Articles

Pipe dreams? Deciding the energy transition in Ontario

Authors:  and * | December 2025 – Volume 13, Issue 4, 2025

INTRODUCTION

The energy transition is a complex public policy and regulatory challenge, including decisions on the mix of energy for end-uses (e.g., heating and transportation) and industrial processes, how to transition from greenhouse gas (“GHG”)-emitting sources of energy to non-emitting (or low emission) sources, and how to deal with the cost implications of these transitions for expanding certain energy infrastructure (e.g., electricity) and potentially decommissioning (pruning or stranding) other infrastructure (e.g., natural gas).

There are no easy answers to these challenges, and many jurisdictions are wrestling with solutions. Many are struggling. In some cases, there is friction between the regulator and government, regulated utilities and stakeholders, and sometimes even within the regulator itself. This article considers recent events in Ontario, which has now spent almost three years attempting to sort out issues related to the future role of natural gas in the province’s evolving energy system.

THE INTEGRATED RESOURCE PLANNING PILOT PROJECT DECISION

On March 27, 2025 the Ontario Energy Board (“OEB”) issued a 17-page decision[1] on an application[2] made on July 19, 2023 by Enbridge Gas Inc. (“Enbridge”), Ontario’s predominant natural gas distributor. The initial application sought approval of two integrated resource planning (“IRP”) pilot projects. The pilot projects were intended to evaluate the ability of alternatives to defer, reduce, or avoid the need for traditional pipeline infrastructure to meet natural gas system needs.

The application was made in response to the OEB’s July 2021 Integrated Resource Planning Framework for Enbridge Gas, in which the OEB stated that Enbridge was “expected to develop and implement two IRP pilot projects. The pilots are expected to be an effective approach to understand and evaluate how IRP can be implemented to avoid, delay or reduce facility projects.”[3]

Generally, IRP refers to “a planning process that evaluates and compares both supply-side and demand-side options to meeting an energy system need.”[4] The goal of the OEB’s IRP Framework is to provide “direction to Enbridge Gas on topics to be covered in an IRP Plan and the OEB’s requirements as Enbridge Gas considers and develops IRP Plans to meet its system needs,”[5] as well as noting that “demand-side programming, including geotargeted energy efficiency, and demand response programs, should be part of the IRP Framework.”[6]

During the course of the proceeding, Enbridge withdrew one of the proposed projects in an updated application filed on June 28, 2024.[7]

The result was that OEB approval was sought for the Southern Lake Huron Pilot Project (“SLH Pilot Project”). The SLH Pilot Project had a proposed budget of $14.2 million and four categories of activities: (1) energy efficiency measures; (2) demand response; (3) electrification (i.e., cold climate air source and ground source heat pumps); and, (4) advanced technology (i.e., hybrid heating, natural gas heat pumps, thermal energy storage).

In its decision, the panel of OEB Commissioners did not approve funding for hybrid heating or natural gas heat pumps (but allowed thermal energy storage, “on the condition that it utilizes electricity”[8]), arguing that:

The inclusion of incentives for gas equipment is entirely inconsistent with the purpose of:

  • IRP, which has as its objective the avoidance of gas infrastructure where there are economic alternatives, and
  • DSM [Demand-Side Management], which has as its objective the reduction of the utilization of gas through various efficiency and conservation measures.

Incentives for gas equipment continue the need for gas infrastructure and utilization of gas, rather than reducing it.[9]

The decision also noted that

The IRP Framework decision determined that electrification solutions would not be part of the IRP approach initially, with the focus being on system optimization and demand-side management. However, the IRP Framework indicated this could evolve as energy planning evolves and it is now clear that electric solutions are squarely on the table, as part of the IRP Framework.[10]

MOTION TO REVIEW

Also on March 27, 2025, so close to the issuance of the IRP pilot decision as to be practically concurrent with it, the OEB issued a notice stating that, on its own motion, it was initiating a review of the IRP pilot decision. Interestingly, the OEB’s motion did not identify who within the organization made the decision to initiate the review (e.g., the Chief Commissioner, CEO, or Board of Directors). The notice stated that the review was considering the following questions:

1. By requiring the use of electricity IRPAs and/or excluding funding for gas-fired technologies, did the Decision change the IRP Framework and do so improperly without notice to the parties and without providing parties with a full opportunity to address this issue through the hearing process?

2. Was there sufficient evidence to support the findings that categorically exclude funding for gas-fired technologies in the IRP Pilot?

