Ontario's Auditor General Comments on OEB Regulation of Natural Gas Sector

In a previous post, we discussed the parts of Auditor General Bonnie Lysyk's 2016 Annual Report that look at Ontario's planned Cap and Trade Program. There are other parts of the Auditor General's 2016 Annual Report that focus on energy issues. In particular, there are two parts of the 2016 Annual Report that also focus on issues related to natural gas distribution in Ontario - a "Follow-Up" report titled "Ontario Energy Board - Natural Gas Regulation" that looks at the status of recommendations made to the OEB in the 2014 Annual Report, as well as criticism of the OEB's recent decision not to separately identify the costs of Cap and Trade on bills issued to natural gas consumers.

One area of focus in the Auditor General's 2014 Annual Report was on the manner in which the OEB regulates natural gas distributors and protects the interests of consumers. For the most part, the Auditor General was satisfied with the OEB's systems and processes. The Auditor General did make a number of recommendations for the OEB to consider, including more frequent audits of gas distributors, increased review of gas supply activities and enhanced public information about gas marketer prices and complaints. The Auditor General's 2016 Follow-Up Report examines the steps taken to date by the OEB to address the recommendations made in 2014. For the most part, the Auditor General found that the OEB has been successful in implementing the recommendations made - many of these have been fully implemented, and most of the others are in the process of being implemented. Among other things, the OEB has undertaken audits of distributor gas supply costs, commenced a process to review utility gas supply planning, defined the role of OEB Staff in representing and commenting on how settlement proposals reflect the public interest and updated its approach to regulating gas marketers.

On the issue of disclosure of Cap and Trade costs to natural gas consumers, the Auditor General's 2016 Annual Report is more critical of the OEB and the Government.

The Auditor General's concerns arise from a July 2016 decision (discussed here), where the OEB determined that Cap and Trade costs will be passed on to gas utility customers as part of their overall delivery charges, not as a separate line item. That determination was widely criticized for making it difficult for consumers to understand the impact of Cap and Trade, and consumer groups requested a reconsideration by the OEB. In the OEB's September 2016 Regulatory Framework for the Assessment of Costs of Natural Gas Utilities' Cap and Trade Activities (discussed here), the OEB confirmed that there will be no separate identification of Cap and Trade costs on customer bills. The OEB indicated that utilities will be required to have separate charges for Cap and Trade costs as part of their overall tariffs, but for bill presentment purposes, these separate charges will be combined into the customer's delivery rate.

As part of the Climate Change chapter of her 2016 Annual Report, the Auditor General emphasizes the importance of communicating clear and accurate messages to the public about Cap and Trade. In that context, the Auditor General raises concerns about the fact that consumers will not be told of the reason for an estimated $60 per year increase in their bills. According to a survey conducted on behalf of the Auditor General on this topic, 89% of respondents thought it important to disclose the impact of Cap and Trade on natural gas bills. Taking this into account, the Auditor General recommended that "the government should ensure that natural gas bills disclose the portion of charges in the bill attributable to the cap-and-trade program."

The responses from the OEB and the Government make clear that the Auditor General's recommendation will not be implemented. The OEB's response is set out in the Climate Change chapter of her 2016 Annual Report and simply reinforces and defends what the OEB has already decided. The Government's response (as reported in a recent news article) is that it will not interfere with the OEB's decision.