The Ontario government plans to establish its authority to designate critical gas transmission projects and reaffirm the existing cost recovery model for connecting natural gas service to new residential development. Proposed amendments to the Ontario Energy Board Act, recently tabled as Bill 165, come after the Ontario Energy Board (OEB) issued a ruling that would have added an estimated $4,400 to the cost of a home or small commercial building in a new subdivision.
The OEB’s December 2023 decision directed Enbridge Gas to begin securing upfront payment for new connections to serve small volume customers as of January 2025 — thus replacing the historical financing formula, in which customers’ share of capital costs are calculated over a 40-year horizon and collected through a surcharge on rates. The OEB maintains this incumbent approach now risks leaving future generations to pay for stranded assets as the province moves away from reliance on fossil fuels.
However, the Ontario government argues a sudden switch to upfront payment — similar to the mandate that has long been in place for new connections to the electricity grid — would undermine housing affordability and limit consumers’ heating choices. Bill 165 aims to overturn the ruling and give the Ontario government more leeway to instruct the OEB’s decision-making processes in the future.
“Natural gas will continue to be an important part of Ontario’s energy mix as we implement our pragmatic plan to invest in and bring online more clean nuclear energy,” Energy Minister Todd Smith said, as he announced the new legislation.
Currently, under section 96.1 of the Ontario Energy Board Act, the OEB is compelled to approve the “construction, expansion or reinforcement” of an electricity transmission line that the government has deemed to be a “priority project”. One of Bill 165’s proposed new provisions would allow the government to similarly designate priority “natural gas transmission or dual-purpose transmission and distribution” lines. If so designated, the OEB would be required to approve construction, and be prohibited from ordering a surcharge on customers to collect a contribution toward the line’s capital costs.
“The proposed approach seeks to ensure Ontario continues to attract new investments in sectors like greenhouses and electric vehicle and battery manufacturing,” states the explanatory summary posted on Ontario’s regulatory registry.
Steering decisions to reflect government policy
Various other components of the bill will likely have repercussions for a range of consumers beyond the “residential, small commercial and small farm customers” who are central to the government’s initial messaging. To begin, it would enable the government to dictate the time period for capital cost recovery from small volume customers via regulation, but it also includes measures to steer the OEB to decisions that are reflective of provincial policy and to introduce more stakeholder voices into OEB deliberations.
As set out in the bill summary, that would include: new requirements to notify and invite testimony from “specific stakeholders or economic sectors that could be significantly impacted by an upcoming decision or hearing”; and a new category of “generic” hearings to address broader issues that may affect numerous utilities, generators or stakeholder groups.
In the latter case, the government would determine when generic hearings would be conducted, and would have the authority to transfer any in-progress hearing to generic status, It could also reopen past OEB decisions, provided they were made at least 24 months earlier, for a generic hearing.
Specifically related to the disputed Dec. 2023 decision, the government states it will temporarily regulate a continuation of the 40-year horizon for cost recovery, while also setting a deadline for the OEB to reconsider and update its ruling. In this stipulated do-over, the OEB would be expected to weigh evidence from “significantly impacted stakeholders”, such as developers and the Independent Electricity System Operator (IESO), not included in the original hearing.
Notably, though, groups such as the Ontario Home Builders’ Association (OHBA) and the Building Industry and Land Development (BILD) Association do not appear on the list of 33 organizations that applied for standing in the original hearing. Meanwhile, the Building Owners and Managers Association (BOMA), the Federation of Rental-housing Providers of Ontario (FRPO), the London Property Management Association (LPMA) and Otter Creek Cooperative Homes Inc. were among the 20 organizations granted intervenor status.
The Bill 165 summary advises that the OEB could be directed to take “government policy documents and reports that have been published related to the future role of natural gas in Ontario” into account when considering the decision for a second time. That’s expected to include a pending Natural Gas Policy Statement.
“The proposed approach seeks to support the government’s policy to build affordable housing, maintain customer choice for homes and businesses and keep costs down,” the summary states.
Addressing anticipated future “rightsizing” of natural gas infrastructure
The promised Natural Gas Policy Statement follows from one of 33 recently released recommendations from the provincially appointed Electrification and Energy Transition Panel. Recommendation 6 calls for policy direction that is “consistent with the clean energy economy policy commitment”.
That would entail analysis of a range of issues including: energy efficiency; decarbonization options such as renewable natural gas and clean hydrogen; costs and complexities of switching to clean energy sources; feasibility of alternatives to gas-fired plants to respond to peak electricity demand; and analysis of “decommissioning or rightsizing” of natural gas infrastructure as the transition to cleaner energy progresses. Congruently, the OEB’s December 2023 decision discusses the long-term outlook for natural gas assets
“Two important themes emerged during this proceeding: climate change policy is driving an energy transition that gives rise to a stranded asset risk; and, the usual way of doing business is not sustainable,” the OEB ruling states. “If the depreciation expense was expected to be recovered over a period that ends up being longer than the asset is used and useful, this will give rise to stranded asset costs. In the context of the energy transition, the question is how this risk should be mitigated or avoided, and if the risk is realized, who should bear the stranded asset costs.”
The Electrification and Energy Transition Panel (EETP) also weighs in on the discrepancy in cost recovery models for gas and electricity utilities. The code of practice governing how costs are allocated for upgrading electricity transmission systems requires upfront collection of customers’ capital contributions, arguably giving gas a competitive advantage. The EETP suggests adjustments to the natural gas governance framework may be required to remove a barrier to the electrification of new development.
Recommendation 15 calls on the OEB to conduct reviews of the cost allocation policies for natural gas and electricity, and to evaluate “natural gas infrastructure investment” with an eye to protecting customers and facilitating development of the clean energy economy — which appears to be what adjudicators have done in the ruling the Ontario government is disputing.
“Levelling the playing field between electricity and natural gas might encourage developers and other customers to make choices that are more aligned with the government’s clean energy economy commitment,” the EETP report states.
The public is invited to provide feedback on Bill 165 through the portal on Ontario’s regulatory registry until April 7, 2024.
