Policy Opinion: The Obscure Regulatory Proceedings That Could Make or Break Our Energy Future

There’s a regulatory organization that plays a pivotal role in shaping the future of Ontario’s energy-driven economy, but unless you work in the energy sector, you’ve probably never heard of it. I’m speaking of the Ontario Energy Board (OEB), which through its ongoing Cost of Capital proceedings, determines how much profit regulated utilities can earn on their capital investments.

In simple terms, Return on Equity (ROE) impacts the rates we pay for electricity and natural gas, but also the speed at which new energy infrastructure is developed. While highly technical, these decisions have real-world implications for Ontario’s ability to build out the infrastructure necessary to meet the projected doubling of energy demand by 2050.

The OEB regularly reviews this rate to ensure it reflects changing economic conditions, balancing the interests of utilities, which seek to maximize their returns, with consumers (including businesses), who want to keep energy costs affordable. For 2024, the OEB set the ROE at 9.21%, but this decision has not gone unchallenged. In recent hearings, some utilities have pushed for a higher return of 11.88%, while consumer advocates have argued for a much lower figure of 7.05% to protect ratepayers.

Major utilities like Hydro One, Toronto Hydro, Alectra Utilities, and Enbridge Gas, who deliver electricity and natural gas to millions of Ontarians, are deeply impacted by these proceedings. The rates they can charge – and thus the profits they can earn – directly influence how much they invest in upgrading and expanding the province’s energy infrastructure, which is essential to economic growth.

Ontario is currently facing several urgent challenges:

• The province is procuring 5,000 MW of new electricity generation by 2034 through a competitive process managed by the Independent Electricity System Operator (IESO) to meet the rising demands of electrification.
• Toronto urgently needs a new transmission line to support anticipated population growth of over 1 million new residents by 2050.
• Heavy industries as diverse as greenhouses in the Leamington area and steel production in Hamilton, require expanded access to natural gas to fuel their facilities.

Given that, the success of Ontario’s economy depends on ensuring reliable and affordable energy is available when and where it’s needed.

This is where the OEB faces a particularly challenging task: it must balance setting fair and reasonable rates for consumers with ensuring that utilities have the financial incentive to invest in critical infrastructure. If the allowed ROE is set too low, utilities may need to scale back investments in new projects, potentially delaying Ontario’s ability to connect new energy capacity to the areas that need it most. If the ROE is too high, it can drive up energy costs for residents and businesses alike.

While large businesses, particularly energy intensive businesses like manufacturers, are concerned about the cost of energy, they are also focused on how quickly they can connect to the energy grid and remain competitive with other jurisdictions, particularly those in the U.S.

Our region's productivity crisis, largely driven by underinvestment in critical infrastructure and productive capacity, is a top priority for the Board of Trade. This is especially true in the energy sector, where we face daunting needs over the next decade and can't afford to slow the pace of investment.  For this reason, we are watching carefully in the hopes the OEB will set rates that encourage utilities to spend aggressively on new and improved energy infrastructure. Failing to strike the right balance could result in higher economic costs over the long term.

The stakes are high as Ontario works to build a grid that maximizes our economic potential. Decisions made by the OEB today will help determine how quickly we reach that goal—or whether we miss the opportunity.