Consultation to support the important role for natural gas in Ontario’s energy system and economy.

In October 2024, Ontario released a vision statement on the province’s energy future. Ontario’s Affordable Energy Future: The Pressing Case for More Power committed to include a Natural Gas Policy Statement in the province’s integrated energy plan, to provide clear direction on the important role of natural gas in Ontario’s future energy system. The development of a Natural Gas Policy Statement was also a recommendation of Ontario’s Electrification and Energy Transition Panel (EETP).

The Ministry of Energy and Electrification (ENERGY) is seeking feedback on principles and commitments for how the continued role of natural gas should be reflected in this statement, which will be released as part of Ontario’s integrated energy plan in early 2025.

Background

Natural gas currently makes up almost 40 per cent of Ontario’s total energy use, with gasoline, diesel and other refined petroleum products accounting for about 36 per cent, electricity just over 20 per cent, and other energy types accounting for the remainder (less than 5 per cent). Because natural gas provides a powerful combination of low cost and high energy density that cannot be matched by other energy sources, it is Ontario’s dominant fuel used for heating, serving about 3.8 million customers. It is a vital component of Ontario’s long-term mix and the province’s first integrated energy plan.

It fulfills diverse roles across the industrial, residential, commercial and agricultural sectors. It is also a critical component of the province’s electricity generation mix to maintain reliability and meet peak electricity demand: increased electricity generation through natural gas can help reduce province-wide emissions by supporting cost-effective electrification in other sectors like transportation and heavy industry. By 2035, Ontario’s electricity sector will reduce emissions by at least three times the amount it produces as a result of cost-effective electrification.

A premature phase-out of natural gas-fired electricity generation could hurt electricity consumers and the economy. According to the Independent Electricity System Operator (IESO) in its 2021 Natural Gas Phaseout Study, completely phasing out natural gas generation by an arbitrary date of 2030 could lead to power system blackouts, a 60 per cent increase in residential electricity bills (about $100 per month) and stifle investments in low-carbon solutions.

There is a need for the energy system to adapt to the pace of change so consumers continue to be empowered to make choices about their energy sources. That will require coordination among natural gas utilities, electricity utilities and the IESO to manage energy system costs and ensure reliability as significant investments in energy infrastructure are needed to support a growing and evolving economy. This coordination would ensure that electricity resources keep pace with demand as an increasing number of consumers switch energy sources over time, while reducing the risk of stranding assets before the end of their useful life.

Over the long-term, an economically viable natural gas network can also support the integration of clean fuels to reduce emissions, including renewable natural gas (RNG) and low-carbon hydrogen. Consumers in Ontario already have access to programs offered by regulated and non-utility suppliers to voluntarily add RNG to their gas supply. Pilot projects are also underway to increase low-carbon hydrogen production and use, including projects supported through the Hydrogen Innovation Fund.

Carbon capture and storage is another emerging technology that could reduce emissions generated by the continued use of natural gas by large industrial consumers. Ontario is committed to developing and implementing a framework to regulate commercial-scale geologic carbon storage projects in the province.

Going forward, Ontario will include a Natural Gas Policy Statement in its integrated energy plan to provide clear direction on the role this fuel source plays in Ontario’s long-term energy future.

Keeping Energy Costs Down Act, 2024

In December 2023, the Ontario Energy Board (OEB) issued a split decision which would have dramatically increased the upfront cost to consumers of installing natural gas connections for new homes and small businesses. Specifically, the OEB decided that for these low volume customer connections, the “revenue horizon” which gas utilities use to calculate the upfront cost of new connections for customers would be reduced from forty years to zero, effective January 1, 2025. As a result, new customers would have had to pay 100 per cent of their connection cost upfront – or an average of approximately $4,400 being added to the price of new homes, or tens of thousands of dollars being added to the price of a home in rural Ontario – rather than maintaining the long-standing practice of paying these costs over forty years.

In May 2024, Ontario passed Bill 165, the Keeping Energy Costs Down Act, 2024, which gave the government time-limited authority to set the revenue horizon for residential, small commercial and small farm customers. The government then filed Ontario Regulation 273/24 under the Ontario Energy Board Act, 1998, to reset the revenue horizon for natural gas connection costs to 40 years – restoring the status-quo policy in place since 1998 that the OEB’s December 2023 decision overturned.

The Keeping Energy Costs Down Act, 2024, also allows the government to make regulations to require the OEB to hold a new hearing in the future to revisit the revenue horizon. Once the government introduces a Natural Gas Policy Statement, a recommendation of the EETP’s final report, it intends through regulation to require the OEB to consider this issue again.

After the government’s time-limited authority to set the revenue horizon expires (January 1, 2029), the exclusive jurisdiction to determine a revenue horizon will be returned to the OEB.

Consultation Questions

Natural gas is the primary heating source for three-quarters of Ontarians. It is also an insurance policy that provides the electricity system with reliability to meet peak electricity demand on the hottest and coldest days of the year when other resources like wind and solar are not available.

It is critical to attracting new jobs in manufacturing, including the automotive industry and agriculture, given the role natural gas plays in supporting energy affordability, system reliability and continued growth.

We are seeking feedback from the public, stakeholders and Indigenous communities on the questions below to help inform the province’s Natural Gas Policy Statement:

• What principles should the government provide to the OEB to help inform the Board’s ongoing development of natural gas connection policies?

• 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)?

• What role should natural gas play in supporting economic development in Ontario’s industrial and agricultural sectors, including those processes that may be difficult to electrify?

• 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?

• For natural gas expansion projects receiving government support, should the approvals processes be streamlined to support affordable home heating for Ontarians? In what ways?

• What role should natural gas play in supporting power system security and resiliency?

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

• 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?

Environmental Impact of the Proposal

The Natural Gas Policy Statement will support Ontario’s integrated energy plan to achieve the government’s vision of an affordable, reliable and clean energy system. Success in achieving these objectives for the province’s energy system could have significant positive impacts on the environment through the buildout of a cleaner and more diversified economy.