The Ontario Government recently introduced the Keeping Ontario Energy Costs Down Act, 2024 (the Act). If passed, the Act will provide the government with significant new authority to influence or direct fundamental questions in future leave to construct applications that come before the Ontario Energy Board (the OEB or Board). In addition, the Act would reverse aspects of a December 21, 2023, decision by the Ontario Energy Board relating to Enbridge Gas Inc.’s (Enbridge) application for approval of its natural gas rates for the period starting January 1, 2024 (the Enbridge Decision).
This bulletin provides key details of the Enbridge Decision and outlines the significant proposed amendments of the Act.
The Enbridge Decision, which represents the focal point for much of the government’s statements concerning the Act, arises from a complex regulatory proceeding lasting more than one year, involving approximately one month of hearings and thousands of pages of evidence, and implicating the participation of large numbers of intervenors and expert witnesses.
The aspect of the Enbridge Decision that has attracted the most public attention was the OEB’s decision to eliminate Enbridge’s ability to recover the cost of new customer connections to the existing gas network over a 40-year period (i.e., revenue or amortization horizon), meaning those costs would now be recovered upfront. These costs are estimated at approximately $4,412 (weighted average of new construction and existing homes in the “Enbridge Gas Distribution” rate zone).
The majority decision’s rationale was based on the need to facilitate an informed choice concerning the full lifetime cost of available energy options and to completely mitigate the stranded asset cost risk. The existing 40-year recovery period attracted criticism from certain parties intervening in the proceedings on the basis that, among others, it does not adequately account for the risk that the ongoing energy transition may result in natural gas assets being replaced over a shorter period, which could leave future ratepayers burdened with the residual cost of any “stranded” assets. The extended 40-year recovery period had also been criticized on the basis that it provides natural gas with an up-front cost advantage against alternative options like heat pumps.
The Ontario Government responded within a day of the Enbridge Decision’s release. A statement from the Hon. Todd Smith, Ontario’s Minister of Energy (the Minister), expressed disappointment with the decision to eliminate the 40-year amortization period and stated that he intended to introduce legislation to reverse the Enbridge Decision.
The resulting Act would not only overturn the Enbridge Decision on the question of the 40-year amortization period, but also provide the Minister with authority to exempt applicants from normal requirements, reverse certain OEB decisions including on a retroactive basis, and impose requirements on the OEB relating to certain cost-sharing questions that may arise in future cases.
If passed, the Act would add the following provisions to the to the Ontario Energy Board Act, 1998:
- a new section 36.0.1 would empower the Minister to set revenue horizons by regulation in relation to, among other things, new customer connections to the natural gas distribution system or an increase in capacity to the system;
- amendments to section 95 requiring the Board to make an order exempting persons from the normal requirements in a leave to construct application pursuant to regulations to be issued by the Minister;
- a new section 96.2 empowering the Minister to issue directives stipulating that natural gas customers must bear the full cost of a project and that no contribution in aid of construction shall be sought from a specific customer(s). The Act stipulates that the new provision is applicable to proceedings currently before the OEB. It also empowers the Minister to require the OEB to rescind an order in which the OEB refuses to grant leave to construct a natural gas pipeline and then hold a new hearing if it renders such a decision (or one requiring contributions in aid of construction) before January 1, 2025; and
- several new provisions identifying areas where duties of procedural fairness that would otherwise apply will not be applicable.
The Minister also used the opportunity to announce that the government will appoint a new chair of the OEB this spring “with the expectation that the board and commissioners conducts appropriate consultation — in line with the proposed legislative requirements — before reaching decisions that support the objective of an affordable, reliable, and clean energy system.”
For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.
