Highlights from the CDM Code and OEB letter on CDM targets

An IndEco article

By: Judy Simon, Sura Abdul-Razzak and Amy Snook


Update 2010-09-16: The OEB released the final CDM Code on September 16, 2010 and a letter about the finalization of CDM targets on September 22, 2010. Changes codified in the final CDM Code since the original article on the proposed CDM Code follow after the symbol.

This article includes a summary of the final CDM Code, a more detailed discussion of the Code, and information on LDC CDM targets.

CDM Code summary

CDM Strategy

  • LDCs must include the rationale for why the LDC is not offering a CDM program to a particular customer type
  • LDCs must include a statement as to whether the LDC will offer CDM program(s) to low-income customers and the rationale for that decision

Annual reports
  • If the LDC has a pilot or educational CDM program, the LDC must include a section explaining the results of the program and describe how the data or information from the program may be used in the operations of, or planning frameworks for, future CDM initiatives.

Funding re-allocation
  • If an LDC wishes to re-allocate funds among Board-Approved Programs in excess of 30% of an approved budget for an individual program, the LDC must apply to the Board with an application that contains, in addition to the previous information, the rationale for the re-allocation.

Cost effectiveness
  • In addition to pilot and educational programs, low-income programs do not need to be cost-effective. LDCs must run the OPA’s Cost Effectiveness Tests for the programs and report the results to the Board as part of the application for Board approval of the program.
  • The criteria for pilot CDM programs changed from involving the testing or evaluation of methodologies and/or technologies not already to not generally used in Ontario.

Accounting treatment
  • LDCs are not the beneficiary of any Environmental Attributes arising in relation to electricity savings from Board-Approved Programs, but must hold these attributes for later disposition by the Board.

Performance incentive
  • LDCs will be eligible for a performance incentive once 80% of the LDC’s target for peak demand savings and 80% of the LDC’s target for energy savings is met. After this point, the performance incentive is split; it will be calculated based on the range the LDC achieves for either its peak demand or electricity target.


CDM Code highlights

CDM Strategy

An LDC’s CDM Strategy is to provide a high level description of how the distributor intends to achieve its CDM targets. LDCs have the flexibility to meet their targets through Board-Approved Programs and OPA-Contracted Province-Wide CDM programs. The Strategy must confirm that the LDC will offers CDM programs to all customer types including but not limited to low-income customers, residential, commercial, institutional, and industrial customers. The Board will consider the distributor’s customer base and what is reasonable. If an LDC chooses not to offer any CDM program to a particular customer type, the LDC must provide the rationale for this decision.

The Strategy will also include how administrative efficiencies will be pursued, how the distributor will coordinate its CDM activities with other organizations and a statement as to whether the LDC will offer CDM program(s) to low-income customers and the rationale for that decision.

The high-level description of the Strategy must be broken down to a year-by-year plan and include annual milestones for achieving the CDM targets (peak demand and energy savings). It must also contain a description of each of the CDM programs, and this description must include, where available, the program name, the year(s) the program will be in operation, the program’s purpose, the target customer types, and projected budgets and results.

The Strategy must be filed with the Board by November 1st, 2010. Upon confirmation from the Board that the strategy is complete, the LDC must make it available to the public at the LDC’s office, and on the LDC’s website (in the case where the LDC has a website).

Annual reports

LDCs must file an Annual Report with the Board each year. The Annual Report must provide an overall review of the activities undertaken by the distributor in the calendar year in order to achieve the CDM targets. The Annual Report must contain the following sections for both Board-Approved Programs and OPA-Contracted Province-Wide CDM Programs:

  • An introduction – provides general overview of programs undertaken
  • For each CDM program provide: a program description, program objectives, targeted customers, activities, participation levels by customer type, and expenditures made
  • A description of the verified electricity savings (kWh) and peak demand savings (kW) achieved based on OPA EM&V protocols
  • A detailed discussion that reports on the EM&V results for each Board-Approved Program and each OPA-Contracted Province-Wide CDM Program using OPA EM&V protocols
  • The balance in the distributor’s CDM variance account that shows total spending on Board-Approved CDM Programs for the year applicable to the Annual Report
  • A summary of progress made towards meeting CDM targets, an explanation of any significant variances between the annual milestones and the verified results achieved for the reporting year, and an explanation of the potential impact of the variance in achieving the CDM targets
  • Any changes or planned modifications to the CDM Strategy
  • Any additional information the distributor feels is appropriate, including but not limited to any improvements to its Board-Approved Programs, and
  • If the LDC has a pilot CDM program or an educational CDM program, a section that provides an explanation of the results of the program and describes how the data or information from the program may be used in the operations of, or planning frameworks for, future CDM initiatives.

