On February 22, 2024, Ontario’s Minister of Energy introduced Bill 165, Keeping Energy Costs Down Act, 2024. The Bill is intended primarily 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 OEB 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).
In addition to introducing the legislation, the Minister announced that the government will introduce a “Natural Gas Policy Statement” at which time the OEB will be required to consider the revenue horizon for new natural gas connections issue again. The Minister stated the government would “put out a natural gas policy in the next couple of months”
The government’s natural gas policy to date has been 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. For example, the government’s Powering Ontario’s Growth document released last summer repeatedly highlighted a strong role for natural gas in the province’s energy mix:
Power Ontario’s Growth also makes reference to the government’s Natural Gas Expansion Program (NGEP) which is designed to “expand access to natural gas to areas of Ontario that currently do not have access to the natural gas distribution system.”
The development of a natural gas policy statement was a recommendation of the Electrification and Energy Transition Panel (EETP). Specifically, the EETP’s final report stated:
“Recommendation 6: In order to provide clarity to utilities, investors and customers, the Ministry of Energy should provide policy direction on the role of natural gas in Ontario’s future energy system as part of its next integrated long-term energy plan. This policy direction should be consistent with the clean energy economy policy commitment and consider the various roles natural gas plays across the energy system.
“This policy direction will require thorough technical, policy and regulatory analysis, collaboration among government, sector partners, and provincial agencies and a public engagement process. The outcome should be to manage the system optimization and fuel switching necessary to achieve a clean energy economy at a pace that maintains affordable, reliable and resilient energy service.”
Further, in 2022, when the EETP Panel was finalized, the Ministry announced it was “commissioning an independent Cost-Effective Energy Pathways Study to help better understand how Ontario’s energy sector can best support electrification and the energy transition.” The study has not yet been published.
Commentary
How the government will proceed with its natural gas policy statement is unclear at this time. Specifically, what will be contained in the statement beyond known policy direction and announcements, or whether the policy statement will incorporate the findings of the (yet to be published) Cost-Effective Pathways Study. However, given the Minister’s statement that the policy statement will be forthcoming within months, it appears it will be a standalone statement separate from an “integrated long-term energy plan” or “clean energy economy policy commitment” as envisioned by the EETP.
However, a significantly lower carbon intensity future is a complex and complicated technical and political challenge for governments. While common actions and tools can be utilized (e.g., pricing pollution, enhanced codes & standards, incentive programs, consumer education), each jurisdiction must integrate their unique circumstances (e.g., energy supply mix, state of energy infrastructure, economic structure, and climate) and broader policy objectives (e.g., social, environmental, economic) to achieve a (politically) feasible and effective plan.
Power Advisory believes that Ontario’s economy, energy sector, and clean energy aspirations would be best served by a considered, comprehensive approach to the province’s energy future. With the introduction (and expected passage) of Bill 165, the government’s expectations regarding the OEB’s treatment of new natural gas connections and the role of natural gas for residential and commercial heating in the short-/medium-term is unambiguously clear.
Therefore, rather than developing and issuing a narrowly focussed natural gas statement, it would be preferable for the government to initiate a broader policy and planning discussion on Ontario’s long-term energy future. As noted in the Minister’s message in Powering Ontario’s Growth “We need to act today to ensure we have the energy we need to power economic growth and electrification over the next three decades while maintaining our clean electricity advantage.”
The future role of natural gas within the context of the broader energy transition and a net zero economy is a major issue being confronted by jurisdictions around the world. It is an issue that cannot be resolved separately and in isolation from other energy issues such as the broader electrification of the economy, space and water heating of buildings, expansion of the electricity distribution grid to meet greater demand, and the shift to clean forms of energy (e.g., hydrogen).
A number of Ontario’s trading partners in the United States are actively working to address these challenges through integrated and comprehensive energy planning frameworks.
A brief, selective overview of what some of these states are pursuing with regard to the energy transition and the natural gas system is provided below:
Michigan: In 2022, the state released the MI Healthy Climate Plan, which sets out a pathway and recommendations for the state to reach a carbon neutral economy by 2050. With respect to natural gas, the plan states a need to:
New Jersey: In 2020, the state released its Energy Master Plan: Pathway to 2050 (EMP), which considers the energy system as a whole (e.g., electricity and natural gas), providing “a strategic vision for the production, distribution, consumption, and conservation of energy in the state.” With respect to natural gas, the EMP stated that “to meet climate goals [100% clean energy and 80% emissions reductions from 2006 levels by 2050], New Jersey will reduce overall consumption of natural gas by approximately 75% from 2020 to 2050; this reduction will be caused by decreased demand in the power sector and thermal building use.”
In February 2023, the Governor of New Jersey issued a Executive Order requiring the New Jersey Board of Public Utilities (NJBPU) to “initiate a proceeding to formally engage with stakeholders concerning development of natural gas utility plans that reduce emissions from the natural gas sector to levels that are consistent with achieving the State’s 50 percent reduction in greenhouse gas emissions [GHG] below 2006 levels by 2030.”
The Governor’s order required the NJBPU to consider a number of issues in the proceeding, including the following:
The NJBPU proceeding is currently in progress, but it is required to develop recommendations within 18 months of the February 2023 Executive Order being issued.
