January 26, 2024
The Honourable Todd A. Smith
Minister of Energy
77 Grenville Street, 10th Floor
Toronto, Ontario M7A 2C1
MinisterEnergy@ontario.ca
Dear Minister Smith,
RE: Ontario Energy Board Decision to Support Affordability for Residential New Developments
The Clean Air Council (CAC) is a network of over 40 municipalities and health units from across Southern Ontario that work collaboratively on the development and implementation of clean air and climate change mitigation and adaptation actions. The CAC network represents over 10 million Ontarians. Clean Air Partnership (CAP) is a charitable environmental organization that supports municipal climate action ambition and implementation. CAP serves as the facilitator for the Clean Air Council network. The below highlights the consensus-based input from the CAC municipal network on the Ontario Energy Board' Decision to Support Affordability for Residential New Developments.
Most CAC member municipalities have passed climate emergencies, committed to science-based GHG reduction targets, and are in the process of implementing their Climate Action Plans. Ontario municipalities all recognize the critically important role that Ontario's energy system plays in meeting the energy needs of Ontarians and the challenges of managing and planning for Ontario's energy system. CAC member municipalities are very keen to work with the Ministry of Energy and its partners to ensure that Ontario progresses towards increased affordability, efficiency and decarbonization in Ontario's energy system.
This letter is to express our concern with the Ministry's recently announced decision to overrule the decision made by the Ontario Energy Board (OEB) to end the subsidy for methane gas pipelines in new residential developments. In December of 2023, the OEB publicly issued a comprehensive decision on an application by Enbridge Gas Inc. (EGI) for approval of Ontario gas distribution rates commencing January 1, 2024. The decision is 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 EGI, OEB staff, and several informed, expert customer and public interest intervenors. The OEB decision ended a subsidy of approximately $4,500 per home for the cost of bringing fossil fuel pipelines into new residential developments. This subsidy is paid for by the Enbridge rate base. The OEB has terminated the subsidy, effective from January 1, 2025, due to its negative implications for both current gas consumers and prospective homebuyers.
This subsidy negatively impacts existing gas customers as they bear the burden of its costs through elevated energy bills, resulting in a substantial yearly capital expense exceeding $250 million. Moreover, this subsidy is detrimental to new homebuyers for various reasons, one being its incentive for developers to incorporate gas equipment, which incurs significantly higher operational expenses for building occupants and owners. The subsidy leads to increased energy costs for both current gas consumers and new homebuyers while also promoting the use of fossil fuels. Its removal promises to be a mutually beneficial solution, benefiting existing gas customers and new homebuyers while contributing to the reduction of carbon emissions.
Governments across the world and within Canada have been speaking about the importance of removing fossil fuel subsidies. In addition, bringing in fossil fuels to new developments without considering the stranded asset risk undermines Ontario's energy planning process and risk profile. The payback period for fossil fuel pipes to new developments takes anywhere from 20 - 40 years (depending on the size of the development, the costs of the infrastructure and the number of customers within that new development), locking in customers to continue using energy sources with higher emissions for decades or continuing to have to pay for infrastructure even when it isn't being used.
The OEB's decision to end the gas pipeline subsidy was made based on detailed evidence and a thorough process. Passing legislation to override that decision would trample on the OEB's independence. The OEB's mandate is to protect the interests of consumers, which is what it was attempting to do with the recent decision. Reversing this decision will impact Ontarians negatively.
To address the concerns relating to the removal of this subsidy slowing down or halting new construction, there is no real evidence that the removal of this subsidy would impact the construction timelines. Up-front capital and operational costs can be lowered by not bringing in fossil fuel pipelines to new developments and using electricity to meet energy needs via geo-exchange systems, heat pumps and induction stoves without any delays in planning approvals and infrastructure planning.
There is also the need for Ontario to level the playing field between how fossil fuel and electrical investments are made and who pays for them. For example, the up-front cost of electricity infrastructure to new developments is in the range of $10,000 per home and is paid for by the developers at the time of construction. However, the fossil fuel gas infrastructure is paid for by the vast ratepayer base over 20 - 40 years.
The OEB could consider transferring the fossil fuel subsidy to an electricity system subsidy to encourage the electrification of new developments and correct for the unequal playing field between how fossil fuel and electricity infrastructure is paid for. If, however, the Ministry insists on maintaining the subsidy, then in all fairness, developers should be able to apply that subsidy either to electrical or fossil fuel infrastructure costs.
Clean Air Partnership is available to schedule a follow-up meeting between the Ministry and the CAC municipal network to advance our collective energy planning discussions and decisions and ensure that we are preparing Ontario's energy system for the low carbon energy transition while also ensuring reliability and affordability for meeting Ontario's energy needs.