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Ontario Government House Leader Todd Smith speaks to reporters following an early morning PC Caucus meeting at the Ontario Legislature in Toronto on Nov. 29, 2018.Chris Young/The Canadian Press

Ian Mondrow is a partner at Gowling WLG practising in the area of energy regulation and policy.

The energy sector is complex. The energy transition is making it more complex. Policy makers will have to make and execute on some choices that will not be easy.

So, for the minister responsible for this increasingly complex portfolio, it should be important that there is an independent regulator guiding the sector through complex, sometimes turbulent, changes. A regulator that does its work through transparent, inclusive, fact-based processes is important both for the quality of the determinations made and for facilitating public confidence in, and acceptability of, those determinations. For a minister, taking care to avoid unnecessarily undermining the work of that regulator would be advisable.

Curious, then, that just hours after the late December issuance by the Ontario Energy Board of a complex and important decision in an Enbridge Gas case, Ontario Minister of Energy Todd Smith issued a statement saying he was “extremely disappointed” with the OEB’s decision and intended to overrule it. His stated concern was that the decision “could lead to tens of thousands of dollars added to the cost of building new homes, and … would slow or halt the construction of new homes, including affordable housing.”

If that were true, then Mr. Smith could have a legitimate and immediate housing policy concern. But it does not appear to be true.

Considering both the near- and longer-term implications of the energy transition, including Ontario’s plans for a “clean energy future” characterized by electrification, the OEB determined that the current practice of providing no-upfront-cost gas connections to new builds and recovering the cost of those connections in rates over decades is no longer appropriate. Currently, new gas connection costs are amortized over 40 years and recovered in gas rates paid by all customers. Considering the energy transition under way and the emergence of carbon-free, cost-effective electric heat pumps, the OEB was concerned that new homes connected to the gas system now may not remain connected for 40 years, so deferring the recovery of new connection costs long into the future shifts to home buyers and future customers the risk of stranding new gas connection assets.

In making this determination, the OEB considered thousands of pages of expert evidence gathered and thoroughly tested through a year-long, public regulatory process with the full participation of Enbridge Gas and experienced customer and public interest intervenor representatives.

On the evidence before it the OEB found that, on average, it would take 31 years to recover the cost of new gas connections from future homeowners. While including gas connection costs to developers up front would marginally increase the cost of a new house, an offsetting rate credit recognizing the up-front payment would lower ongoing gas rates, resulting in a wash for home buyers. The other choice would be to forego gas servicing in favour of electric heat pumps, thus lowering the operating costs of the house – a win for home buyers. Either choice would reduce Enbridge capital costs, and potential stranded assets, in the range of $1-billion over the proposed five-year gas rate plan period, significantly reducing delivery rates and customer risk.

A back-of-the-envelope analysis since published by associate professors Brandon Schaufele and Adam Fremeth of the Ivey Business School concluded that “the Government’s decision to override the OEB should have virtually no effect on affordable housing in the province.”

What if the OEB erred in its decision and the information provided to the minister that prompted his concern was valid? There is a proper, informed and independent regulatory mechanism to review and rectify that. If, after all that, there remains a public policy problem with implementing the OEB’s decision, the minister can – and perhaps should – intervene.

Does the end of the era of steady gas distribution business growth present a public policy problem? Does an increase of roughly 1 per cent in the up-front cost of a new home, even if offset by reduced gas delivery rates over time, present a challenge to the Ontario government’s housing affordability policy? If so, then government intervention may be appropriate and should proceed by way of legislation – transparently tabled, debated and enacted in the legislature.

On Jan. 19, the Electrification and Energy Transition Panel appointed by the government released its report, Ontario’s Clean Energy Opportunity. Among its many recommendations is one for the OEB to review cost recovery policies for natural gas and electricity connection, precisely the issue considered by the OEB in the Enbridge case and of concern to Mr. Smith.

Minister Smith would be well advised to consider the wisdom of the energy panel’s recommendation and leave the matter of further consideration of new energy connection cost recovery policies with the OEB. Leaving this in the hands of the independent regulator would maintain transparency, consistency, public accountability and a thoughtful and reasoned balancing of interests. That, after all, is the reason for an independent energy regulator.

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