A distinct electricity rate for facilities with average peak demand of 1 megawatt (MW) or more is part of a proposed package of requirements for data centres seeking to connect to Ontario’s power grid. Details are sketched out in a newly released policy framework that’s open for public comment before the Ontario government finalizes authorizing regulations.

A consultation document posted on Ontario’s regulatory registry asks for input on removing future large data centres from the Industrial Conservation Initiative (ICI) — the mechanism that currently underpins how the global adjustment (GA) portion of electricity costs gets allocated to commercial and industrial consumers that aren’t eligible for the regulated price plan (RPP). As proposed, existing data centres with average monthly peak demand of at least 1 MW (1,000 kilowatts) would continue to qualify as Class A consumers for ICI purposes, provided they attest that they are not mining cryptocurrency.

The pending regulations were enabled through Dec. 2025 amendments to the provincial Electricity Act, which allow the Minister of Energy to specify types of electricity-using facilities that must meet special conditions to obtain approval to connect to the electricity grid, and to set those conditions. The Ontario government is now indicating that it intends to assess and rank applications for grid connection based on the proposed project’s potential to:

• support economic development;
• provide a secure, domestic base for critical data and digital infrastructure; and
• deliver spinoff benefits to host communities with minimal impact on the environment, utilities and other technical capacity.

That includes consideration of how data centre load could affect functioning of the electricity grid and competing demands for the power.

Prospective developers could merit more favourable assessments for incorporating on-site generation, energy- and water-saving technologies and noise-reduction measures. The government is reserving flexibility to provide perks like fast-track permitting processes for developments that align with its priorities, but it pledges that no financial incentives will be offered to lure data centre investment to the province.

“Ontario will be introducing a new higher electricity rate for data centres, in addition to prioritization for projects that generate their own power,” says Stephen Lecce, Ontario’s Minister of Energy and Mines.

Exclusion from discount options

It’s estimated that data centres currently account for 100 to 200 MW of demand in Ontario’s electricity system. Based on applications for connection to the grid, it’s foreseen that could soar to as much as 10,000 MW — significantly contributing to a projected 75 per cent increase in province-wide electricity demand by 2040. The new policy framework stipulates that data centres will be expected to pay the “full cost” of the grid-supplied power they use.

It’s proposed that facilities that come onto the grid with monthly average peak demand of 1 MW or more would be designated as Class C. That would separate them from the Class A customers that pay a share of monthly GA costs prorated to their electricity demand in the five hours of systemwide highest demand during the 12-month period from May 1 to April 30 of the previous year. Class B customers with monthly average peak demand below 1 MW currently pay the GA on a per kilowatt-hour basis after Class A’s quotient is subtracted from the total pot, but, presumably, that formula would also account for Class C in the future.

“ICI was designed to encourage large customers to reduce their demand during Ontario’s highest system peaks. If a data centre has a relatively constant load and cannot materially reduce it during those peak periods, it is reasonable to question whether ICI is the appropriate mechanism,” observes Scott Rouse, managing partner with the energy management consulting firm, Energy@Work. “Alternatively, if a data centre can use storage, on-site generation or a combination of the two to reduce its demand for those five critical hours, it could get discounted electricity for the year. So I can see the rationale for a separate rate class.”

The consultation document poses six questions about the structure, implementation and implications of a distinct rate class, including two that explore criteria and operational practicalities for granting exemptions. Local distribution companies (LDCs) and data centre operators are specifically polled for their views, along with broader questions for all interested parties.

Participants are generally invited to cite risks and/or costs that data centre demand creates for the electricity system that should be apportioned to a new rate class, and to recommend how the cost elements of the rate should be structured. LDCs are asked about administrative requirements for establishing a new rate class, while data centre operators are asked about the potential operational and financial impacts of a new rate class and/or exclusion from ICI eligibility.

Exemptions hinted

Neither the Ontario government’s policy backgrounder nor the on-line summary accompanying the public consultation alludes to scenarios in which data centres might be exempted from the proposed rate class, but two questions hint that exemptions are under consideration. Both trigger reservations from some onlookers.

Respondents are asked: “What criteria, such as customer type, service criticality, ownership or load characteristics, would be most appropriate for determining eligibility for an exemption from the proposed new rate class?” As well, LDCs are asked how feasible it would be to verify if facilities meet exemption criteria.

“Any exemption needs to be narrowly defined, transparent and objectively verifiable,” Rouse maintains. “Otherwise, we could end up debating what is, or is not, a ‘critical’ data centre rather than addressing its actual impact on the electricity system and community.”

Taking it to another philosophical level, Andrew Pride, an engineer and energy management specialist, argues there shouldn’t be any value judgements about one consumer’s worthiness compared to another’s within the same rate class.

“I don’t believe electricity rates should be used as an economic development tool. That’s where tax policy is more appropriate,” he asserts.

The government’s data centre framework identifies some examples of “cutting-edge technology” that could help developers achieve better ranking for obtaining grid connections, including: closed-loop and waterless cooling systems that recirculate fluids rather than constantly drawing water supply; direct-to-chip liquid cooling that carries heat away from processing chips; waste heat recovery systems; and various measures to muffling noise emissions.

These would all be recognized as measures for saving energy, reducing greenhouse gas (GHG) emissions and mitigating other detrimental impacts on host communities. Municipalities would have to rely on provincial decision-makers to look out for their interests through this approach since recent amendments to the Municipal Act and City of Toronto Act now prevent local governments from mandating sustainable design features through site plan control.

On the rate design front, Rouse recommends that a Class C electricity rate leverage the improvements to hourly and day-ahead price signals that the Independent Electricity System Operator (IESO) has introduced in the past couple of years.

“A new data centre rate could potentially combine an appropriate global adjustment allocation with stronger price signals for when electricity is scarce or the system is constrained,” he says.

Pride suggests the Class C rate should reflect the pricier generation that will be coming on-line to meet projected demand.

“It would seem reasonable that the new large user should pay proportionate to the new nuclear supply and not benefit from the decades of efficiency and legacy low-cost energy from hydroelectric, solar photovoltaic and wind, etc.,” he submits. “Plus, data centres fundamentally have a fixed load, which matches nicely with nuclear’s base load.”

The public consultation is open for submissions until September, 12, 2026.