3. In assessing the cost effectiveness of electric heat pumps versus gas-fired heat pumps, which formed part of the basis for denying the use of gas-fired heat pumps, was there sufficient evidence of, and did the Decision adequately consider, the potential cost of any required electricity system upgrades?[11]

With the notice was an announcement by the OEB that it would also be initiating a review of the IRP Framework in the Fall of 2025.[12]

The speed at which the OEB issued its motion to review was extraordinary. In particular, the issuance of the review motion occurred prior to Enbridge having an opportunity to assess the decision and file its own motion to review. Enbridge agreed with the OEB’s motion, however, and in its initial submission observed that “[t]he issuance of a Review Motion on the OEB’s own motion, immediately revisiting and questioning an OEB decision even before the parties have had the opportunity to react is a very rare circumstance. This signals doubt as to the fairness and appropriateness of the approach taken by the participating Commissioners.”[13]

Enbridge also expressed its own concerns with the IRP decision and why it should be reviewed, including arguing that there was an

inconsistency between Ontario Government policy and the findings in the Decision about the need to avoid any incentives for natural gas equipment, even where the goal is to reduce natural gas consumption. OEB decisions must take account of and implement Ontario Government policy, rather than conflicting with such policy,” and that “[t]he Decision includes what appears to be gratuitous comments and criticisms that fall outside of the scope of the case.[14]

Enbridge stated further that it wished for additional concerns be included in the scope of the Review Motion, requesting

that the OEB confirm that the matters described above are in scope for the Review Motion. Alternately, Enbridge Gas requests that the OEB expand the scope of the Review Motion questions stated in the Notice of Review to include all such matters. Enbridge Gas submits that this approach is more efficient than the Company bringing its own similar, but not identical, review motion.[15]

NATURAL GAS POLICY STATEMENT

On June 12, 2025, as set out subsection 25.29 (1) of the Electricity Act, 1998,[16] the provincial government released its integrated energy plan (“IEP”)[17], which included a “Natural Gas Policy Statement.”[18] The statement affirmed a long-term commitment to the continuing use of natural gas for electricity generation, heating, and industrial processes:

…A premature phase-out of natural gas-fired electricity generation is not feasible and would hurt electricity consumers and the economy.

The majority of Ontario’s homes use natural gas for heat, while homeowners in rural and northern areas who do not have access to natural gas, want the option to have it through expansion of the natural gas network.

…

The OEB will continue to play its role as the natural gas system’s economic regulator, protecting consumers, allowing gas utilities an opportunity to earn a fair return on investment, and enabling the continued rational expansion of the natural gas system.

As part of a gradual transition to a more diverse energy system, Ontario will continue to support the important role of natural gas in Ontario’s energy system and economy while pursuing options to lower costs and reduce emissions through energy efficiency, electrification, clean fuels (e.g., renewable natural gas, low-carbon hydrogen) and carbon capture and storage…[19]

Accompanying the release of the IEP was a directive to the OEB (issued under subsection 25.30 (2) of the Electricity Act, 1998), instructing the OEB to

Consider the government’s Natural Gas Policy Statement to ensure the OEB appropriately considers the future role of natural gas in Ontario’s economy. There is a need for an economically viable natural gas network — as the province builds a more diverse energy system — to attract industrial investment, to drive economic growth, to maintain customer choice and ensure overall energy system resiliency, reliability and affordability.[20]

THE SOUND OF SILENCE

At the time of submission of this article (October 1, 2025), the OEB has neither issued any further communication on the review nor taken or articulated any steps to advance the hearing since the initial March 2025 announcement of its the intention to review the IRP pilot decision. The months-long silence follows the release of the Natural Gas Policy Statement as well as a submission from Enbridge on June 20, 2025, stating that “[w]e write now to inquire as to the status of a Procedural Order setting out the process and scheduling of next steps for the OEB’s Review Motion.”[21]

ONCE BITTEN, TWICE SHY?

In many respects, the OEB’s Motion to Review its own decision is a variant of what transpired following a previous OEB decision involving Enbridge[22] — specifically, the OEB’s December 21, 2023 decision in an Enbridge rate application, which reduced the revenue horizon for small volume customer connections from 40 years to zero. In this case, less than 24 hours after the decision was issued, Ontario’s Minister of Energy issued a statement that he would “…use all of [his] authorities as Minister to pause the Ontario Energy Board’s decision. At the earliest opportunity, our government will introduce legislation that, if passed, would reverse it, so that we protect future homebuyers and keep shovels in the ground.”[23]

Following through on this commitment, on February 22, 2024, the Minister introduced Bill 165, Keeping Energy Costs Down Act, 2024.[24] The legislation (which received Royal Assent on May 16, 2024) gave “the province authority to reverse the OEB decision to require residential customers and small businesses to pay 100 per cent of the cost of new natural gas connections upfront.”[25] The province then proceeded to make a regulation setting the revenue horizon back to 40 years.[26]

Insofar as the OEB decision to reject two of Enbridge’s proposed IRP pilot projects could have been viewed as questioning the role of natural gas in Ontario — much as the December 2023 Enbridge rate application decision did — the OEB’s quick announcement of a review could be interpreted as an attempt to pre-empt government intervention of the kind that followed the December 2023 decision. At the same time, as noted above, while the OEB’s motion does not state who within the organization made the decision to initiate the review (the OEB’s response to a formal query on this matter was only that “The OEB, in its corporate capacity, initiated the review”[27], the action revealed clear disagreement between the OEB Commissioners adjudicating the IRP pilot project application and other decision-makers within the OEB.

