Highlights from the proposed CDM Code and OEB letter on CDM targets

An IndEco article

By: Judy Simon and Sura Abdul-Razzak


The Ontario Energy Board (OEB) issued a letter on the electricity conservation and demand management targets and issued the proposed Conservation and Demand Management Code (CDM Code) on June 22nd 2010.

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

Proposed 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 CDM Programs and OPA-Contracted Province-Wide CDM programs. The Strategy must confirm that the LDC’s overall CDM portfolio offers CDM programs to all customer types – residential, commercial, institutional, and industrial – having regard to the distributor’s customer base and what is reasonable.

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. The description of the programs must include the program name, the year(s) the program will be in operation, the program’s purpose, the target customer types and, where the information is available, projected budgets and results. It will also include how administrative efficiencies will be pursued through coordination with other electricity distributors, gas distributors, social service agencies, the government, government agencies, or the OPA.

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

The LDC 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 CDM 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
  • 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 CDM Programs

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 CDM programs until the first set of OPA programs have 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 EM&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, indirect and direct expenditures 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 has provided appropriate justification for varying from these lists and has used the OPA’s EM&V Protocols for custom measures not included in the Measures and Assumptions Lists
  • Programs, that relate to an investment in new infrastructure, replacement of existing infrastructure, 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.

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
  • Confirmation that the CDM programs in aggregate will still cover all customer types
  • Cost effectiveness calculations for the programs affected by the re-allocation and confirmation that the program receiving additional funding is still cost effective

Cost effectiveness

With two exceptions, Board-Approved CDM 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 and programs designed for educational purposes. In these cases, distributors must provide adequate evidence that the programs will likely result in peak demand and electricity savings. As part of its consideration for approval of pilot or educational programs, the Board will consider the cost and number of pilot and educational CDM programs already undertaken, or to be undertaken, by the LDC.

Pilot CDM programs will only be eligible for approval if they involve the testing or evaluation of methodologies and/or technologies not already 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 CDM programs must be kept separate from those of OPA programs. An LDC’s earned revenues and incurred expenses from both of the above CDM 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 CDM 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 spending incurred on Board-Approved CDM programs.

Program EM&V

The program results of each Board-Approved Program must be evaluated through an independent third party, selected from the OPA’s third party vendor of records list. The independent third party will prepare a report, which covers the period of January 1st to December 31st of the previous year, on the distributor’s Board-Approved Programs which the distributor must file with the Board at the same time as the distributor’s filing of the Annual Report.

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. 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.

Opportunity to comment on the proposed CDM Code

Comments on the proposed CDM Code are due July 21st, 2010.

Related information


Please click here for previous IndEco articles on the CDM Code and The Green Energy Act
See The Targets letter and The Proposed Code on the OEB website