Late December is not, as a rule, a busy time for the provincial government: the legislature has risen, MPPs are back in their ridings, and folks mostly want to recharge before the grind begins again in the new year. So when a substantial news release drops in reporters’ inboxes on December 22, it’s worth paying attention to. That’s what happened late last month, when Energy Minister Todd Smith announced that the Progressive Conservative government at Queen’s Park would, when the house returns in February, take the extraordinary step of introducing legislation to override a decision of the Ontario Energy Board.
That’s right: this is going to be a column about energy regulation. Happy 2024, everyone — it can only get better from here.
The OEB is charged with (among many other things) safeguarding consumers in the electricity and natural-gas markets. It does so primarily by forcing companies like Enbridge Gas to justify, in extreme accounting detail, what they plan to spend, how they plan to cover it, and whether the costs will mean consumers have to pay more to heat their homes and cook their food.
It was as part of that process that the OEB issued a decision that incensed the government: Enbridge amortizes the costs of connecting new homes to the natural-gas grid over 40 years, lowering the upfront cost of connecting new customers. But due to the substantial and major changes in energy technology — everything from renewable energy to home batteries and heat pumps — the OEB said that a 40-year timeline didn’t make sense anymore. Instead, a panel of OEB commissioners decided (two to one) that the appropriate timeline was zero years. If Enbridge wants to keep connecting new customers to the natural-gas system (and it does), it’ll need to pay those connection costs up front.
The OEB’s concern is that new natural-gas infrastructure may not be in use 40 years from now, leaving consumers paying for stranded assets. The government, however, says the effect of the decision would be to potentially increase the costs of new homes by thousands of dollars or more.
“I was pretty disappointed by the decision,” Todd Smith says. “It’s going to lead to tens of thousands of dollars to the cost of new homes, and it’s not something that we can allow to happen.”
The OEB calculates that the cost of connecting a new home would be, on average, $4,412, with new subdivisions generally being cheaper to add to the network than infill projects. Smith tells TVO Today that the government is scrutinizing those numbers and believes that they could run much higher in some parts of the province — particularly in rural areas that are being connected to the gas grid through the Natural Gas Expansion Program, one of the Ford government’s marquee programs, which was launched in 2019.
“We’re still doing the math on how many thousands of dollars it could be. More than half of the delegations I’ve had as minister of energy over the last two years are from municipalities that want new natural gas in their communities; they want that expansion program expanded again,” Smith says.
“We’ve been trying to take a pragmatic approach to the energy transition and not heaping tons of new costs on new homes, making sure that life is affordable for people, particularly for those looking to buy a home for the first time.”
An unstated bit of Smith’s argument that should nevertheless be clear: even if you grant that this decision would raise costs for new homes, that’s exclusively a problem for homes that install gas furnaces and appliances rather than increasingly available and effective alternatives.
The government’s announcement, however, leaves a pretty fundamental question unanswered. The energy transition is underway regardless of the Ford government’s campaign promises, and the risk of consumers being saddled with stranded assets is a real one. Smith says the government is taking a more “realistic” approach to managing the energy transition, but not everyone is convinced.
“The OEB was clear, correctly in my opinion, that the energy transition is underway and there’s uncertainty about the future of natural-gas use in the province,” says Richard Carlson, energy director at Pollution Probe. “You still have the problem that the OEB was trying to solve, even if the government tries to reverse that part of their decision.”
Carlson also raises a more fundamental objection to the government’s announced move: that it’s fundamentally undermining the independence of a key provincial regulator, having made substantial reforms previously to enhance the OEB’s independence from government.
“As far as I know, the government has never intervened this directly in trying to alter an OEB regulatory decision, and that should be incredibly concerning to everyone,” Carlson says. “It could set a precedent that independent regulators are always looking over their shoulders for what the government will do.”
In response, Smith says that the Tories were elected both in 2018 and 2022 with a clear mandate to lower costs for Ontarians, including by expanding natural-gas infrastructure. He won’t, however, speculate on what exactly the government will be bringing forward in February.
Which isn’t to say there aren’t hints. Smith emphasizes that the OEB’s decision was split, as one of the three commissioners dissented. That commissioner, Allison Duff, also rejected the 40-year amortization period — while her two colleagues argued for zero years, she supported 20.
It’s worth stating that this is one of those cases where the actual tangible impacts of the dispute would be relatively small, even if the larger issues and principles at stake are substantial. The government’s decision to overrule the OEB could be overturned after the next election if voters bring a different party to power. In the interim, we’re talking about a modest number of new homes being connected to the natural-gas network (out of an installed base of around 3.9 million existing homes). But those larger issues — the sustainability of the province’s energy system, the costs of transitioning to something better, and where that money will come from — will be at least as relevant in 2024 as they were in 2023.
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