‘Unprecedented’ Bill to Overrule Ontario Gas Regulator Alarms Experts

Ontario Energy Minister Todd Smith is setting a “dangerous precedent” with legislation that overrides a decision by the Ontario Energy Board (OEB), say legal and environmental experts.

Compared to past cases when the province has intruded on the OEB, “the intervention this time goes beyond the regulatory framework and right to the heart of ratemaking, which is one of the main things the regulator does,” Ian Mondrow, an energy regulation and policy lawyer at Gowling WLG, told The Energy Mix.

“This legislation completely blurs those lines, and I think that is unprecedented in Ontario to my memory.”

Killing the Decision

Introduced in February, Bill 165, the Keeping Energy Costs Down Act, is how Smith is making good on his promise to kill an OEB decision last December on a rate application from Enbridge Gas Inc.

The OEB had shifted the financial burden for installing new gas connections—which may become useless as the province increases electrification—to developers rather than homeowners, by reducing the revenue horizon linked to the installations from 40 years to zero.

Historically, the revenue horizon has been used as the mechanism for recouping installation costs through amortized payments from homebuyers spread out over decades. with the horizon reduced to 0 years, that entire cost would have to be paid up front by housing developers.

The OEB told Enbridge that developers would start paying for new installations in full beginning in 2025, giving them an incentive “to choose the most cost-effective, energy-efficient choice.”  The directive was intended to make builders consider the costs of gas hookups compared to other energy sources, which are likely to be affected by Ontario’s shift toward electrification.

Within 15 hours of the OEB’s release, Smith vowed to swiftly “introduce legislation that, if passed, would reverse [the decision], so that we protect future homebuyers and keep shovels in the ground.”

Smith said the OEB had strayed out of its lane and drifted into matters of housing policy.

With his legislative move and criticism of the OEB, Smith had set a precedent that “is less than ideal,” Mondrow wrote in early January, adding that maintaining the regulator’s independence is critical for navigating the complex details of energy policy.

What Smith’s Act Would Do

The Keeping Energy Costs Down Act would amend the Ontario Energy Board Act of 1998.

Its stated purpose is to keep housing costs down for Ontario residents, with claims that those costs would increase as a result of the OEB decision. The legislation would give the government time-limited authority of five years to set the revenue horizon for residential, small commercial, and small farm customers in defiance of the OEB. If Bill 165 is passed, “the government intends to immediately introduce regulations to reset the revenue horizon for natural gas connection costs to 40 years.”

Bill 165 would also give the minister authority to require the OEB to conduct a “separate hearing on any matter of public interest that could arise during an OEB proceeding.” The government says this is meant to improve public participation in regulatory changes. But Environmental Defence Canada lawyer Kent Elson, who spoke with The Narwhal about the legislation, said it instead strips the Board’s independence and “reduces transparency and accountability while promoting decision-making via backroom lobbying.”

The Act would also allow the minister to exempt certain energy projects from needing a Leave to Construct Order—the regulatory measure that was famously withheld from Enbridge’s St. Laurent North pipeline expansion in 2022. Enbridge confirmed in January that it is resubmitting that project to the OEB.

The province also announced it would appoint a new OEB chair this spring, the Globe and Mail reports.

Bill 165 has passed Second Reading and was referred to the Standing Committee on the Interior before it can move through the legislative process.

Energy And Housing Cost Concerns

While Smith has justified Bill 165 based on the cost of the OEB decision, experts say the ruling was unlikely to have a substantial impact on housing prices. In the long run, its influence on energy prices would be determined by the energy source a home used—a choice that will increasingly shift as renewables gain recognition as an affordable energy option. As gas becomes less competitive, homeowners with gas hookups may switch to other energy sources, leaving the gas infrastructure as a costly stranded asset that would be a burden on homeowners who are still hooked up—a point that was emphasized by OEB.

“Let’s be clear, this legislation is not about reducing energy costs,” Mondrow wrote in another recent post about Bill 165. “Rather, it is about transferring to the government authority to determine what subsidies are appropriately embedded in natural gas delivery rates.”

“Not publicly noted by the Minister is the companion direction in the same OEB decision that Enbridge Gas develop a rate credit to ensure that customers who buy houses where the connection costs have already been paid will have their gas rates reduced, resulting in what the OEB determined should be “a wash” for customers,” Mondrow adds.

“With gas hookups being paid for up front by the customers who want them, Enbridge does not invest any capital in those connections, and so does not earn any return in connection with those new hookups,” Mondrow explained. For Enbridge, over the five-year period under consideration, that would equate to “somewhere in the range of a billion dollars of capital that Enbridge does not deploy and does not earn a return on over the ensuing decades.”

Attacking the OEB’s Independence

Environmental groups have also been quick to push back on the proposed legislation. Keith Brooks, programs director at Environmental Defence, argued in a statement the bill will only benefit Enbridge while being bad for homeowners and the environment.

“This legislation also sets a dangerous precedent,” he said. “This is the first time any government of Ontario has overruled a decision by the independent OEB.”

“The board’s mandate is to keep energy costs down and that’s what drove this decision.”

Smith frames the bill as a response to exceptional circumstances, noting that he has not interfered previously and does not intend to again.

“This was a wrong decision that was made without proper consultation,” said Smith. “What we’re doing is ensuring we don’t have to intervene again by making sure that the proper process is followed.”

In the legislature, MPP Catherine Fife (NDP-Waterloo) suggested renaming Bill 165 the “Pushing Energy Costs Up Act.” MPP Terence Kernaghan, (NDP-London North Centre) suggested “Keeping Enbridge Happy While Customers Pay More” as an alternative title, reports Queens Park briefing.

But even if Smith and Enbridge may win out with the eventual passage of Bill 165, Mondrow said the OEB decision was still an important step that “starts to address—in earnest and head on—planning for the energy transition in respect of the future of natural gas.” He added the legislation would not roll back the OEB’s instruction to Enbridge that it do more work on energy transition issues.