late 1960s and early 1970s, the oil crisis developed in the Middle East, causing natural gas prices to soar. Ontario Hydro turned to nuclear generation and the public became conservation conscious. During that time the Board decided on hundreds of natural gas applications and conducted major reviews of Ontario Hydro rates.

Ontario's Competitive Market: Energy Competition Act, 1998

The Board’s mandate changed significantly with the passage of the Energy Competition Act, 1998, aimed at establishing a deregulated market for the supply of electricity and continuing the deregulation of the natural gas supply market. The ultimate goal was the creation of a competitive market in both industries. To achieve this in the electricity sector, the former Ontario Hydro monopoly was replaced by several business entities including two distinct commercial companies, Ontario Power Generation (OPG) and Hydro One Inc. along with one Crown corporation, the Independent Electricity Market Operator (IMO), now known as the Independent Electricity System Operator (IESO). All three operate independently of one another. OPG has taken responsibility for the generation of electricity while Hydro One owns and maintains monopoly transmission and distribution wires.

The IESO is a not-for-profit entity whose task is to manage the bulk power system. Specifically, its job is to reconcile physical transactions, to dispatch resources in real time to match supply and demand within security constraints, and, when necessary, to direct all system resources in response to emergencies. It is responsible for collecting offers from competing suppliers and bids from purchasers and for managing market trading in electricity and related products. It settles associated accounts, monitors compliance of market rules, and reconciles the performance of market participants. It also has to forecast demand and advise on adequacy of supplies, and help ensure that competition develops quickly and without abuses of market power.

Under the Energy Competition Act, 1998 (ECA), the Board had varying degrees of regulatory authority over all three corporations as well as the province’s municipal electric utilities. This represents a significantly expanded mandate for the OEB in the electricity sector from that in place before the passage of ECA. The OEB has some joint duties with the IESO, largely because the latter can itself be a source of anti-competitive behaviour unless accountable and transparent systems are fully in place and enforced. The strengthened OEB is also mandated to regulate investments in the expansion of the transmission grid. In this regard, it is to work with the IESO to ensure that adequate transmission capacity is developed, both to maintain reliability and to promote the growth of competition.

The OEB now regulates the province’s local wire business and all local distribution companies, and is responsible for ensuring that the distribution companies fulfil their obligations to connect and serve their customers. The OEB plays a key role in ensuring that market participants do not abuse their market power or engage in anti-competitive pricing or other monopolistic practices – a duty it shares with the federal Competition Bureau under the Competition Act. The OEB is responsible for licensing of all agents, brokers, marketers, and generators participating in the market. Both the IESO and the OEB are required to advise the government on how well the market is performing, and to alert the government to any problems arising from the generation company’s dominant market position.

In sum, the OEB is now an expanded, independent, quasi-judicial tribunal that reports to the Legislature through the Minister of Energy. It operates independently from the ministry and from all other government departments. It regulates all market participants in the province’s natural gas and electricity industries; it also provides advice on energy matters referred to it by the Minister of Energy and/or the Minister of Natural Resources.

New powers: OEB Act provision 2001

In August 2001, a new provision of the OEB Act came into effect that provides the director of licensing with the authority to levy penalties of up to $10,000 per day against licensees who are found to be in violation of conditions of their licence.

2002: Competitive market opens

On May 1, 2002, Ontario’s new electricity market opened. The new market was the culmination of over five years of work by the electricity industry, government, the OEB, the Independent Electricity System Operator (IESO) and many other market participants. The generation of electricity became a competitive activity, with electricity bought and sold on the new spot market at competitive prices. The IESO successfully began operating the wholesale market.

Protecting Consumers: The Reliable Energy and Consumer Protection Act, 2002

The Reliable Energy and Consumer Protection Act, 2002 further expands the mandate of the Board. Under this legislation, the OEB is provided with enhanced enforcement powers, such as enhanced powers to order compliance in order to protect the consumers’ interests.

