Thought Leadership

By Nancy Rubin and James Gamblin

The Government of Nova Scotia has embarked on a path to dramatically reshape the regulation and governance of the energy sector with the passage of Bill 404, the Energy Reform (2024) Act (the “ERA”) on April 4, 2024.^[1] The ERA was introduced to implement certain significant recommendations of the Nova Scotia Clean Electricity Solutions Task Force which released its report to the public on February 23, 2024.^[2] Notably, the ERA received unanimous support from all parties on Third Reading in the Nova Scotia House of Assembly.

The ERA creates two new statutes: More Access to Energy Act (“MAEA”) and Energy and Regulatory Boards Act (“ERBA”).  The ERA also repeals the Utility and Review Board Act and amends the Public Utilities Act, Electricity Act and other legislation.

The MAEA will create an independent energy system operator (“IESO”), which will be responsible for the electricity grid system operator functions currently under the purview of the Nova Scotia Power System Operator^[3], including oversight of wholesale market rules, interconnections, system planning and procurement.

The ERBA will split the existing Nova Scotia Utility and Review Board (“NSUARB”) into two new boards. The newly formed Energy Board (“EB”) will be tasked with the regulation of energy, while the Regulatory and Appeals Board (“RAB”) will be responsible for the remaining non-energy related administrative and adjudicative matters currently under the jurisdiction of the NSUARB.

Changes resulting from the ERA are outlined in further detail below.

Nova Scotia Independent Energy System Operator

Governance and mandate

The MAEA establishes the IESO as a body corporate while specifying that it is not subject to the Nova Scotia Companies Act, nor is it a Crown corporation, nor an agent of the Crown.^[4] The IESO is to be a non-profit corporation, with management and control being vested in a Board of Directors initially appointed by the Governor in Council, and later in accordance with its by-laws.^[5] The independent and non-profit nature of the IESO responds to the concerns expressed by the Task Force regarding the role of NSPI, a for-profit entity, acting as both power utility and system operator. The Task Force suggested that an independent system operator based on a non-profit model would eliminate tensions caused by the interaction of NSPI’s legislated obligations to energy customers and its shareholder obligations.

The MAEA provides that the IESO is to pursue the following objects:

• enter into agreements with transmitters giving the IESO the authority to direct the operations of their transmission systems;
• direct the operation of the IESO-controlled grid;
• establish and enforce criteria and standards relating to the reliability of the integrated electricity system;
• maintain the adequacy and reliability of the bulk electricity system;
• enter into interconnection agreements with transmitters; and
• facilitate the operation of a competitive electricity market.

In support of the above-noted objects, the IESO is to perform the following functions:

• carry out competitive procurements, including for electricity supply, capacity, energy storage, ancillary services and “hybrid peaking resources”, or as prescribed by regulation or considered appropriate in accordance with the Province’s 2030 Clean Power Plan;
• issue administrative penalties in accordance with market rules and procedures; and
• carry out transmission interconnection studies.^[6]

The Task Force had recommended that the IESO oversee open competition for the procurement of all new infrastructure including for generation, transmission, distribution and storage^[7] but, (and as reflected in the MAEA), this has been limited, with Minister Rushton noting that:

I can also confirm that we support the independent energy system operator overseeing open competition for new generation and storage infrastructure. However, at this time, we will not consider extending that responsibility to transmission and distribution.^[8]

Timelines and transitions under the MAEA

While the MAEA has received Royal Assent, it will not come into force until it is proclaimed at a later date. The MAEA also provides that different sections may be proclaimed into force at different dates. The Department of Natural Resources and Renewables expects the IESO to be fully operational by late 2025.^[9]

As the current system operator, NSPI is the owner of assets and infrastructure related to these functions. The MAEA provides that the Minister may make transfer orders which require the transferring of assets, positions, roles and employees from NSPI to the IESO. A transfer order will not require the consent of NSPI, the IESO, or any other person. A transfer order may only be made within two years after Section 35 of the MAEA is proclaimed into force. Transfer orders are broad in scope, extending to “anything” (including assets and land) and the IESO may fix the value of anything transferred.  Disagreements regarding transfer orders may be submitted to the EB.^[10] Transfer orders have the potential to impact entities party to contracts included in Transfer orders. Notably, the MAEA provides that:

49 (1) A transfer by or pursuant to a transfer order

(a) does not constitute:

(i) a breach, termination, repudiation or frustration of any contract, including a contract of employment or insurance or a collective agreement,

(ii) a breach of any Act, regulation or municipal bylaw, or

(iii) an event of default or force majeure;

(b) does not give rise to a breach, termination, repudiation or frustration of a licence, permit or other right;

(c) does not give rise to a right to terminate or repudiate a contract, licence, permit or other right; and

(d) does not give rise to an estoppel.

