The Ontario government introduced legislation Thursday that would strike down a December decision from the province’s independent energy regulator on natural gas connections, saying the ruling would increase home building costs. The province also announced it would replace the regulator’s chair.
The decision, issued by the Ontario Energy Board on Dec. 21, addressed how new homes are connected to natural gas lines, and who pays for it. The board determined that, beginning Jan. 1, 2025, new residential connections to Enbridge Gas’s ENB-T network should be paid for upfront, rather than over 40 years on the gas bills of Enbridge’s customers – the current practice. The ruling would effectively compel developers to pay thousands of dollars to connect each new home.
The OEB reasoned that the province’s transition toward lower greenhouse emissions and away from fossil fuels means many residents will stop using natural gas well before those 40 years are up, and therefore the costs of gas hookups shouldn’t be spread over that time period.
Ontario’s Progressive Conservative government has consistently supported the use of natural gas, arguing that the fuel is more affordable than electric heat, propane, heating oil and other options.
On Thursday, Ontario Energy Minister Todd Smith introduced the Keeping Energy Costs Down Act, to reverse what he called a “rash,” “rushed” and “irrational” decision. He said the regulator had failed to solicit information from relevant stakeholders, such as the province’s Independent Electricity System Operator.
Mr. Smith also said the government will appoint a new OEB chair this spring. The current acting chair, Glenn O’Farrell, assumed that temporary position last summer after his predecessor stepped down for health reasons.
“The OEB veered out of its lane,” Mr. Smith told reporters.
“What we’re doing is ensuring that we don’t have to intervene again, by making sure that the proper process is followed.”
Mr. Smith added that his government will release a natural gas policy statement in the coming months, after which it will require the OEB to consider the issue again.
“I’ll expect our appointee to help ensure that the board conducts appropriate consultation before reaching any decisions,” he said.
Enbridge Gas spokesperson Leanne McNaughton said in a statement that the legislation highlights natural gas’s “long-term importance” as an energy source within the province.
“We commend Minister Smith and the Government of Ontario for advancing this legislation and advocating for affordable energy,” she wrote.
The OEB did not respond to questions from The Globe and Mail about the government’s criticisms.
Mike Schreiner, Leader of Ontario’s Green Party, disputed the idea that the regulator’s commissioners had behaved irrationally.
“The OEB made this decision after a year-long process that involved tens of thousands of pages of documents, public hearings, public interviews with experts and industry participants,” he told reporters.
He added that the government’s actions would benefit Enbridge at the expense of Ontarians.
“Basically, ratepayers are going to be subsidizing the expansion of fossil fuel infrastructure to the tune of $2-billion over the next five years, $600 per customer,” he said.
“That’s outrageous.”
Enbridge argued during the OEB proceedings that the average cost of connecting a home to its network is more than $4,400. Driven by rising costs of construction, municipal permits and other factors, that number has increased sharply over the past few years.
The OEB’s ruling considered the implications of the energy transition under way, including Ontario’s plans for electrification. One key risk it identified is that, as more customers disconnect, Enbridge could be stuck with an underused network and be compelled to increase rates for remaining customers. Those increased rates, in turn, could prompt more customers to abandon the utility, leading to what’s sometimes referred to as a “utility death spiral.”
The ruling was made by three commissioners, only two of whom supported the decision to end the 40-year payments. In a dissenting letter, commissioner Allison Duff said that doing so would increase “the risk of unintended consequences to Enbridge Gas, its customers and other stakeholders.”
According to government statistics, 3.8 million homes across Ontario use natural gas, along with 160,000 businesses, making it the province’s most common heating source.
The OEB is charged with regulating energy utilities in the public interest. Its mandate includes setting rates for some components of Ontarians’ electricity bills, and setting the rules by which energy companies operating within the province must abide.
“We have monopoly energy infrastructure, which isn’t subject to competitive forces and customer choice,” said Ian Mondrow, a partner and energy, regulation and policy specialist at Gowling WLG, a law firm.
“You can’t choose to go to another gas distributor. It’s Enbridge Gas or nothing.”
Mr. Mondrow said the government may come to regret giving itself the power to override the regulator’s decisions, and questioned whether it could make better ones.
“What’s the point of going to the regulator in the first place, if everyone can just go to the government and make their case?” he said.
“You don’t get predictability or certainty, or a public airing and then a public, transparent decision. You get a political process.”
With a report from Jeff Gray
Matthew McClearn