The Ontario Energy Board and Demand-Side Management Cathy Spoel Ontario Energy Board Toronto, Ontario September 8, 2004

The Ontario Energy Board Independent crown corporation established under the Ontario Energy Board Act, 1998 Economic regulator of electricity and natural gas Conducts open processes to address energy regulation Issues Orders, Rules, Licences and Codes that are binding on energy sector participants

The Board’s Natural Gas Experience Since 1993, the two major gas utilities in Ontario have managed Demand Side Management portfolios within the framework set out in Board Decision EBO169-III. programs are offered through the gas utilities, energy services companies, and channel partners commitments set and monitored through DSM consultative process The Board approves the ratemaking implications of utilities’ DSM investments and expenditures

Earlier Electricity Experience In 1990, Ontario Hydro’s DSMactivities generated net annual system savings of approximately 220 MW programs were offered through Ontario Hydro, energy services companies, and channel partners several Municipal Electric Utilities cooperated with Ontario Hydro, or acted independently, in the promotion and delivery of DSM The Board reviewed Ontario Hydro’s plans and supported the utility’s direction

Electricity Distribution Rate Adjustment and Conservation May 31, 2004 Minister of Energy authorized electricity distributors to apply to the Board for their final rate adjustment effective March 1, 2005 (so-called “3rd tranche” of Market Adjustment Revenue Requirement, MARR) Eligibility conditional on distributor spending one year’s worth of the monies on conservation and demand management (approx. $225 million if all distributors apply) July 16, 2004 The Board issued preliminary guidelines and instructions for deferral accounts August 30, 2004 The Board issued information bulletin on pre-approval of activities

Board Process for Distributor “3rd Tranche”

Key Issues Prudence Review of “3rd Tranche” Spending Distributors have until September 30, 2007 to complete “3rd tranche” spending Prudence review will focus on whether: funds have been spent in accordance with the distributor’s plan; and whether the commitments in the distributor’s conservation and demand management plan have been met

Key Issues Revenue Protection for Distributors Distribution revenues vary with energy consumption of a distributor’s customers Successful conservation can erode a distributor’s bottom line The Board intends to develop an “interim” revenue protection mechanism in time for distributor applications for May 2006 distribution rates

Key Issues Cost Recovery After 3rd Tranche Spending A distributor’s conservation and demand management expenditures might exceed their 3rd tranche allowance The Board intends to develop an “interim” cost recovery mechanism in time for distributor applications for May 2006 distribution rates

Key Issues Distribution Line Losses Power consumers bear the full cost of energy losses in distribution systems Distributors have no financial incentive to take steps to reduce these losses The Board may identify and remove any disincentives that distributors have to improve their losses as part of rate making for 2006

Progression to Sustainable Regulatory Framework Consultation and review on progression to a sustainable regulatory framework Expect to commence work after interim solutions on revenue protection and cost recovery are developed for 2006 distribution rates Take into account the activities of the Ontario Power Authority’s Conservation Bureau (including monitoring and evaluation methodologies) Learn from experience with the revenue protection and cost recovery mechanisms to be used in 2006

Thank you!