From pulse to practice: Reflections from the 2026 Gowling WLG Annual Energy Dinner

On May 27, 2026, senior leaders, regulatory officials, and institutional investors from across the Canadian power sector convened at the Gowling WLG Annual Energy Dinner to critically evaluate and discuss aspects of the transition to a modernized electricity distribution framework.

Framed by introductory remarks from energy sector veteran David McFadden—whose extensive background includes tenure as Chair of Toronto Hydro, Chair of the Ontario Energy Association, and senior partner at Gowling WLG—the forum centred on a keynote address by Anthony Haines. Haines recently served as the Chair of the Panel for Utility Leadership and Service Excellence (PULSE), a strategic advisory group tasked by the Ontario Ministry of Energy and Mines with charting the future of the province's local distribution companies (LDCs).

Conducted under the Chatham House Rule to facilitate a candid exchange of ideas, the reflections captured below do not necessarily represent the specific opinions of any individual speaker or participant. Rather, they reflect the evening’s broader discourse, including insightful table-side conversations that highlighted an electricity sector operating at a profound structural and financial inflection point. Ontario’s distribution grid is simultaneously facing unprecedented load expansion, the end of the lifecycle for legacy assets, and a legislative environment struggling to adapt to the realities of a decarbonizing, digitizing energy-driven economy.

1. The historic arc of consolidation: Structural inefficiencies and future pathways

A recurring and dominant theme of the power distribution sector's current strategic anxiety is the dramatic, yet fundamentally incomplete, evolution of Ontario's utility landscape. To understand the present vulnerabilities of the province's LDCs, one must examine the historical architecture of municipal power in Ontario and the legislative attempts to rationalize it.

The legacy of the municipal electrical utility

Historically, the province’s electricity distribution was operated by a highly fragmented, highly localized network. Following the formation of the Hydro-Electric Power Commission of Ontario in 1906 under Adam Beck, electrification was viewed as a local municipal service, resulting in agreements with over 300 distinct municipalities to provide power at cost. For decades, these municipal electrical utilities (MEUs) operated as extensions of local government, prioritizing localized employment and direct municipal control over regional efficiency.

This structure was profoundly disrupted by the passage of the Energy Competition Act, 1998 (which enacted the Electricity Act, 1998). This landmark legislation broke up the monopoly of Ontario Hydro, separating generation (Ontario Power Generation), transmission (Hydro One), and market operations (the Independent Electricity System Operator, or IESO — formerly the OPA). Crucially for the distribution sector, it mandated the corporatization of MEUs under the Ontario Business Corporations Act, transforming them into LDCs regulated by an impartial Ontario Energy Board (OEB).

This restructuring catalyzed an initial wave of mergers and acquisitions, compressing the sector from 307 utilities to roughly 89 within a few years, eventually arriving at the approximately 59 LDCs operating today. However, consolidation has since effectively stalled, leaving a bifurcated market. While major urban centres are served by large, heavily capitalized entities such as Toronto Hydro, Alectra Utilities, and Hydro Ottawa, dozens of smaller municipalities continue to operate independent, small-scale LDCs.

The unrealized economic imperative for scale

The economic rationale for aggressive, sustained consolidation has been heavily documented but largely ignored due to local political resistance. The 2012 Ontario Distribution Sector Review Panel (the “Elston Panel”), which included David McFadden, concluded that the fragmented sector was inherently inefficient. The panel explicitly recommended consolidating Ontario’s LDCs into eight to 12 contiguous, regional distributors, emphasizing that regional distributors in Southern Ontario should each serve a minimum of 400,000 customers to achieve meaningful economies of scale.

Governance and the fiduciary mandate

The stagnation of consolidation is deeply intertwined with municipal governance structures. For decades, municipalities relied on the steady stream of dividend revenues generated by their wholly owned LDCs to balance municipal budgets without raising local property taxes. This creates an inherent conflict of interest between the political goals of the municipal shareholder and the long-term capital needs of the utility infrastructure.

This tension was starkly illuminated by the 2020 Collingwood Judicial Inquiry, led by Justice Frank Marrocco, which investigated the sale of a 50% interest in Collus Power Corporation. The inquiry, resulting in 306 recommendations, uncovered significant governance and transparency failures that occur when municipal political interests override utility independence. Crucially, the inquiry reinforced that LDC directors hold a strict fiduciary duty to act in the best interests of the utility corporation itself. This duty mandates ensuring the long-term viability, safety, and reliability of the grid, which must take precedence over the immediate fiscal desires of the municipal shareholder.

As the capital demands of the coming decades escalate, maintaining a sub-scale, under-capitalized LDC simply to retain local political control may be construed as a breach of this fiduciary duty. Further legislative action is urgently required to right-size the sector for the realities of electrification and sector digitization.

