In continued response to a
The continuing political/regulatory tension reflected in the proposed legislation arises from a comprehensive decision issued on
The Minister of Energy's initial response
Early the following day
That concern is reiterated in the backgrounder issued by the Ministry with the proposed Keeping Energy Costs Down Act. That backgrounder states:
"... the OEB made the decision that for small volume customer connections, such as homes and small farms and businesses, the revenue horizon over which gas utilities use to calculate the upfront cost of new connections for customers would be reduced from forty years to zero, effective
The Minister also doubled down on his criticism of the OEB in publicly referring to the December decision as rushed and irrational. It was neither.
The OEB process and decision
The decision was the result of a thorough public hearing process which involved more than a year of review, thousands of pages of company and expert evidence, a comprehensive oral hearing and a thorough process for submissions by
The uncontested evidence before the OEB was that the average cost to connect new homes to the gas distribution system is
- It means that builders no longer get new gas hookups for free, thus encouraging them to make an economic choice regarding whether to hook houses up to gas, or not (depending on the availability of electricity to run now cost effective electric heat pump alternatives).
-
It means that whether builders opt for new gas hookups or not,
Enbridge Gas does not add the cost of new gas hookups to its asset base on which it earns a return, thus slowing the growth of that asset base by a range of a billion dollars over the course of the next five years. - In so doing, it reduces to zero the risk to all gas customers of stranded assets for new connections made in 2025 and beyond.
The Minister's further response; the Keeping Energy Costs Down Act
One of the main features of the Keeping Energy Costs Down Act is to allow the government to reset the way that the costs for new gas connections are recovered. The accompanying backgrounder indicates that the Minister intends to legislate a return to the current 40-year period over which these costs, and the return on investment that
Concern has also been expressed that some key stakeholders on the topic – including the
The Keeping Energy Costs Down Act would, however, go much further. It is written to empower the Minister to directly intervene in more OEB cases, including in particular a case which is currently before the OEB regarding an
There was a vigorous debate in the hearing for that project regarding – once again – who should pay the
In the normal and appropriate course, the OEB would decide what the evidence clearly reveals, and it may yet. In the interim, however, the Keeping Energy Costs Down Act includes very particular proposed provisions under which the Minister could direct the OEB on who will be required to pay the
With the proposed legislation, the government would also ensure new customers do not have to incur upfront contributions toward the construction of certain gas transmission projects that are critical to the province's economic growth. This would preserve the historical treatment of these transmission projects that provide broad energy benefits and serve many customers in different areas. Preserving this treatment will help ensure the province can continue to attract critical investments in sectors like greenhouses and automotive in southwestern
This statement may belie acceptance of
Either way, the proposed legislation would transfer to politicians the authority to set natural gas delivery rates so as to support government economic development initiatives, rather than leaving authority with the province's heretofore independent energy regulator to set rates to generally match customer costs to customer benefits.
So let's be clear, this legislation is not about reducing energy costs.
Rather it is about transferring to the government authority to determine what subsidies are appropriately embedded in natural gas delivery rates. Funding provincial economic development initiatives has traditionally been a government (i.e. taxpayer) responsibility, while setting rates for energy delivery to recover from customers the costs to serve them has traditionally been the purview of our expert independent energy regulator. This legislation would change that, and result in governmental authority to direct that gas delivery rates be set so as to subsidize the government's economic development priorities.
Energy policy vs. rate regulation; the government's role
There is no doubt that the government has a legitimate and important role in making energy policy, including energy policy made to support broader political and socio-economic objectives. As the energy transition proceeds that role will become both increasingly important and increasingly complex. The Keeping Energy Costs Down Act contemplates the issuance by government of clear policies on the development and use of energy sources for
At the same time, however, other provisions in the Keeping Energy Costs Down Act provide for more direct government intervention in the setting of regulated gas delivery rates. Gas delivery rates have traditionally been set independently by the OEB to recover costs to serve from customers benefiting from that service.
The Keeping Energy Costs Down Act would directly imbue the setting of gas delivery rates with political objectives, resulting in subsidies for politically favoured investments. Influential stakeholders would, in the future, take their case for preferential rate treatment to the government. The not so powerful customer and public interest organizations that have historically made their cases based on evidence and public deliberations would have to consider doing the same, though at a disadvantage to the utilities and their (customer funded) resources.
Politically setting regulated energy rates undermines certainty, predictability and transparency, features that investors value. Such a potential outcome begs the question; how much tightening of control on the heretofore balanced, accessible and independent rate setting work of the province's energy regulator is ultimately in the best interests of both the public and the government.
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