(2) Subsection (1) does not apply to contracts or classes of contracts prescribed by the regulations.

At this point, it is not clear which contracts or classes of contracts will be exempt from subsection 49(1), as prescribed by the regulations forthcoming under the MAEA. Further, the MAEA provides that transfer orders may be amended within 24-months after issuance but no later than four years after s.35 of the MAEA comes into force, which provides book-ends for when we can expect the transfer to occur.^[11]

The MAEA imposes obligations on NSPI to perform transition functions to support the IESO. Specifically, NSPI must make best efforts to continue to carry out all such functions in the normal course to ensure minimum disruption, and to cooperate fully with the new “Energy Modernization Transition Team.” This team will be chaired by the Deputy Minister of Natural Resources and Renewables or a designate.^[12] NSPI is also required to provide all relevant information and data to allow the IESO to carry out its functions.

Under the MAEA, NSPI is to be the only “standard service supplier” for Nova Scotia, including to its “wholesale customers” (municipal electric utilities under the Electricity Act). These municipal utilities may purchase electricity from a competitive supplier and as standard service supplier, NSPI will continue to have a duty to serve, in the event they return to bundled service. The MAEA outlines notice requirements for these customers and decouples the back-up/top-up tariff and spill tariffs.

Under the MAEA, a license will be required to own or operate a transmission system, direct the operation of transmission systems in the province, provide electricity or ancillary services or engage in an “electricity-related activity” (to be defined in regulations).  The EB will be responsible for issuing, amending, renewing, suspending or revoking licenses.^[13]

Section 105 of the MAEA provides broad powers to the Governor in Council to make regulations under the MAEA. A number of regulations are expected before late 2025 when the IESO becomes fully operational, covering subject areas listed in section 105 of the MAEA. Please consult future Thought Leadership articles published by Stewart McKelvey’s Energy Practice Group on the release of regulations under the MAEA.

Creation of the Nova Scotia Energy Board and Nova Scotia Regulation and Review Board

Consistent with the recommendations of the Task Force, the new ERBA repeals the Utility and Review Board Act. The ERBA effectively reconstitutes the existing NSUARB into the Energy and Regulatory Boards Tribunal which will have two divisions, the EB and RAB.  The mandate of the EB will be to regulate electricity, natural gas, pipelines, retail gas, district energy projects, and other matters as may prescribed by regulation or assigned to the EB.^[14] The ERBA requires the EB to consider a broad array of factors when exercising its authority including:

• competition and innovation in the provision of energy resources in the province;
• development of a competitive electricity market;
• safe, secure, reliable and economical energy supply in the province; and
• sustainable development (as defined in the Environment Act) and sustainable prosperity as defined in the Environmental Goals and Climate Change Reduction Act.^[15]

It remains to be seen how the new EB will exercise its oversight powers to consider factors such as “innovation” and “sustainable prosperity”, which go well beyond its primary focus on economic regulation currently.

The RAB will be responsible for all other matters previously under the jurisdiction of the NSUARB and not assigned to the EB, including assessments, expropriation, matters under municipal legislation, heritage property, motor carriers, taxation matters, as well as any other matters assigned to it by the Governor in Council.^[16]

Regulations made under the former Utility and Review Board Act will continue to be in force. Additionally, existing matters before the NSUARB in advance of the ERBA coming into force which fall within the jurisdiction of the EB or RAB will be continued before either the EB or RAB, as applicable. Where a matter has been heard by members of the NSUARB, it must be heard by those same members, regardless of which of the reconstituted boards they sit on at the time.^[17] The ERBA will come into force at later date upon proclamation. The Province expects that the EB and RAB will be established later in 2024._[18]

Other legislative amendments under the ERA

Electricity Act

Amendments to the Electricity Act, provide that the IESO will be responsible for maintaining and administering standards and processes to govern interconnections to the IESO-controlled grid. This is consistent with the mandate of the IESO established under the MAEA. Additionally, the ERA includes amendments dealing with the issue of compensation for “curtailment.” These amendments will be of interest to renewable energy generators awarded contracts through future renewable energy procurement given the rapid influx of new renewable energy expected to be entering the grid in the next decade. Under the amendments, “curtailment” is defined as follows:

“curtailment” means, based on instruction sent to a generation facility from the system operator, the decrease or cessation of the generation facility’s generation output;

With the amendments, generation facilities will receive compensation where curtailment exceeds 5% of the generation facility’s total energy bid under its power purchase agreement. Generation facilities will be not entitled to compensation if they were not generating energy at the time of the curtailment instruction or in the event of an unforeseeable emergency or force majeure event, as determined by the IESO.^[19] Entitlement for compensation for curtailment will only apply in respect of power purchase agreements entered into on or after March 1, 2024. For generation facilities that entered into power purchase agreements before March 1, 2024, the provisions of those agreements, in conjunction with their generator-interconnection agreement with the system operator, will govern any compensation for curtailment.