2. A grid on the edge: The convergence of renewal, expansion, and modernization

The most pressing operational reality facing the Ontario power sector—and a central focal point of the dinner—is that the distribution grid is rapidly running out of available capacity. Driven by the adoption of electric vehicles (EVs), the aggressive expansion of energy-intensive industries, and the provincial mandate to build 1.5 million new homes, the physical infrastructure is being stretched in many areas to its absolute thermodynamic limits.

LDCs are currently squeezed by a "triple threat" of concurrent drivers, each requiring immense and immediate capital deployment:

• Renewal:

  The foundational imperative to replace aging physical infrastructure. Much of Ontario's grid was constructed during the post-war economic boom and the frequency standardization programs of the 1950s. These poles, wires, and transformers have reached the end of their useful lives. As far back as 2011, maintenance and renewal requirements alone were estimated at $16.6 billion over a 20-year horizon.

• Expansion:

  The mandate to support explosive, net-new demand growth. The IESO projects that electricity demand in Ontario could increase by an astonishing 65% by 2050. The electrification of the transportation sector is a primary driver, with EV charging expected to account for 31% of new demand by 2035. Simultaneously, the proliferation of data centres, digital infrastructure, and AI processing nodes is creating localized pockets of hyper-demand that legacy distribution networks were never designed to support.

• Modernization:

  The technical transition of the grid itself. The historical model was a passive, one-way delivery system sending power from large, centralized generators (nuclear, hydro) down to passive consumers. Today, the grid must become a complex, bidirectional system capable of integrating and managing Distributed Energy Resources (DERs). This includes dynamic load management for local solar deployments, commercial Battery Energy Storage Systems (BESS), and vehicle-to-grid (V2G) power flows. Modernization requires massive investments in digital sensors, real-time mapping, and automated control systems.

Systemic under-investment vs. economic benchmarks

Despite these compounding pressures, economic benchmarking indicates that the distribution sector is systemically under-investing in its future. A highly influential January 2026 report by the Ivey Business School demonstrated that the majority of Ontario LDCs currently under-invest in physical assets relative to standard economic benchmarks.^[1]

The Ivey analysis noted that while the median level of under-investment under "business-as-usual" conditions sits at a relatively manageable six percentage points, the reality of grid modernization alters the calculus entirely. Grid modernization inherently requires a move to a temporarily higher investment rate. When evaluated against this elevated baseline, the investment shortfall becomes alarming, with 88% of LDC-years showing measurable under-investment. Utilities are deferring necessary capital expenditures, opting instead for patch-and-repair strategies that degrade long-term system reliability.

3. The geographic mismatch of power, geography, and load growth

Complicating the absolute capacity shortage is a severe geographic mismatch between bulk power infrastructure, generation centres, and economic opportunity. This structural misalignment creates profound logistical hurdles that cannot be solved by simply procuring more generation; they represent physical transmission and distribution constraints requiring highly targeted, localized infrastructure interventions. As remarkable as it sounds, building generation is relatively easy.

The Greater Toronto Area (GTA) presents the most acute example of this paradox. Areas designated for aggressive future residential and industrial development, such as the eastern suburban corridors, currently possess the least available electrical capacity. Areas that require massive new loads to support vertical densification, such as downtown Toronto, physically lack the space required to build the large-scale terminal stations and high-voltage transmission corridors necessary to import that power.

The IESO's regional planning processes, particularly the Toronto Integrated Regional Resource Plan (IRRP), have starkly outlined these deficiencies. Ontario generates a massive portion of its baseload, zero-carbon power in the east, notably at the Darlington and Pickering nuclear generating stations. Effectively moving this power into the load centres presents immense challenges.

4. The dual uncertainty of meeting future demand: Navigating the capital deficit and ratepayer impacts

There remains profound, sector-wide anxiety regarding exactly how the province will finance the surging demand for power. The intersection of required infrastructure expansion and the limitations of municipal finance has created a severe two-front financial challenge: managing the capital deficit and mitigating the ratepayer impact.

The sheer scale of the financial requirement is staggering. The Electricity Distributors Association (EDA), in its landmark policy paper Solving Grid-Lock: Our Vision for a Customer-Centric Energy Transition, modeled the financial realities of the transition. The data is unequivocal: Ontario must invest between $106 billion and $120 billion solely into local distribution infrastructure over the next 25 years.^[2]

Crucially, this $120 billion figure is strictly isolated to the localized "poles and wires" operated by LDCs. It is entirely separate from the $400 billion that the IESO forecasts will be required for bulk provincial transmission and new generation capacity (e.g., the massive $26 billion nuclear refurbishments at Bruce Power and Darlington, the deployment of Small Modular Reactors, and the Long-Term 2 procurement targeting 14 TWh of new energy). Combined, the Ontario energy system is facing a half-trillion-dollar capital requirement by mid-century.

