Deputation at Committee re. Bill 32, Access to Natural Gas Act

Deputation to General Government Committee
re. Bill 32, Access to Natural Gas Act
Oct. 31, 2018

Thank you Mr Chairman and Committee members.

Thank you Mr Chairman and Committee members.

My name is Tom Adams. I appear as an unaffiliated private citizen. I am an energy consultant specializing in consumer concerns. My principal client is Poteck Power Corporation, a power bill audit company. We help Ontario commercial and institutional customers who have been overcharged for power. I also undertake consulting work in electricity and journalism work in electricity and gas markets, mostly in eastern Canada. I have no consulting engagements in natural gas.

Bill 32 appears to be a reaction to a natural gas delivery subsidy initiative of the previous Wynne government. That initiative applied a fixed, one-time taxpayer-funded budget to subsidize the expansion of natural gas delivery to certain identified rural regions.

I am here to argue for scrapping Bill 32.

The Wynne government’s approach was not an approach I prefer. However, by comparison to Bill 32, the Wynne government’s approach to promoting gas delivery expansion was transparent, contained, targeted, efficient, and accountable.

Bill 32 would create a blank cheque for the government of the day to impose hidden taxes of unlimited size on existing natural gas consumers to fund benefits to a chosen few. Those hidden taxes will be dressed up as a regulatory charge, attempting to circumvent the constitutional prohibition on indirect taxation. Customers who pay this hidden charges will receive zero benefits of any kind from the higher costs they incur — all pain, no gain for everyone but those getting the subsidies.

Where have we seen that before? McGuinty’s Green Energy and Green Economy Act did exactly that — off-book funding for initiatives of government paid for with hidden taxes on electricity.

Also paralleling the Green Energy Act, the financial structures allowed by Bill 32 could create windfalls for utilities.

Some regulatory economics might help explain the potential for windfalls. Apologies in advance for my use of jargon. In normal gas utility life, investment costs to support potential new expansion projects are compared with cash flows net of operating costs forecasted to arise from those projects. Where the expected cash flows are insufficient to carry the investment required, the potential customer seeking service is required to pay a contribution-in-aid-of-construction. Where the private benefits of gas service exceed the contribution-in-aid, customers will pay the upfront charge to get the necessary new pipe built. Here’s the trick: After more than 100 years of regulatory jurisprudence in Ontario and elsewhere working out the complexities behind this simplified version, regulators have determined that utilities are not allowed to earn a rate of return on contributed capital. The previous Wynne gov’t taxpayer-funded program was structured as a contribution-in-aid-of-construction. This structure reduces the capital added to rate base, and therefore minimizes windfalls for utilities and the long-term impact on ratepayers. While the loose financial arrangements set out in Bill 32 might allow the Minister to follow this sensible approach, the Bill would also permit rate base treatment and therefore windfalls.

Bill 32 is a recipe for unaccountable government action. All of the economic implications of Bill 32 would arise from regulations, where government actions are hard to track. New powers in Bill 32 would give the minister unlimited opportunities to hide the costs in the darkest corners of utility accounts and also dilute those costs across many millions of Ontario customers. Nothing in Bill 32 would provide the slightest due process for disadvantaged customers.

Figuring out what new expansions are justified is just one of a wide range of complex commercial and regulatory questions that the gas system manages every day. Bill 32 declares that the normal investment processes should be thrown out. What’s next? Are you going to mess with cost allocation, rate design, metering, depreciation schedules, working capital, or operating costs?

It seems obvious that the purpose of Bill 32 is to expand on the political benefits of Wynne’s rural subsidies while shifting the costs off of the government’s books.

A far better course of action would be for this government to respect regulatory traditions and restore processes managing and overseeing gas expansion investments based on over 100 years of commercial and regulatory practice.

Politicizing gas investments risks bringing to gas investments all the stability and discipline Question Period provides to electricity.

Private gas distribution investment supervised by independent, professional public utility regulation has been a winner in Ontario. Gas has been almost completely outside politics. You might consider strengthening what works. Have we learned nothing from Ontario’s experience with a politicized power system?

If you must intervene in gas distribution decisions, abandon Bill 32 and adopt the far less harmful Wynne model.

Earlier this week, I had the unhappy task telling the Committee on Social Policy that Bill 34, which claims to repeal the Green Energy Act, must be completely reconsidered. It brings me neither pleasure nor income to tell you that Bill 32 must also be completely reconsidered.

Postscript Nov 20

Just prior to the Ford team’s intervention in gas expansion decisions, Union Gas had proposed a new temporary surcharge to be paid by new and future gas customers in those communities that were beyond the normal cost-effectiveness criteria for new delivery service. Fair and efficient option. Pity Ford’s team wiped out solutions like that.

One Comment

  1. Tom, your clear thinking is a pleasure to read.

    As with the cap-and-trade mistake (now fixed/cancelled by the Ford government), problems arise when the government chooses the winners and losers. For cap-and-trade the problem would have been which industries/businesses are exempt from the caps due to apparent international competition. For natural gas system expansion it would be where the government deems the expansion should be. For the electricity generation Feed-In Tariff contracts it would be which proposed projects get the funding and then the government supporting a farce of an environmental assessment process so the proposed project proceeds regardless of the environment/economic/municipal/public safety and other problems that would be created.

    When politicians or government bureaucrats unilaterally decide who gets the benefits, without any meaningful public consultation, logic, rule, or transparency, it is a bad thing. Thanks for noticing and writing this piece.

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