The Electricity Pricing, Conservation and Supply Act, 2002

Over the summer of 2002, record-high temperatures drove up the demand for electricity as well as the market price, which resulted in considerable consumer concern. In response, the government introduced the Electricity Pricing, Conservation and Supply (EPCS) Act , 2002. This legislation, which received Royal Assent on December 9, 2002, capped the price of electricity at 4.3 cents per kilowatt hour for residential, small-business and other designated low-volume consumers, effective May 1, 2002 to May 1, 2006. The EPCS Act, 2002, also provided refunds retroactive to May 1, 2002, to compensate those consumers for any costs in excess of the 4.3-cent cap.

Under the Act, all transmission and distribution rates are frozen at existing levels until at least May 1, 2006. Utilities are required to receive written approval from the Minister of Energy before any application for rate changes is submitted to the Board. The EPCS Act, 2002, also deemed any interim rate orders to be final. In addition, the new legislation modified the Board’s objectives in the areas of energy efficiency and conservation with respect to both natural gas and electricity from “facilitating” to “promoting.”

Ontario Energy Board Consumer Protection and Governance Act, 2003

Proclaimed on August 1, 2003, the Ontario Energy Board Consumer Protection and Governance Act, 2003, establishes the new Ontario Energy Board (OEB) as a self-financing crown corporation and gives the Board the opportunity to do its work more efficiently and effectively. In particular, the legislation provides for a management committee and harmonization in many areas in the regulation of gas and electricity.

The legislation further enhances the Board's role in protecting and educating energy consumers. As well, the penalty increases to $20,000 for licensees who are found to be in violation of the OEB Act, 1998 and certain provisions of the Electricity Act, 1998, or the Board's licences, rules or orders.

Ontario Energy Board Amendment Act (Electricity Pricing), 2003

In December 2003, the government introduced the Ontario Energy Board Amendment Act (Electricity Pricing), 2003, which put in place a new interim electricity pricing structure, replacing the 4.3 cent per kilowatt hour (kWh) price cap as of April 1, 2004. Under the interim structure, residential, low-volume and other designated consumers pay 4.7 cents per kWh for the first 750 kWh consumed per month, and 5.5 cents per kWh for consumption above that level.

The Act called on the OEB to develop a new electricity pricing mechanism no later than May 1, 2005. It also charged the OEB with the responsibility to protect and renew Ontario’s electricity grid by ensuring reasonable charges for the delivery of electricity.

The legislation also required the OEB to allow local distribution companies to recoup costs (called “regulatory assets”), the recovery of which had been put on hold in 2002 by the Electricity Pricing, Conservation and Supply Act, 2002 (Bill 210). These recoveries would be spread over a four-year period so that they would have only a modest impact on the final price to consumers.

Electricity Restructuring Act, 2004

In June 2004, the Government of Ontario proposed a restructuring of the province’s electricity sector in order to encourage new electricity supply, energy conservation and stable prices at a level reflecting the true cost of electricity.

The Electricity Restructuring Act, 2004, received Royal Assent on December 9, 2004. The new legislation amends the Ontario Energy Board Act, 1998, and the Electricity Act, 1998.

Highlights of the Act include:

The Board is responsible for developing a transparent mechanism for establishing electricity commodity prices for eligible consumers who have not signed contracts with electricity retailers. The Regulated Price Plan, which took effect May 1, 2005, replaced the interim two-tier pricing of 4.7 cents per kilowatt hour (¢/kWh) and 5.5 ¢/kWh hour that was in place since April 2004.

The Board assumes responsibility for the Market Surveillance Panel, previously the responsibility of the Independent Electricity System Operator (IESO).

A new agency, the Ontario Power Authority, is established to ensure an adequate, reliable and secure supply of electricity in Ontario for the medium and long term. The Board will approve the OPA's fees and its integrated power system plan and procurement process. The Board is responsible for licensing the OPA.

— Under the OPA a new Conservation Bureau is created, headed by a Chief Energy Conservation Officer, to provide leadership in planning and coordination of electricity conservation and demand management.

The IESO is renamed Independent Electricity System Operator (IESO). The IESO continues to operate the wholesale market and be responsible for the operation and reliability of the power system. The IESO also continues to be responsible for short-term forecasting of Ontario’s electricity supply.