January 14, 2025

Nik Spohr
Ministry of Energy and Electrification
77 Grenville Street
Toronto, ON
M7A 2C1

Consultation to support the important role for natural gas in Ontario's energy system and economy. ERO number 019-9501.

The Clean Air Council (CAC) is a network of 40 municipalities from across Southern and Eastern 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 the ambition and implementation of municipal climate action. CAP serves as the facilitator for the CAC network.

Below is the consensus-based input from across the CAC municipal network related to ERO posting number 019-9501.

1. What principles should the government provide to the OEB to help inform the Board's ongoing development of natural gas connection policies?
To inform the Ontario Energy Board's (OEB) ongoing development of natural gas connection policies, CAC recommends that the Ministry reduce the revenue horizon used by gas utilities to calculate the upfront cost of new connections for small volume customers from forty years to zero and level the playing field between how the cost of new electricity and natural gas connections are calculated.

In December of 2023, the Ontario Energy Board (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, several informed, expert customer and public interest intervenors and other stakeholders. Effective from January 1, 2025, the OEB decision ended a subsidy of approximately $4,412 (weighted average of new construction and existing homes in the "Enbridge Gas Distribution" rate zone) per home for the cost of bringing fossil fuel pipelines into new residential developments due to its negative cost implications for both current gas consumers and prospective homebuyers.

This OEB decision reflected that the existing 40-year revenue horizon period does not adequately account for the risk that the ongoing energy transition may result in natural gas assets being replaced over a shorter period by heat pumps or other technology, which could leave future ratepayers burdened with the residual cost of any "stranded" assets. Restoring the 40-year revenue horizon provides natural gas with an up-front cost advantage against alternative options like heat pumps - derailing plans to achieve municipal and federal net zero greenhouse gas commitments and Ontario's ability to meet its own GHG targets and move towards decarbonization: 30 percent below 2005 levels by 2030 and any future targets.

Moreover, 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 or roughly $600 per customer. This subsidy is also detrimental to new homebuyers as it provides an incentive for developers to incorporate gas equipment, which incurs significantly higher operational expenses for building occupants and owners over the lifetime of that equipment. Residents will have to bear the financial burden of upgrading to non-fossil fuel heating and cooking systems in the future rather than starting with the right equipment. The subsidy might serve as a deterrent for developers to build energy-efficient homes (e.g., use natural gas instead of heat pumps for heating needs), thereby affecting their ability to meet respective Municipal Green Development Standards, Thermal Energy Demand Intensity targets and GHG targets for new construction. The subsidy leads to increased energy costs for both ratepayers and new homebuyers while also promoting the use of fossil fuels and exacerbating the impacts of climate change. Discontinuing the 40-year revenue horizon period will alleviate the cost burden on existing gas customers and provide a fair choice to new customers to adopt lower carbon technologies while contributing to the reduction of carbon emissions.

Electric heating offers greater economic benefits to our communities and the province as compared to gas heating. Money spent on gas exits the province, detracting from our local economy. Conversely, investing in electricity contributes to the expansion of electricity generation, local distribution, and transmission within Ontario, fostering local job creation, economic development, and increased government revenue. Moreover, the Financial Accountability Office of Ontario's CIPI: Summary Report - Estimating the budgetary impacts of changing climate hazards on public infrastructure in Ontario estimates that the changing climate will add $4.1 billion per year to public infrastructure costs on an average in a medium emissions scenario if the governments don't adapt. This fossil fuel subsidy will hinder Ontario's climate change mitigation efforts and result in increased infrastructure-related costs.

CAC recommends that the OEB continues to retain the authority to determine and set the delivery rates for proposed and future projects. The OEB's decision to end the gas pipeline subsidy in December 2023 was made based on detailed evidence and a thorough process which involved broader stakeholder consultation. Overriding OEB's decision would trample on the independence of the energy regulator, whose mandate is to protect the interests of consumers.

2. What role should natural gas play in supporting energy affordability and customer choice in residential and small commercial applications (e.g., space and water heating)?

The CAC urges Ontario to discontinue investing in natural gas expansion and reallocate these resources towards supporting the most economically efficient choice for consumers, which is the adoption of all-electric heat pumps and electric or tankless water heating mechanisms. The CAC commends Ontario's new Home Renovation Savings Program, which is a major expansion of the province's energy efficiency efforts. This investment will generate substantial energy and cost savings for Ontarians.

The CAC network recommends the province to advance alternative options for affordable home heating:
The heat pump technology continues to improve, and the cold climate Air Source Heat Pump (ccASHP) units have high heating capacities and efficiency levels in the range of 200%, even at -30°C.

