On February 22, 2024 Ontario’s Minister of Energy introduced Bill 165, Keeping Energy Costs Down Act, 2024. The Bill is primarily intended to reverse the December 2023 Phase 1 Decision and Order by the Ontario Energy Board (OEB)in the Enbridge Gas Inc. (Enbridge) proceeding to set 2024-2028 rates. The decision reduced the revenue horizon for new connections to zero, which would result in new residential developments having to pay the full cost of their connection up-front rather than over 40 years (see Power Advisory commentary). The day following the decision’s release, the Minister pledged to introduce legislation to reverse it.
The Bill contains many elements, including new powers for the Minister that are unrelated to reversing the Phase 1 Enbridge decision:
In addition to introducing the legislation, the Minister announced that:
Commentary
The Minister’s announcement and proposed legislation will be viewed as contentious and controversial by many stakeholders, especially those seeking aggressive action on the energy transition and climate change. In particular, the legislation directly overrules the OEB’s determination that new residential customers should pay the entire cost of connection up front to avoid the risk of stranded natural gas assets.
The risk of stranded natural gas assets is largely tied to the broader energy transition from emitting sources of energy (i.e. natural gas) to non-emitting sources of energy. Until this and other recent proceedings, the risk of stranded natural gas assets was considered an unlikely outcome given the prevalence of natural gas across the province and limited cost-competitive alternatives.
However, broad public policy concerns (i.e., the province’s overall approach to the energy transition, climate change and energy supply mix) are legitimate matters for an elected government to decide. This reality is made clear in the government’s posting seeking comment on Bill 165 (feedback is due by April 7, 2024). The posting states that one goal of the proposed changes is to “ensure Government sets energy policy, not the regulator.” The current government has unambiguously indicated many times, including the Minister’s announcement of Bill 165, clear and consistent support for the continued role of natural gas both as Ontario’s primary heating fuel and as an important part of the province’s electricity generation fleet. The government’s Powering Ontario’s Growth document released last summer repeatedly highlights the importance of natural gas in the province’s energy mix.
Overall, the introduction of Bill 165 resolves the uncertainty created by the Minister’s original December 2023 announcement regarding reversing the connection horizon element of the OEB’s Phase 1 Decision and Order. The revenue horizon for new connections will remain at 40 years for the foreseeable future.
Importantly, Bill 165 also resolves any uncertainty regarding the government’s position regarding other recent natural gas proceedings – notably the2023 Panhandle Regional Expansion Project (Panhandle Project),which is being built to supply gas to new and expanded gas-fired generation, as well as service the growing greenhouse sector. One potential outcome of the Panhandle proceeding would result in gas-fired generators and other customers having to pay an up-front capital cost, which is historically not how natural gas transmission projects have been funded in Ontario. It is clear that the province wants the line to be built and that the customers should not be required to make an upfront capital contribution. At least a portion of that capital cost would likely flow to electricity customers as part of contracts between gas-fired generators and the IESO.
Specifically, the proposed legislation states that if “the Board makes an order refusing to grant leave to construct a proposed natural gas transmission or dual-purpose transmission and distribution line or an order granting leave to construct such a line subject to a condition that a contribution in aid of construction by natural gas consumers is required, the Minister may issue, and the Board shall implement, a directive […] requiring the Board to rescind the order and hold a new hearing of the application.”
In short, the government is pre-emptively giving itself the authority to overturn the Panhandle Project if the OEB’s decision on the project does not align with the government’s desired policy outcomes.
At the same time, other parts of Bill 165 as well as the Minister’s statement raise new uncertainties and questions about government policy as well as the relationship between the government and the OEB. These include:
Another contentious matter is the Minister’s statement regarding the government appointing a new Chair of the OEB’s Board of Directors with the expectation that the board and commissioners will “conduct appropriate consultation” prior to reaching decisions.
The OEB’s relatively new corporate structure (implemented in 2020), was intended to, among other things, “strengthen the independence of the adjudicative function” of the OEB by separating the management, administrative, and adjudicative functions of the organization. However, the expectation for the incoming Chair appears to blur that separation.
For example, section 4.1 (9) (c) of the Ontario Energy Board Act states that a role of the Chair is to “be accountable to the Minister for the independence of persons and entities hearing and determining matters within the Board’s jurisdiction in their decision-making.” Section 4.1 (18) of the Act further states “For greater certainty, no power given to the board of directors or a director under this or any other Act permits the board of directors or a director to interfere with or influence the hearing or determination of a matter over which the Board has jurisdiction.”
As a result, it is unclear how the government, the OEB’s incoming Chair, Board of Directors, Commissioners, and management will go about operationalizing the expectation of conducting “appropriate consultation […] before reaching decisions” in a way that is compatible with maintaining the separation and independence of adjudicative functions. Transparency will be paramount as this aspect of the Minister’s announcement will be monitored closely by participants in OEB policy and adjudicative proceedings. Ultimately, an economic regulator requires independence to be fully effective.
In closing, the energy transition poses complex and difficult challenges for Ontario’s energy sector. Different levels of government, energy regulators, utilities, customer groups, and an increasingly growing number of stakeholders do not share a common view on the pacing and best path forward for the energy transition, which is still largely in its infancy. All parties face a difficult task of attempting to manage and find alignment on a vast array of competing and conflicting priorities, including emissions reductions, energy affordability, resiliency, stranded asset risks, and broader policy objectives, such as housing, economic development, and environmental and health outcomes.
These challenges all point to government leadership as absolutely critical in developing a clear path for Ontario’s energy transition.
Please contact Power Advisory if you have any questions or would like any additional information.