Public Utilities Act

ERA amendments to the Public Utilities Act include the addition of a new section concerning “ownership arrangements” between public utilities and third parties.  Under the new section 21B, the Governor in Council may prescribe a project of which the public utility will have partial ownership if the project is required to meet an environmental target, is operated by the public utility, is not an IESO procurement project and provides a benefit to ratepayers.  Each “ownership arrangement” will be deemed to be a public utility for which the EB will establish a separate rate base and separate revenue requirement, to be recovered through an annual assessment.^[20] This is somewhat analogous to the current approach to the Maritime Link and it is anticipated that this mechanism could be employed for the Reliability Tie planned to interconnect Nova Scotia and New Brunswick.

Another notable amendment provides the EB with the power to impose an administrative penalty if NSPI fails to comply with the Public Utilities Act, a directive of the EB, “or has been found to have acted imprudently.”^[21] This is stated to be read with Section 52E respecting administrative penalties which provides that cumulative total of penalties must not exceed $25 million in the calendar year and penalties may not be recovered in rates.  This new power is in addition to the pre-existing power granted to the NSUARB under the Public Utilities Act to compel compliance.

Other amendments to the Public Utilities Act include:

• The removal of the restriction on NSPI-owned nuclear generation; and
• Allowing one person to initiate a complaint against a public utility. Previously, a complaint against a public utility had to be initiated by five people.

The ERA also provides for amendments to a number of other pieces of legislation. Please refer to the ERA for a complete listing of legislative amendments. The ERA will come into force at a later date upon proclamation. It is expected that various amendments may be proclaimed into force at different times.

Conclusion

In Nova Scotia, the ambitious pursuit of renewable energy generation and significant changes to energy regulation and governance are occurring at the same time. More than ever, it is critical for renewable energy developers and their partners to be aware of the impacts of a rapidly changing regulatory landscape. Stewart McKelvey has networks and partners across the Atlantic region and is an active member of the Canadian Renewable Energy Association. We understand the regulatory landscape and the potential for regional economic growth in the renewable energy sector. Our dedicated Energy Practice Group is ready to assist in navigating and adapting to evolving regulatory schemes in the energy sector.

This client update is provided for general information only and does not constitute legal advice. If you have any questions about the above, please contact a member of our Energy Group.

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[1] Bill 404, Energy Reform (2024) Act, 1st Sess, 64th Leg, Nova Scotia, 2024 [ERA] (law amendments committee 4 March 2024).
[2] Nova Scotia, Modernizing Energy: From Transition to Transformation, A Report of the Clean Electricity Solutions Task Force, by Alison Scott, LL.B & John MacIsaac, P.Eng, 31 January 2024 (Nova Scotia: Department of Natural Resources and Renewables, 23 February 2024) online (pdf): <https://cetaskforce.ca/wp-content/uploads/2024/02/Report-February-23-2024-Final-Signed.pdf>
[3]  The NSP System Operator is financially part of Nova Scotia Power Inc. (“NSPI”) but operationally and functionally separate.
[4] More Access to Energy Act, s 7 [MAEA] being Schedule B to Bill 404, Energy Reform (2024) Act, 1st Sess, 64th Leg, Nova Scotia, 2024 [ERA] (law amendments committee 4 March 2024).
[5] MAEA, s. 15.
[6] MAEA, s 10.
[7] Task Force Report, note 2 at 30.
[8] note 4.
[9] Nova Scotia Department of Natural Resources and Renewables, News Release, “Legislation to Modernize Electricity System, Improve Regulation” (27 February 2024), online: <https://news.novascotia.ca/en/2024/02/27/legislation-modernize-electricity-system-improve-regulation#:~:text=This%20change%20will%20enhance%20transparency,fully%20operational%20by%20late%202025.>.
[10] MAEA, supra note 5, s 46(6).
[11] Supra note 5, s 54.
[12] Ibid ss 86-88.
[13] Ibid ss 98, 102.
[14] Energy and Regulatory Boards Act, s 5(1) [ERBA] being Schedule A to Bill 404, Energy Reform (2024) Act, 1st Sess, 64th Leg, Nova Scotia, 2024 [ERA] (law amendments committee 4 March 2024).
[15] Supra note 15, s 6.
[16] Ibid, s 9.
[17] Ibid, s 43.
[18] Supra note 10.
[19] ERA, supra note 1, cl 21.
[20] ERA, supra note 1, cl 60.
[21] Ibid, cl 60.