A move to expand the province’s natural gas system will result in higher bills for current and future customers.
Ontario’s government is forging ahead with policies promoting uneconomic natural gas expansion projects. Current gas customers can expect bills to increase as a result.
To extend the gas grid to uneconomic, sparsely populated areas, the province has directed the energy regulator, the Ontario Energy Board (OEB), to “examine opportunities to facilitate access to natural gas services to more communities” by expanding current delivery systems. The province has tabled two financial incentives – $200 million in loans and $30 million in grants – to kickstart its expansion plans. It also directed the OEB to come up with other ways to cover these costs, which could include surcharges, higher rates or cross subsidies from current customers.
The OEB has in the past protected current natural gas customers from such uneconomic expansions.
Since 1998, the OEB had a clear policy for natural gas expansion – known as the “portfolio approach” – in which a distributor would undertake a number of expansion projects (the “portfolio”) that would, on the whole, be 100% paid for by rates charged to new customers being connected to the system. Current customers did not subsidize the gas deliveries of new customers.
Previous legislation also ensured that within the proposed “portfolio” of new projects, no single project would be approved unless its specific users covered at least 80% of its costs – a policy that prevented cross subsidization among new customers. The province is asking the OEB to drop that requirement.
The push to have the OEB abandon its expansion principals will see an increasing number of rural residents connected to the natural gas system – a move that would, in part, shield them from ongoing hikes to the their hydro bills. The province points to natural gas as being an “affordable” source of energy and “significantly” cheaper than electric heating.
Gas has become an increasingly attractive alternative to hydro in recent years. Unlike hydro customers – who are on the hook for provincial policies that have seen electricity rates skyrocket – natural gas customers have seen natural gas prices fall dramatically in recent years. High electricity bills, then, are leading the province to implement gas expansion policies that will ultimately result in higher gas bills for current and future customers.
Many of these new policies — including the loans and grants offered by the province — will be passed onto existing gas customers through higher rates and surcharges in order to cover the growing costs of uneconomic gas projects.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236