The Annual Reports are due on September 30th of each year (from year 2012 to 2015), and provide CDM reporting on the period from January 1st to December 31st of the previous year. The first Annual Report must be filed by September 30th 2012. The Annual Report must be made available to the public at the LDC’s office, and posted on the LDC’s website by the September 30th deadline (in the case where the LDC has a website).


Board-Approved CDM programs

LDCs must not apply for Board-Approved Programs until the first set of OPA programs has been established. Board-Approved Programs must end by December 31st, 2014. The distributor’s application for a proposed Board-Approved CDM Program must include:

  • A program evaluation plan based on OPA E,M&V protocols
  • A benefit-cost analysis using OPA’s Cost-Effectiveness Tests
  • Detailed explanation of the program objectives and method of delivery
  • Targeted customers
  • Forecasted number of participants
  • Projected peak demand savings and electricity savings per year, or equivalent if the program is less than one year
  • Projected annual budget, including projected annual expenditures broken down by customer incentives and program costs, allocable costs and marginal costs for program implementation, information on expenditure allocation by customer type for each direct expenditure, and total projected expenditures for the program evaluation
  • Confirmation statement that the distributor has used the OPA Measures and Assumptions Lists or if the LDC has varied from the OPA’s Measures and Assumptions Lists, the LDC must appropriately justify the reason for varying from these lists, provide the technical assumptions and substantiating data that the LDC has used, and provide a statement that the LDC has followed the OPA’s E,M&V Protocols for custom measures not included in the Measures and Assumptions Lists.

Board-Approved programs must not be 'duplicative' of an existing OPA-Contracted Province-Wide CDM Program. In the Board's Notice of Issuance of a New Code, the Board has defined 'duplicative' as 'not substantively different' from an OPA program. For example, a difference in incentive level, qualification requirements, technology specifications, marketing approaches, or budgets would not be sufficient to create a substantively different program.

Programs that relate to an investment in new infrastructure, replacement of existing infrastructure, or relate to any measures an LDC uses to maximize the efficiency of new or existing infrastructure, or are associated with the OPA’s Feed-in Tariff Program or the OPA’s Micro Feed-in Tariff Program, are not eligible to be a Board-Approved CDM Program. These initiatives are not considered CDM initiatives and are not eligible for approval under the CDM Code.

In order to re-allocate cumulative fund transfers among Board-Approved Programs in excess of 30% of an approved budget for an individual Board-Approved CDM program, the LDC must apply to the Board with an application that contains:
  • Current and proposed budgets for programs affected by the re-allocation
  • A description of the programs from which and to which the funds are being re-allocated and the rationale for the re-allocation
  • Confirmation that the CDM programs in aggregate will still cover all customer types as far as is reasonable having regard to the customer base
  • Cost effectiveness calculations for the programs affected by the re-allocation and confirmation that the program receiving additional funding is still cost effective.

If the Board approves a CDM program, the approval will include a determination regarding the amount and timing of payments to be made by the IESO.

Cost effectiveness

With three exceptions, Board-Approved Programs must be cost effective according to the OPA’s cost-effectiveness tests. The cost-effectiveness tests must use the OPA’s Measures and Assumptions Lists, or otherwise provide justification for varying from these lists. Exceptions to the requirement for cost-effectiveness tests are restricted to pilot programs, programs designed for educational purposes, and low-income programs. In these cases, distributors must provide adequate evidence that the programs will likely result in peak demand and/or electricity savings. As part of its consideration for approval of pilot, educational programs, or low-income the Board will consider the cost and number of pilot, educational, and low-income programs already undertaken, or to be undertaken, by the LDC.

While low-income CDM program do not have to be cost effective, LDCs must run the OPA’s Cost Effectiveness Tests for the programs and report the results to the Board as part of the application for Board approval of the low-income CDM program.

