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Members will recall that in February, the Ontario Energy Board (OEB) announced that it would conduct a hearing on how best to recover the costs of expanding natural gas service to communities in Ontario that do not currently have access to natural gas. This generic hearing (EB 2016-0004) was called at the request of Ontario’s two natural gas utilities (Union Gas Limited and Enbridge Gas Distribution), who were interested in gaining permission to have existing ratepayers help to underwrite these expansions.  The expansion of natural gas into smaller communities has been a request of these communities for many years. 

The Ontario Geothermal Association (OGA), an affiliated chapter of HRAI, took the view that, if natural gas system expansion was permitted to go ahead at the expense existing ratepayers, alternative options such as geothermal (or propane or heating oil) would be competitively disadvantaged.  In March, the OGA Board of Directors decided to intervene in the hearing and retained Jay Shepherd (who has done extensive work for the HVAC Coalition) as legal counsel.  Expert evidence and testimony for the case was prepared and delivered by Stan Reitsma (CEO of Geosource Energy Inc.) and David Hatherton (retired founder of WaterFurnace and NextEnergy).

The OGA found allies among other intervenors in the case, including ratepayer groups and environmental advocates with an interest in mitigating climate change.  In essence, the OGA’s case centred on the point that geothermal heating and cooling presents a completely viable competitive alternative to natural gas technology, if all costs are fully accounted for.  The special advantage of geothermal, argued the OGA, is that it is also a non-carbon-emitting technology (assuming the supply of electricity is from “clean” sources), which makes it of special interest in light of the Province’s new focus on climate change mitigation.

The hearing wrapped up in mid-May.  On November 17th, fully six months later, the OEB announced its decision.  In sum, the OEB has denied the utilities’ request to subsidize the expansion of new infrastructure on the backs of existing ratepayers.  According to the decision:

The other chief measure proposed to enable more expansions was a subsidy from existing customers. The OEB has determined that this is not appropriate. As noted above, the economic benefits of expansion to many communities are much greater than the costs. This approach would also distort the market to the detriment of existing energy services that compete with gas, such as propane, and new gas distributors who do not have an existing customer base. Under these circumstances, it would not be appropriate to require existing customers to pay for a portion of any expansion. The communities that receive the benefit will be the ones paying the costs.

At the same time, the OEB did okay the right for the utilities to set up “stand alone” rates for services provided to new communities, based on the higher costs associated with establishing those services.  The decision reads:

Utilities are also [currently] required to charge customers that are in the same rate class the same rate. Under the existing framework, for example, it is not open to a utility to charge customers in a potential expansion community a higher rate than existing customers in the same rate classification. The result of this is that many communities are not served because, at existing rates, the revenues from the expansion would not cover the costs. This prevents expansion to communities even where the economic benefits of expansion to the community greatly exceed the costs of expansion, even at a higher rate.
The OEB has determined that this is one of the primary barriers to expansion, and it will therefore allow utilities to charge “stand alone” rates to new expansion communities. The evidence shows that for many communities a higher gas distribution rate would be more than offset by the savings these customers would realize over time by converting to natural gas. This is true even when one considers the costs of conversion, such as a new or modified furnace.

During the hearing in May, it became evident that the costs of providing these “stand alone” systems will be considerably higher than what is required in more established areas (as much as double).  The OEB is now saying to these small communities that, if they want natural gas, they will have to pay the full cost.  The implication is that natural gas will have no special advantage in these areas by virtue of regulation.  It will be a level playing field for all energy (heating/cooling) options.

The OGA has taken this decision as a significant win for geothermal.  While there has been an expectation for some time that Ontario’s Climate Change Action Plan would reward Ontarians who invest in clean technology, the expected support programs have not yet materialized.  There was concern that an approval of natural gas expansion at existing ratepayers’ expense would be a death-blow to geothermal in those parts of the province.

To review the Decision with Reasons
To see the Backgrounder

For more information, contact Martin Luymes at 1-800-267-2231 ext. 235 or email mluymes@hrai.ca.