In any event, in both of these cases, an alternative to the immediate moves to challenge the decisions of OEB Commissioners would have been for the government and OEB respectively to allow Enbridge to file its own Motion to Review and/or file an appeal to the Ontario Divisional Court (both of which it did following the revenue horizon decision).

THE ENERGY TRANSITION – WHO CALLS THE SHOTS?

The energy transition is a matter of critical public policy and political importance, requiring clear government direction. Ontario, like many jurisdictions, has decided that decisions related to whether and how certain kinds (and amounts) of energy ought to be used is a matter of government policy that will not be delegated to an agency, such as the utility regulator. However, in the absence of binding direction, regulatory decisions and/or policies may conflict with, or even contradict, government expectations, as well as potentially resulting in confusion within the regulator itself. Both of these conflicts appear to be playing out in Ontario.

Uncertainty as to who decides the future of natural gas in Ontario was remarked with some concern by Enbridge as far back as February 2023, when its CEO sent a letter to the Minister of Energy while the proceeding for the aforementioned Enbridge rate application was underway. In its letter[28], Enbridge noted “a lack of clear understanding of roles and responsibilities across the Ontario energy agencies” and presciently raised concerns about the potential for “an OEB decision that signals the retirement of all gas infrastructure and economy wide electrification”. Enbridge urged the minister to provide “a clear signal […] on the respective roles and responsibilities across the agencies.”

The Government of Ontario is clearly in favour of the continued, and even expanded, use of natural gas. To wit:

  • In its first legislative session after winning office in 2018, the government amended the OEB Act[29] to enable the creation a $45 million[30] cross-subsidy initiative known as the Natural Gas Expansion Program, which uses ratepayer funds to expand the natural gas distribution network to areas of the province where such expansion would otherwise be uneconomic;
  • In 2021 the government launched a second phase of the Natural Gas Expansion Program, providing for an additional $234 million of ratepayer funds to further expand the gas network;
  • In its July 2023 Powering Ontario’s Growth report, the government observed that “Natural gas will continue to play a critical role in providing Ontarians with a reliable and cost-effective fuel supply for space heating, industrial growth, and economic prosperity”[31];
  • In August 2023, the government held a first consultation on a potential third phase of the Natural Gas Expansion Program[32];
  • In his November 2023 letter of direction to the OEB, the Minister of Energy instructed the OEB to “[ensure] that Ontario’s electricity and gas transmission and distribution systems are built to support [housing, transportation, and job creation] goals in a timely manner” and that the OEB should ensure that “ that access to electricity and natural gas in an affordable manner remains central to decision-making”’[33];
  • In December 2023, the minister announced his intent to overturn the OEB’s decision in Enbridge’s rate application, as discussed above;
  • Accordingly, in February 2024, the government introduced the Keeping Energy Costs Down Act, giving itself the authority to prescribe the natural gas connection horizon;
  • In his December 2024 letter of direction to the OEB, the Minister of Energy reiterated his belief that “Ontario needs an economically viable natural gas network” and his expectation that “upon release of the government’s integrated energy plan and the government’s natural gas policy statement […] the OEB will carefully consider these documents to ensure the OEB’s policies and processes appropriately consider the role of natural gas in Ontario’s energy system”[34];
  • As discussed further below, in June 2025 the government introduced Bill 40, the Protect Ontario by Securing Affordable Energy for Generations Act which would allow the OEB’s CEO to issue policies to commissioners respecting, among other things, “requirements respecting information or documents to be considered in conducting a hearing or making a determination”;
  • Also in June 2025, the government issued its “Natural Gas Policy Statement” (first promised in February 2024), as part of its Energy for Generations plan. The statement includes that “as part of a gradual transition to a more diverse energy system, Ontario will continue to support the important role of natural gas in Ontario’s energy system and economy while pursuing options to lower costs and reduce emissions through energy efficiency, electrification, clean fuels (e.g., renewable natural gas, low-carbon hydrogen) and carbon capture and storage.”[35];
  • In August 2025 the government launched a second consultation on a potential third phase of the Natural Gas Expansion Program[36].