From the figure above, if you took the average of the "Electricity 2023" costs, assuming that it represents a ccASHP in a house with a poor envelope, the difference to "Natural Gas 2023" costs is perhaps $300 more annually. In 2030, however, due to the increasing carbon price, the average cost of "Natural Gas 2030" comes to about $2850 and "Electricity 2030" comes to $2750, which is about $100 cheaper.

This analysis is consistent with findings by the TRCA for several Toronto households that switched to ccASHPs: they are cost-competitive today and likely to save money in the near future. Apart from the carbon price, new gas customers have to pay a System Expansion Surcharge (SES), which is currently $0.23/m3 for up to 40 years. Unknown but potentially significant costs include heating system conversions (e.g. uptake of natural gas for heating space and water would require a furnace, ductwork and a boiler). Based on this analysis, there is a significant risk associated with natural gas infrastructure proving costly and becoming a stranded asset in the near future.

3. What role should the government play in supporting and expediting the rational expansion of the natural gas system to make home heating more affordable and support economic growth in communities that are seeking natural gas service?

There are many reasons why further public investment and expansion of natural gas infrastructure is counterproductive to make home heating more affordable and support economic growth in communities.

A. It is a very expensive fossil fuel subsidy, and there are more cost-effective alternatives:
While addressing high energy costs for Ontarians is a worthwhile goal, the assumption that natural gas is a cost-effective solution for this purpose is not accurate, as highlighted in our response to Question 2. The Natural Gas Expansion Program's Phases 1 and 2 will continue to burden existing ratepayers with approximately $281 million in costs through a $1/month charge until 2026. Given the availability of more cost-effective alternatives, it is crucial to reassess the long-term value of continuing natural gas expansion and consider other energy solutions that can better address affordability without the same financial strain on ratepayers.

B. A simple cost/benefit analysis of Phase 2 of the program exposes the burden of this costly decision on the customers:
Phase 2 of the NGEP had a budget of $234 million for 8,750 connections, which comes to $26,742 per connection. Estimated savings per customer per year would be in the range of $250-$1500 per year ($2.2 million - $13 million). At $250/year, that comes to a 106-year payback; at $1500, it comes to a 17-year payback. It is unclear from the province's press release how many households are saving $250 versus how many are saving $1500, so we can't calculate where the payback falls between those time frames.

Moreover, the expansion of natural gas infrastructure in the province locks existing customers into paying higher costs for a long time. Subsidized on the Ontario-wide rate base, the cost of expanding the gas system to serve new communities is being paid for by a $12-a-year surcharge on the gas rates of Enbridge's 3.6 million existing residential customers and by a $0.23 per cubic metre surcharge on the rates of the gas customers in the new gas communities. At this rate, this additional cost burden is being carried by the existing residential customers for over five years to recoup the costs of Phase 2 only.

There doesn't seem to have been any public and transparent analysis of other options (beyond subsidizing the expansion of fossil fuel infrastructure to new communities) that were considered to help Ontarians address their higher-than-average energy costs. There is a need to apply and share the results with Ontarians of applying an Energy Decision Matrix to Ontario's energy decisions. See the response under question 3 below for more information on one possible energy decision matrix that can advance a more transparent decision-making process, thereby fostering confidence in the government's ability to plan for Ontario's future energy.

C. More customers will be locked into fossil fuel dependency for decades:
The lifetime of a furnace is about 15 years, and connecting new homes to fossil fuel heating going forward will lock them into burning fossil fuels until nearly the 2050 net-zero deadline. Continuing the expansion of fossil fuel investments needs to speak to how much GHG emissions these programs are creating, what the stranded asset risk is for Ontarians removing the use of fossil fuels in their properties and the financial implications various fossil fuel drop-off rates will have if they are no longer Enbridge customers due to their decarbonization actions. According to figures from Enbridge Gas, the most significant component (95%) of natural gas is methane, the second biggest contributor to global warming. Impacts from natural gas extraction and processing, including methane leaks, carry significant environmental concerns and fracking for gas is a widely controversial process.

In addition, there is a growing body of evidence showing that we are using the wrong GHG emission coefficient for natural gas, and we need to bring in the emissions associated with extraction, processing, and delivery into our GHG analysis.

It is also important to consider that natural gas costs are also susceptible to global pricing fluctuations and federal carbon price increases. It must also be noted that as North American liquified natural gas (LNG) export infrastructure expands, it will turn what was once a domestic energy source into an internationally traded commodity, exposing North American households and businesses to higher volatility of natural gas prices set on the global market. It is essential that the province considers alternative options to support households in moving away from a costly natural gas lock-in.

4. What role should natural gas play in offsetting higher GHG-emitting fuel sources?

More robust processes are necessary to ensure that the costs of expanding natural gas distribution infrastructure are carefully weighed against viable alternatives that can deliver the same affordability outcomes.

