Ontario Proposes New Approach for Expansion of Natural Gas to Unserved Communities

The Ontario government recently proposed amendments to the Ontario Energy Board Act, 1998 (OEB Act) that are intended to support the expansion of natural gas service to unserved communities. The amendments will provide “rate protection” for consumers where the gas distributor makes investments to provide access to those consumers.

Under the proposed amendments to the OEB Act, customers in newly-served communities will have their rates reduced from what they would otherwise be, and the utility’s revenue shortfall will be recovered from all customers. Gas distributors will be permitted to be compensated by their customer base where rates do not recover the costs of “qualifying investments” to serve customers in newly-served communities. Essentially, this means that current customers may subsidize the costs related to extending service to customers in newly-served communities. The scope of “qualifying investments” to be recovered from all customers will be indicated in regulations that have not yet been published.

At the same time as new legislation was introduced, the Ontario government also indicated that it will not be continuing the natural gas grant program that had provided financial support to communities receiving new natural gas service. The press release issued along with the proposed new legislation indicates that the government believes that its new approach will be better for expanding natural gas to unserved communities: “[t]he program would provide natural gas to potentially dozens of communities across Ontario by enabling private sector participation in the expansion of natural gas. Allowing private capital to build new natural gas networks would reduce gas bills over time for every Ontarian and gas would get to more communities faster, with some communities coming online within months.”

As we discussed in earlier posts (see here and here), the OEB had quite recently approved a “community expansion” approach to permit different (higher) rates to be charged to new communities in recognition of the fact that the cost to connect and serve those communities would be higher than average. Under that approach, existing customers were to be held harmless. The new communities might be eligible for funding from the Ontario government’s natural gas grant program, which would reduce the costs for the ratepayers in the newly-served communities.

The proposed legislative changes to the OEB Act appear to signal the end of the OEB’s community expansion approach. It will no longer be necessary to have different rates for ratepayers in newly-served communities. The specific manner in which the new approach will be implemented will be seen when the first applications for rates to serve new communities are considered. The proposed amendments to the OEB Act are currently at the second reading stage, and the government has indicated that it will work with the OEB to develop regulations during the fall of 2018.