Massachusetts: In 2022, the state released its Clean Energy and Climate Plan for 2050 (CECP), a comprehensive, economy-wide energy plan to achieve net zero GHG emissions by 2050. With respect to natural gas and heating, the CECP found that “managing the impact of building electrification on the electric grid and natural gas distribution infrastructure will be critical,” and that “[c]oordinated [natural gas and electric] utility planning could examine existing characteristics of the electric and gas infrastructure, building stock, and community demographics to identify locations for electrification efforts to prioritize the deployment of clean heat technologies and strategic retirement of gas infrastructure.”
In October 2020, in response to previous state government climate goals, the Massachusetts Board of Public Utilities (MBPU), opened a proceeding on potential policies to enable the state to reach its goal of net‑zero GHG emissions by 2050, the role of natural gas utilities in achieving that goal, and “develop a regulatory and policy roadmap to guide the evolution of the gas distribution industry, while providing ratepayer protection.”
The MBPU issued its Order in December 2023, setting out new requirements for natural gas distribution utilities, including:
The Order also stated that “the clean energy transition will require coordinated planning between [natural gas utilities] and electric distribution companies.”
New York: In 2022, the state’s Climate Action Council issued its Scoping Plan, a sector-specific and economy-wide framework with recommendations for GHG emission reductions of 40% by 2030 and 85% by 2050 from 1990 levels. The Scoping Plan examined the transition of the natural system, setting out a transition plan framework with a number of key principles, including:
More recently, in 2024, New York is seized with the politically contentious, proposed NY Home Energy Affordable Transition Act, that has many significant stated purposes, including:
The examples above illustrate that state governments geographically near Ontario are increasingly taking a lead role in addressing the energy transition and clean energy economy through a whole economy perspective, tackling energy supply, demand, and end-use consumption together. These approaches recognize the need for coordinated planning of changes to electric and natural gas networks within a broader energy transition framework. These states are seeking to prudently decarbonize and electrify energy consumption in a sustainable way to maintain reliability, safety, and affordability as well as meet environmental and emission reductions targets. They are actively implementing and/or developing a suite of planning, legislation, regulatory and other policy instruments to achieve the energy transition.
Conclusion
Ontario currently has a clean energy advantage compared to many of its peers; the province has taken decisive steps regarding electricity system planning at the bulk-system level through declaring priority transmission lines, supporting nuclear power development, and procurements of other non-emitting electricity resources.
However, the jurisdictions noted above are arguably more advanced in terms of the comprehensive energy planning, emissions targets, and end-use fuel-switching policy framework needed to achieve economy-wide decarbonization and electrification (e.g., New Jersey will be releasing an updated Energy Master Plan in 2024).
Another illustrative example is New Zealand, which released a package of documents for consultation on its energy transition strategy in August 2023, highlighting the linkages between the natural gas system, electricity markets, renewable energy, and alternative fuels.
Therefore, as Ontario develops a Natural Gas Policy Statement, it should consider how the future of the natural gas system (including the sector’s workforce) is being addressed in other jurisdictions within the broad energy transition context. In particular, attention should be paid to approaches to coordinating planning between natural gas and electric networks, especially the role of local distribution companies (LDCs) in advancing and accommodating the electrification of heating (as well as transportation).
As Power Advisory has noted previously, Ontario has a tremendous opportunity to demonstrate leadership not just within the province’s own energy system, but nationally. All of Canada is grappling with how to advance the energy transition while maintaining other crucial objectives such as affordability and reliability. While the Federal government has initially focused on the decarbonization of the electricity grid, Ontario’s existing clean energy advantage offers an ability to focus efforts in other areas of the economy (i.e., end-use energy consumption) while preparing for long-term energy transition challenges.
Ontario’s energy market and the broader industry have articulated the need for forward-thinking leadership from government, especially with regards to the challenges and impacts associated with end-use energy consumption on natural gas and electric distributions systems. Leadership is needed to develop clear next steps for Ontario’s energy transition, so that investments can be made confidently, supporting economy-wide decarbonization and other provincial policy objectives (e.g., affordability, job creation, attracting new businesses and industries). Such leadership is critical to achieving a clean economy advantage for Ontario, which is a jurisdictional characteristic increasingly being sought by investors and business with Environmental, Social & Governance objectives, seeking net-zero investment and supply chain opportunities.
The necessity of government policy is highlighted in the Independent Electricity System Operator’s (IESO) recently released 2024 Annual Planning Outlook Report (APO) which states “Ontario’s supply mix post-2035 is highly dependent on the evolution and timing of government policy.” The APO refers to, among other things, the provincial government’s response to the recommendations of the EETP and the findings of the Cost-Effective Energy Pathways Study. Further, the APO makes reference to the net zero economy scenario in the IESO’s Pathways to Decarbonization study, noting that “[t]his forecast was based on theoretical, aggressive transition in the building heating, transportation and industrial sectors, a transition that will not materialize without drastic changes in policy, technology and customer behaviour.” (emphasis added)
Overall, Ontario should take the opportunity offered through making a Natural Gas Policy Statement to begin the much needed planning, legislative, policy, and regulatory process needed for Ontario to preserve and maintain its clean energy advantage. The process will need to be open and collaborative. It will be difficult, contentious and deeply politicized. However, it is necessary for the sector as well as individual and business energy consumers to make prudent, coordinated, and proactive energy distribution, transmission, production, and end-use investments to ensure a future energy system that is reliable, affordable, clean and maintains economic competitiveness.
Ontario has a long demonstrated a strong preference for clean energy investments. Now is the time to leverage those investments by laying the groundwork for, and actively advancing, a complete clean energy economy for the future.
Please contact Power Advisory if you have any questions or would like any additional information.