The limits of municipal debt tolerance

The profound uncertainty lies in where the necessary financial resources will originate, especially given historical limitations on municipal capital. Traditional funding for utilities relies on OEB-approved return on invested municipal capital and recovery of the cost of debt issued by the utility. Without access to additional municipal shareholder capital, utilities would be forced to issue billions in additional debt to fund the $120 billion shortfall without the injection of balancing equity. Such a weakened actual capital structure risks triggering immediate credit rating downgrades, which would exponentially increase financing costs across the sector. Furthermore, LDCs have historically been excluded from federal capital support mechanisms that assist other infrastructure sectors.

5. The PULSE Report: Goals, governance, and the legislative trajectory

The focal point of the Gowling WLG Annual Energy Dinner was the trajectory of PULSE. Launched in October 2025 by Minister of Energy and Mines Stephen Lecce, and chaired by Anthony Haines, the panel operated as a strategic advisory group. Its mandate was explicitly targeted at resolving the systemic blockages detailed here.

The panel has now completed its work and successfully submitted its final report to the Ontario government. At present, the report is sitting with the government awaiting further action and has not yet been made public.

The most significant barrier PULSE was tasked with addressing the federal and provincial tax framework that actively punishes municipal divestment of municipal utilities, colloquially known as the "Payments in Lieu of Taxes" (PILs) regime trap. To bridge the $120 billion gap without bankrupting municipalities or ratepayers, the sector must attract capital—such as pension funds, real estate trusts, and private equity.

However, under the Electricity Act, 1998, municipal LDCs are exempt from federal income tax, provided that at least 90% of their equity is held by public municipal entities. Instead of paying federal tax, these utilities pay PILs directly to the Ontario government. If a municipality attempts to raise capital by selling more than 10% of its utility to an institutional investor, the LDC immediately loses its tax-exempt status. This exit from the PILs regime triggers a "departure tax," as well as a catastrophic deemed disposition wherein the LDC is treated for tax purposes as having disposed of all its assets at Fair Market Value (FMV).

While the Ontario government recently provided some relief by committing to implement a 0% Transfer Tax rate until December 31, 2028, the core barrier remains: the federal depreciation recapture liability. Estimated at a corporate rate of approximately 26.5% of the recapture amount, this liability remains intact and payable. For most distribution utilities, this represents a devastating (deal-killing) financial penalty.^[3]

This punitive framework fundamentally destroys the business case for institutional investment. Industry advocates, the EDA, and economic think tanks like the C.D. Howe Institute are intensely lobbying the federal government of Canada to amend the Income Tax Act to decouple the 10% ownership threshold from the mandatory depreciation recapture liability.^[4] Without this reform, the institutional capital required to save the Ontario grid and put the province’s highly capable distribution sector on track for the decarbonized and digitized future remains blocked.

Conclusion

The electrification of our economy and the rapid digitization of the power sector are no longer just future goals; they are actively unfolding. Ontario’s electricity grid is fast transforming from a historical patchwork of local municipal assets into the very foundation of the province’s long-term economic competitiveness.

To navigate this transition successfully, several clear strategic imperatives must be met:

• Federal tax reform to unlock private capital:

  The projected $120 billion distribution capital deficit cannot be met through municipal debt and rate increases alone. The federal government must dismantle the "PILs trap" by decoupling the 10% non-municipal ownership threshold from the punitive depreciation recapture liability. This single tax correction would instantly clear the path for deep pools of Canadian pension and private capital to invest in grid modernization.^[5]

• Proactive, future-focused grid planning:

  If we are to build 1.5 million new homes and support massive new industrial loads, we must stop planning our grid in the rearview mirror. Leveraging the new "economic growth" mandate under Bill 40 can support anticipatory, forward-looking investments in capacity before the shovel hits the dirt, preventing the grid from becoming a bottleneck to growth.

• Coordinated, creative transmission solutions:

  Using DERs-first innovation to resolve the supply squeeze in the Eastern GTA and moving clean energy from eastern generation hubs to downtown load centres demands bold, multi-billion-dollar bulk transmission projects. Planners should actively advance innovative options—such as submarine cables under Lake Ontario—while utilizing streamlined provincial approvals to bypass local delays and build on time.

• Consolidation is no longer optional:

  Keeping 59 distinct LDCs active in Ontario may be an unsustainable legacy of a simpler era. Municipalities can no longer treat local utilities as simple budget-balancing piggy banks. Fiduciary duty and operational reality dictate that the best way to protect long-term community value is to proactively seek regional scale through voluntary consolidation before financial pressure forces a rescue sale or legislatively directed consolidation.

• Parity in federal infrastructure funding:

  Beyond tax reform, local utilities need to be on an equal footing with bulk generators and transmitters. The federal government should grant LDCs direct access to clean energy support programs, including funding from the Canada Infrastructure Bank and clean economy ITCs, to help offset the massive costs of this local buildout.

The choices made by municipal shareholders, utility boards, provincial regulators, and federal tax policymakers in the coming months—guided by the recently submitted (though not yet public) PULSE recommendations—will dictate economic viability, affordability, and energy security for their communities for generations.