Two provincial energy regulators recently passed rulings that signal it is no longer business as usual when it comes to traditional energy infrastructure in Canada.
The decisions considered whether new natural gas infrastructure will become underutilized before its costs are fully paid—known as stranded-asset risk. The shift represented by these decisions is sorely needed if Canada is to ensure the transition to a low-carbon economy is efficient, equitable, and in line with its climate targets, authors Norman Park and Heather McDiarmid write for Policy Options.
That said, at least one of the rulings will almost certainly be overturned by legislation introduced by the Ontario government which politicizes energy regulation, claiming that it will increase housing costs, write Park, an emeritus professor in the York University health faculty who now chairs the education committee at Seniors for Climate Action Now, and McDiarmid, principal of McDiarmid Climate Consulting.
The Rulings
In British Columbia and Ontario, energy regulators were concerned that the transition away from fossil fuels would reduce demand for natural gas when they ruled on two applications for new gas infrastructure. Regulators act in the public interest while protecting the interests of consumers.
The British Columbia Utilities Commission (BCUC) rejected a proposal for the construction of a new C$327.4-million natural gas transmission pipeline to meet forecast increases in peak demand in the Okanagan region.
The BCUC ruled the forecast by FortisBC Energy Inc. failed to adequately account for provincial and municipal plans for zero-carbon new buildings and provincial initiatives to support the adoption of heat pumps.
Meanwhile, the Ontario Energy Board (OEB) was asked to rule on proposed 2024 rates for Enbridge Gas to recover the cost of delivery infrastructure to new residential developments.
The OEB ruled those costs should be paid up front by the developers, rather than through connection and delivery fees over the 40-year lifespan of the infrastructure, to avoid creating stranded assets that risked increasing costs for customers.
Responses
Both FortisBC and Enbridge Gas are moving to appeal the decisions.
However, just one day after the OEB decision was released, the Ontario government vowed legislation to override it, arguing that it would “slow or halt the construction of new homes” and “could lead to tens of thousands of dollars added to the cost of new homes.”
On February 22, the Ontario government introduced Bill 165, the Keeping Energy Costs Down Act, which threatens the independence of the OEB and politicizes an institutional process that has been and should remain non-partisan.
Implications for Affordable Housing
The Ontario government is wrong to suggest that making developers pay the cost of new gas infrastructure will hurt housing affordability, Park and McDiarmid write. Enbridge estimates the average added cost per home would be $4,412, just 0.47% of the average Ontario home price as of May, 2023.
Ultimately, developers can avoid the cost altogether by building all-electric communities.
As the OEB pointed out, obliging developers to cover the cost of installing gas delivery infrastructure is an incentive to choose the most cost-effective energy option.
In some cases, this will mean building all-electric communities that use high-efficiency heat pumps for space and water heating. This in turn would improve housing affordability by reducing the cost of operating the new homes.
The two rulings aimed to protect ratepayers from the cost of new infrastructure that risks being stranded as our society decarbonizes.
In the long term, these costs are far more likely to fall on low-income households because wealthier households can afford the up-front costs of purchasing electric home appliances such as heat pumps.
Those households will continue to benefit because a heat pump is more cost-effective than with gas, in part due to rising carbon taxes, and because they may avoid paying monthly gas connection fees.
As homes increasingly move away from gas, paying for that infrastructure will fall to a shrinking customer base.
Energy Transition Will Reduce Gas Use
Both regulators determined that natural gas use will decline in response to the transition from fossil fuels to electricity. In addition, the federal government has committed to reducing Canada’s greenhouse gas emissions by 40 to 45% by 2030 and to achieving net-zero emissions by 2050.
Electric heat pumps are widely held to be the best option for decarbonizing buildings. Heat pumps are the most efficient heating system available, and most homes and businesses in Ontario and B.C. with a heat pump will save money [pdf] by replacing gas heating systems.
Moreover, unlike gas appliances, all-electric homes do not produce health-harming indoor air pollutants that result in increased rates of asthma in children and are linked to other serious health problems, or vent pollutants outdoors.
Vulnerable to Politicization
What these recent rulings and their aftermath demonstrate is that good policy in the public interest is vulnerable to politicization.
The OEB and BCUC should be applauded for recognizing the stranded asset risks of new gas infrastructure as the energy transition unfolds. It is in the public interest to avoid those risks and to protect ratepayers from unnecessary costs that are also bad for public health and threaten housing affordability.
In turn, governments should respect the independence of energy regulators, recognizing that their decisions are based on careful analysis of complex systems after engagement with major stakeholders and industry experts.
Housing affordability is a complex issue that is directly and indirectly affected by energy regulators’ decisions and government policy.
As society takes the necessary steps toward decarbonization, more work is needed to understand the impact on low-income and vulnerable Canadians so that policies and programs can be developed and applied equitably for a cleaner, more affordable future for all.
This article first appeared on Policy Options and is republished here under a Creative Commons licence.