And yet for all that, the government has not articulated how, if it all, it envisions the eventual decline (i.e., “gradual transition”) of gas consumption in Ontario, let alone defection from the gas network. It has overridden an OEB decision whose intent was to protect (albeit in a highly conservative manner) customers from the risk of stranded assets, but has provided no substitute policy to address that same risk — if it even acknowledges the risk at all. Ontario has no statutory emissions reduction targets or decarbonization strategy that could provide the regulator (or the public) with detailed insight into the government’s expectations for reducing gas usage over the long term, even as the federal government has for years now had a comprehensive plan that consists not merely of white papers, but of law (e.g., the Canadian Net-Zero Emissions Accountability Act[37] and the Greenhouse Gas Pollution Pricing Act[38]). Ontario’s lack of legislated emission targets can also be contrasted to, for example, British Columbia’s Climate Change Accountability Act, which established provincial emissions reduction targets, including the requirement that the government “establish greenhouse gas emissions targets for individual sectors” of the economy (e.g., buildings, transportation, industry).[39] Quebec, too, has a legislated framework for emissions reduction targets (established by Quebec’s Environment Quality Act)[40] and recently passed legislation affirming that Quebec’s integrated energy resource management plan must consider the province’s climate change policies and emissions targets.[41] Other jurisdictions have similarly undertaken comprehensive processes to determine how natural gas and other forms of energy can be managed in a way that meets energy needs while also aligning with environmental objectives.[42]

Meanwhile, the Ontario government is still attempting to walk a fine line between ensuring the OEB comes to decisions about the natural gas system (and other matters) that take the government’s policy preferences into account, and respecting the adjudicative and decision-making independence of Commissioners (and the OEB overall) as set out in legislation and in line with general principles of administrative law. In this context it is not entirely surprising when government and regulator find themselves out of step with each other.

This dilemma was well expressed when, on June 2, 2025, the provincial government proposed new legislation, Bill 40, the Protect Ontario by Securing Affordable Energy for Generations Act, 2025 which, among other things, would amend the OEB Act.[43] These amendments will, on the one hand, “authorize ” the OEB’s CEO “to issue internal policies respecting various procedural matters in relation to hearings and determinations,” including “[r]equirements respecting information or documents to be considered in conducting a hearing or making a determination.”[44] On the other hand, the government subsequently issued a notice regarding the proposed legislation making it clear that “this authority would not bind Commissioners to make determinations in alignment with government direction/policy” — notwithstanding that the same notice then goes to make an oblique reference to the Natural Gas Policy Statement.[45] It therefore remains to be seen if the issuance of the province’s Natural Gas Policy Statement will succeed in mitigating future misalignment between government, the OEB, and/or OEB Commissioners.

CONCLUSION

Previous commentators have noted that “[a] better approach would be to give relevant government agencies adequate notice of any aspect of a proposed hearing that raised the possibility of conflict with government policy. There is no reason why government agencies cannot intervene in regulatory hearings.”[46] Adopting such an approach, with the Ontario government more actively participating in proceedings, might have avoided or at least mitigated the current uncertainty enveloping OEB decision- and regulatory policy making. In lieu of issuing “statements” (of both the press and policy varieties) that have lesser legal and procedural weight, such participation would have given the government a formal opportunity to state its energy transition positions and expectations on the record and make them transparently clear to OEB Commissioners, OEB management and staff, and stakeholders, prior to determinations being made. This would allow OEB adjudicative and non-adjudicative decision-makers to incorporate the government’s position as part of their deliberations.

As an alternative or complement to the above, there is also no reason that the regulator cannot transparently seek greater policy guidance and clarity from government on issues that are known to be priorities and/or contentious matters of public policy. The energy transition is clearly one such area that is deeply political with broad social impacts, going well beyond traditional economic regulation functions such as rate making, prudence, and cost allocation.

In any event, the conflicts that are playing out in Ontario were likely avoidable if all relevant parties engaged more proactively and transparently in resolving any actual or perceived government policy and regulatory gaps. And perhaps this is the lesson Ontario and other jurisdictions should take away from this example: the energy transition is an enormous undertaking, involving an economy-wide transformation of energy consumption, transportation, and production. That transition requires not only unambiguous government policy direction, but also a thoughtful and rigorous reimagining, if not reinvention, of public utility regulation.

Postscript

On October 6, 2025, following the submission of this article, the OEB issued Procedural Order No. 1 on its motion to review the IRP pilot decision.[47] The procedural order notes that

There has been a significant passage of time [about six months] since the Review notice was filed in March. The OEB notes that the three questions identified in the Review notice appear to be predicated on issues that can be or will be raised in other ongoing OEB proceedings initiated mostly after the Review was filed,[48]

such as the consultation on the OEB’s IRP framework (for which an OEB staff discussion paper[49] was also released on October 6, 2025). Interestingly, the procedural order also states: “The OEB invites submissions from parties on the following preliminary question: Is there still merit in proceeding with the Review and addressing the three questions posed in the Review notice?”[50]

 

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