The proposed changes would allow electricity distributors to earn a Margin on Payments (MoP) of up to 25 per cent of the payments made to DER providers.
The Ontario Energy Board (OEB) is proposing amendments to the Distribution System Code to accelerate the use of third-party distributed energy resources (DERs) as non-wires solutions (NWSs) in Ontario. The proposed changes would allow electricity distributors to earn a Margin on Payments (MoP) of up to 25 per cent of the payments made to DER providers, so long as the projects deliver a net benefit, and the present value of the margin does not exceed half the total projected benefit.
The proposal builds on recent OEB guidance on innovation and DERs as NWSs.1 By formalizing the MoP incentive and setting clear eligibility thresholds, the OEB aims to bring third-party solutions onto a more level footing with traditional infrastructure.2 The goal: to integrate more flexible, cost-effective resources into distribution planning.
The initiative is part of a broader effort to align utility incentives with system efficiency. The OEB has also floated four new Performance Incentive Mechanisms (PIMs), including one aimed at accelerating DER connection timelines.3 Together, these proposals reflect a regulatory system adapting itself to support a more dynamic, decentralized grid.
Stakeholders may comment on the proposed Distribution System Code amendments for the MoP using the OEB’s online portal by June 9, 2025 (EB-2025-0083), and on the proposed PIMs following a presentation on June 3, 2025.4 Further details can be found on the OEB’s website under “Advancing Performance-based Rate Regulation”.
Details of the incentive proposal
To refine and operationalize the MoP model, the OEB engaged Guidehouse Canada Ltd. to assess incentive structures and to develop quantitative eligibility criteria.5 Guidehouse’s 2025 report surveyed practices across seven jurisdictions and recommended a default margin of 25 per cent, along with a set of options for quantitative eligibility criteria intended to ensure customer value and affordability.6 The OEB accepted the default margin recommendation and is proposing modified eligibility criteria.7
In the proposed amendments, the OEB put forward two eligibility criteria:
- The third-party owned solution must have a positive forecast net benefit, as calculated using the quantitative impact categories identified in the Distribution System Test (DST) set out in the OEB’s Benefit-Cost Analysis Framework for Addressing Electricity System Needs (BCA Framework); and,
- The net present value of the forecast MoP incentive amount cannot exceed 50 per cent of the net present value of the forecast net benefit of the proposed third-party DER solution.8
The OEB is proposing some flexibility on the second criteria. Distributors may apply for a MoP incentive that exceeds 50 per cent of forecasted net benefits where they can justify it based on qualitative benefits not captured by the DST’s quantitative impact categories.9
Applicants will still be required to provide evidence of the prudence of the proposed NWS in accordance with the NWS Guidelines.10 Successful applications must maintain payment records and provide periodic reporting on distribution system benefits delivered during and after the incentive term.11
The proposed amendments signal the OEB’s continued effort to support cost-effective alternatives to traditional infrastructure. If implemented, the MoP incentive could give distributors a stronger business case for pursuing third-party DER solutions that benefit both the system and ratepayers.