Pilot CDM programs will only be eligible for approval if they involve the testing or evaluation of methodologies and/or technologies not generally used in Ontario, do not duplicate existing CDM pilot programs (either undertaken by the OPA or other distributors), and the distributor has already applied to the OPA for CDM program funding and was not granted this approval.

To obtain approval for a pilot program, the distributor must provide a detailed description of the costs and benefits of the program, demonstrate how the program will increase collective understanding of the methodology/ technology and its benefits and specify customer types and number of participants; and provide a report with the Board on the expected outcomes and benefits.
To obtain approval of an education program, the distributor must demonstrate how the program will promote understanding of energy issues and lead to behavioural changes that result in reductions in electricity demand and consumption. The distributor must identify customer types to be targeted, number of participants, explain why the program is needed, articulate the educational approaches to be used, provide estimates of program costs and describe the anticipated program benefits.

Accounting treatment

A distributor must use a fully allocated costing methodology for all CDM programs. An LDC’s earned revenues and incurred expenses from Board-Approved Programs must be kept separate from those of OPA programs. An LDC’s program funding and program expenditures from both of the above CDM program streams must be kept separate from the LDC’s distribution operations and must not be included in the distributor’s distribution revenue requirement. Spending on Board-Approved Programs must be tracked in a Board-approved CDM variance account. This account will be used to record the difference between funding amounts and actual expenditures incurred on Board-Approved Programs. A distributor must hold the Environmental Attributes that are related to or result from Board-Approved Programs, but must not be the beneficiary of them. Disposition of the benefits will be determined by the Board at a later date.

Program EM&V

LDCs must file a third party reviewer’s report [Evaluation Report], containing the review of the LDC’s Board-Approved Programs for the previous calendar year, with the Board each year at the same time as the Annual Report (September 30th of each year, 2012-2015). The independent third party must be selected from the OPA’s third party vendor of records list and that third party must use the OPA EM&V protocols.

Performance Incentive

LDCs will be eligible for a tiered performance incentive mechanism for verified electricity savings with incentives beginning once a distributor meets 80% of each of its CDM targets, after which point the performance incentive will be calculated based on the range the LDC achieves in either of its electricity or peak demand target. Incentives are capped for the particular target once 150% of that target is met. The LDC must provide verified results for these savings at the time of application for a performance incentive. An independent third party selected from the OPA’s third party vendor of records list must complete this verification. The incentive is calculated across the distributor’s entire portfolio of Board-Approved and OPA-Contracted Province-Wide CDM Programs.

Background on this new incentive mechanism and a free calculator to see how different CDM results will affect the incentive you will receive, is available here.

LDC CDM targets

The targets and target-setting methodology were developed by the OPA in consultation with LDCs. The individual LDC CDM targets are derived from the total reduction target of 1330 MW of provincial peak reduction and 6000 GWh of reduced electricity consumption over the four-year period beginning January 1st 2011.

The methodology used to divide these targets into energy savings among individual LDCs is based on each LDC’s share of total annual energy consumption, by customer account type based on the most recent year of available data. Annual energy consumption data was taken from the 2008 OEB Yearbook of Distributors.

Peak demand savings targets are based on each LDC’s contribution to the system peak demand. The allocation is made using a peak demand target allocation factor based on each LDC’s average contribution to the top ten system peak hours, calculated as the average over the most recent two years of available data.

Comments on CDM targets and methodology

The Board invited comment on the proposed targets and target-setting methodology. In particular, the Board sought comments on the appropriateness of using a single year’s data as the basis of the CDM targets (and if so, whether 2008 data or 2009 data should be used), or if it would be more appropriate to use multiple years of data (and if so, how many years of data?).

The Board issued for comment the proposed CDM targets for LDCs on June 22, 2010. Written comments from stakeholders were received by the July 7, 2010 deadline and the Board is currently working on finalizing the CDM targets. The Board expects all LDCs to use the proposed CDM targets to develop their CDM Strategy document in advance of receiving the finalized CDM targets. The Board expects that finalized targets will be available before the November 1st deadline for the CDM Strategy.

Related information


Please click here for previous IndEco articles on the CDM Code and The Green Energy Act
See The Targets letter and the CDM Code on the OEB website
Background on incentive mechanism and free incentive calculator