IESO will begin opening some transmission projects to competition under a hybrid rate model, with cost-of-service rates following an initial 10-year contract.

IESO, which has about 1,500 kilometers of new transmission lines planned or under development, says competition will lower costs and produce innovation.

The first projects eligible for competition may be identified as soon as the fourth quarter of 2025 when recommendations from the South and Central Bulk Study are due. The grid operator also has two other major transmission projects underway, with recommendations from the North of Sudbury Bulk Study and Eastern Ontario Bulk Study expected in 2026.

Once projects suitable for competition are identified by IESO, the province will issue a directive to formally launch competitive procurements.

Incumbent Projects

But only some projects will be open for competition.

“Not every project will be suitable for transmission procurement,” Denise Zhong, IESO senior manager for resource adequacy and sector evolution, told more than 70 attendees at a June 25 webinar outlining the ISO’s Transmitter Selection Framework Registry (TSF-R). “In fact, the majority of the projects that will be recommended through transmission planning will likely go to an incumbent transmitter. But we’re looking at a very small subset of projects that will meet certain eligibility considerations.”

The registry will allow prospective transmission builders to prequalify for upcoming procurements. Prequalifying bidders will cut procurement timelines by more than six months compared to issuing separate Requests for Qualifications for each procurement, IESO said. The Ministry of Energy and Mines’ Integrated Energy Plan directed IESO to launch the registry by Aug. 15.

The plan listed three major projects that have been assigned to incumbent Hydro One.

To expand the province’s north-south infrastructure, IESO is backing a Barrie-to-Sudbury 500-kV single circuit line due in service in 2032 and has recommended beginning early development work on a second 500-kV line along the same route.

“IESO has determined that these projects are not suitable for a competitive procurement process given their urgent need,” the Ministry said. Thus, the government will direct the Ontario Energy Board to designate Hydro One to develop the first line and to begin development work on the second.

Another project to strengthen the north-south “backbone,” reconductoring the 230-kV Orangeville-to-Barrie line, also will be awarded to Hydro One, because it owns the line.

IESO also has rejected competition for a new double-circuit 500-kV line from Bowmanville Switching Station to an existing 500-kV station in the Greater Toronto Area, again selecting Hydro One.

Rate Model

IESO said it has decided to use a “partial contracting” model in which the winning bidder will receive a contract covering all costs of financing, designing, building, operating and maintaining the line for the first 10 years of its commercial operation. In year 11, it will transition to traditional rate regulation under the OEB.

“To support a smooth trend in annual payments and consistent payments over the life of the asset,” the ISO said it will limit the year 11 payments to a percentage increase over year 10.

“So, for example, the contract may limit the filing amount for year 11 to be within 5% of the payment that was made through the IESO contract in year 10,” Nicole Kosonen, senior adviser for capacity integration and development, said during the webinar.

By holding developers to proposal costs and schedules, the partial contracting approach will protect ratepayers while working within the existing rate regulation framework, the grid operator said.

It rejected both a “selection only” option, in which it identifies a developer and immediately enters rate regulation under the OEB, and a “full contracting” model, in which the ISO signs a contract with the developer for the life of the transmission asset.

IESO said ratepayers will assume the risk of project scope, changes in law and early termination while developers would assume risks regarding routing, land acquisition, design, construction, operations and financing. The two parties will share risks of Force Majeure, tariffs and inflation, it said.

Indigenous Participation

To encourage Indigenous communities to participate in TSF projects impacting them, the rules allow the communities to engage with multiple bidders, barring developers from signing exclusivity arrangements.

IESO also has proposed that bidders submit an Indigenous Engagement and Participation Plan to identify the “engagement approach and participation opportunities” for impacted Indigenous communities.

“Those that have a higher overall level of Indigenous participation may be scored higher in the IESO’s proposal evaluation,” the ISO said.

Experience Requirements

To join the TSF-R, prospective bidders must meet requirements for experience and financial capacity.

To balance the desire for competition with the need to ensure developers have appropriate technical capabilities, the ISO said it will allow potential bidders to demonstrate their capabilities via the experience of affiliated companies.

The proposed rules require the applicant or an affiliate to have built at least two transmission lines of at least 200 kV and 30 kilometers within the past 20 years.

FortisOntario, which owns three local distribution companies, was among those calling for crediting companies for their affiliates’ experience. In comments submitted in April, the company noted that it is a subsidiary of Fortis, which owns 10 regulated utilities, including ITC, the largest independent transmission company in the U.S. “Without recognizing the value of decentralized companies, the draft rules risk creating barriers for parent companies that, despite lacking a transmission license, possess the scale, expertise and established presence in Ontario needed to deliver reliable and cost-effective transmission solutions,” it said.

Feedback to Date

IESO said it had received “broad support” from stakeholders for its proposed TSF-R program rules, although there were requests for greater clarity on efforts to encourage Indigenous involvement.

FortisOntario urged the ISO to open competition for projects above 115 kV, saying the competitive plan “currently appears focused on projects above 200 kV.”

Some stakeholders requested more clarity on credit rating requirements for smaller or privately held firms. Hydro One said IESO should boost the minimum net worth of proponents not already licensed by OEB as a transmission company to $500 million from its proposed $200 million, noting that the ISO has said the minimum project size for the TSF is $100 million.

“Taking on a project that would involve more than half of the net worth of the entire company could create significant risk for Ontario ratepayers if the project is beset with large budget overruns,” Hydro One said.

Next Steps

IESO still has to define the criteria that will be used to evaluate competing proposals, including bid parameters and cost caps.

The grid operator said it seeks feedback on whether its proposed bid structure and risk allocation “strike[s] the right balance between protecting ratepayers while providing an attractive proposition to transmitters and financiers” and how it should evaluate bidders’ proposals for providing “meaningful Indigenous economic participation and engagement.”

It also asked for ways to reduce bidders’ risk premiums and whether it should use a “highly prescriptive approach” to cost-containment or leave it open for bidders to include in their proposals.

Written feedback or questions are due to engagement@ieso.ca by July 16. The IESO plans to compile answers in an FAQ document.

IESO plans another engagement session in September to discuss its draft term sheet and additional RFP and contract design details.