The CAC network recommends the Province to advance an Energy Decision Matrix to rank alternative fuel sources.

An energy decision matrix is a tool to assess and rank alternatives in a decision-making scenario. The process begins by first listing the potential alternatives to high GHG-emitting fuel sources. For Ontario's energy future, these potential alternatives include the energy pathways identified by the IESO and Power Advisory and Municipal Energy Plans, and all cost-effective energy efficiency opportunities are advanced. A list of desired attributes is then created, which serves as the rubric for scoring each alternative. When rating potential energy pathways, the key attributes assessed should be GHG emissions, legal implications, costs, economic and competitive implications, infrastructure requirements, social equity impacts and job creation, among others. These attributes are then weighted based on importance using a numerical rating scale. A diverse group of stakeholders must determine the weight or importance of each attribute. Each alternative is then scored based on how well it achieves the desired attributes and multiplied by its weight.

A matrix assesses and compares:
• Lifecycle costs - identifying the value proposition, simple payback periods via operational savings, and the risk of stranded assets.
• Traditional vs. decentralized vs. individual generation options and how they impact or support current grid infrastructure.
• Costs and benefits associated with each energy pathway. Including co-benefits consideration
• Implications related to resilience, climate, local job creation and economic development, equity, social, market transformation, etc.

Why is an Energy Decision Matrix Needed?

A transparent and measured approach to energy planning through a careful decision-making process secures positive outcomes for all Ontario energy stakeholders, including the provincial government and its 444 municipalities. Furthermore, using decision-making tools such as decision matrices helps achieve many common priorities for provincial and municipal governments, including finding cost efficiencies, economic development, infrastructure investments, job creation, ratepayer and taxpayer relief, and greenhouse gas reduction. Lastly, bringing economic, social, and environmental considerations into Ontario's energy decisions through a transparent decision-making process secures confidence in the government's ability to plan for Ontario's future energy. Strategic missteps and oversights for such a key decision can be circumvented when a careful, measured, transparent and collaborative approach is taken.

5. What are the challenges and opportunities for enhanced energy efficiency, adoption of clean fuels (e.g., RNG, Hydrogen) and emission reduction methods (e.g., carbon capture and storage) to lower emissions in the natural gas system?

Natural gas is a carbon-heavy fuel that is unlikely to play a significant role in a clean energy system by 2050. Its ongoing use depends on the successful development of alternative fuels like hydrogen, renewable natural gas (RNG), and carbon capture technologies, all of which face considerable technological and economic challenges to achieve large-scale feasibility.

Long-term planning is necessary to identify which parts of the natural gas network can be repurposed to transport alternative fuels like hydrogen and RNG where feasible. However, by 2050, the availability of these fuels is expected to be only a small fraction of current natural gas consumption. Even in optimistic scenarios, the Canadian Climate Institute estimates that these fuels could replace just 5.1 to 12.7 percent of 2020's total gas demand in buildings. Moreover, Canada's potential for feasible RNG production is estimated at only 3.6% of the country's current natural gas consumption. Ontario must consider these realities in its forward-planning efforts. Due to the limited supply and high costs of these alternatives, they are unlikely to be cost-effective for general heating applications and are better suited for hard-to-decarbonize sectors, such as industrial processes and backup power generation.

In addition to the direct emissions from natural gas combustion, its life cycle also generates fugitive methane emissions during extraction, fracking, pipelines, and distribution. While methane has a shorter atmospheric lifespan than other greenhouse gases, it is far more effective at trapping heat. Furthermore, fugitive methane emissions are often underestimated, magnifying their climate impact. Phasing out fossil fuels and addressing fugitive methane emissions are critical to meeting climate targets.

The CAC appreciates the opportunity to provide input and would be keen to engage more with the Ministry to answer any questions and provide more information related to this submission. The CAC can be engaged by reaching out to Gabriella Kalapos at gkalapos@cleanairpartnership.org.

Gabriella Kalapos
Executive Director
Clean Air Partnership

About Clean Air Partnership and Clean Air Council:

Clean Air Partnership (CAP) is an environmental charity that works in partnership to promote and coordinate actions to reduce greenhouse gases for healthy communities. Our applied research on municipal policies strives to broaden and improve access to public policy debate on climate change issues. CAP's mission is to transform cities into more sustainable, resilient, and vibrant communities where resources are used efficiently, the air is clean to breathe, and greenhouse gas emissions are minimized.

CAP convenes the Clean Air Council, a network of 42 municipalities and health units from across Ontario. Since 2000, Clean Air Council members have been working collaboratively on the development and implementation of clean air, climate change, sustainability and resilience actions.