Reset For Renewables: Nova Scotia Overhauls Energy Regulation And Governance In Advance Of Influx Of Renewable Energy – Renewables

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 Operator³,
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 storage⁷
but, (and as reflected in the MAEA), this has been limited, with
Minister Rushton noting that:

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:

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:

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.

Footnotes

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.

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