The Ontario government introduced legislation Thursday that would strike down a December decision by the province’s independent energy regulator on natural gas connections that it said would increase homebuilding costs. The province also announced it would replace the Ontario Energy Board’s chair.
On Dec. 21, the OEB issued a split ruling which addressed how new homes are connected to natural gas lines, and who pays for it. It determined that beginning Jan. 1, 2025, new residential connections to Enbridge Gas’s network should be paid for upfront rather than over 40 years. That ruling would effectively compel developers to pay thousands of dollars to connect each new home.
The Ford 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. The government has said the OEB ruling will add “tens of thousands of dollars” to home-building costs.
On Thursday, Energy Minister Todd Smith introduced the Keeping Energy Costs Down Act, to reverse the decision. The government said it will also appoint a new OEB chair this spring. The current acting chair, Glenn O’Farrell, was appointed a director on Sept. 20th, 2020. The government said his replacement would be expected “to ensure that the board and commissioners conduct appropriate consultation” prior to reaching decisions.
“Natural gas will continue to be an important part of Ontario’s energy mix as we implement our pragmatic plan to invest in and bring online more clean nuclear energy,” Mr. Smith said in a statement Thursday.
According to Enbridge, the average cost of connecting a home (whether existing or newly constructed) to its network is more than $4,400. Driven by rising costs of construction, acquiring municipal permits and other factors, that number has increased sharply over the past few years. It costs nearly that much to disconnect a customer when they leave.
Until recently, Enbridge charged those costs back to its customers over 40 years. Consequently, developers effectively decided whether their new subdivisions got hooked up to gas lines or not, and future ratepayers paid back the connection fees gradually.
In its ruling on Enbridge’s latest rate application, however, the OEB considered the implications of the energy transition underway, including Ontario’s plans for electrification.
In light of such policies, the OEB doubted new residents will keep using gas for 40 years: One key risk 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.”
Only two of three OEB commissioners supported the decision to reduce Enbridge’s revenue horizon to zero; In a dissenting letter, Commissioner Allison Duff said that doing so increased “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.