August 30, 2018 8:38 pm
Updated: August 30, 2018 9:45 pm

Ontario approves merger of Enbridge and Union Gas, clearing path for ‘virtual monopoly’

The president of Enbridge, Jim Sanders, visited Fenelon Falls on Friday to knock on doors and explore the construction site for the natural gas expansion project.

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Ontario regulators have approved the merger of Enbridge and Union Gas, clearing the way for the creation of a near monopoly in the province’s natural gas sector.

But in an effort to protect consumers, regulators denied several of the companies’ key proposals – including a 10-year hiatus before having to do a full review of its books and a profit-sharing scheme that would have all but guaranteed excess earnings made by the company would not be split with customers.

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“The reality here is that we’re looking at a virtual monopoly,” said Dan McTeague, a senior energy analyst at Gasbuddy.com.

Announced late Thursday by the Ontario Energy Board (OEB), the decision means the province’s two largest gas companies can combine and form a new company – known as Amalco.

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If the deal goes forward, Amalco will have more than 3.6-million residential and commercial customers in Ontario – roughly 99.8 per cent of all natural gas customers in the province – with expected annual revenues from rates of $2.5-$3 billion over the next decade.

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It’s unclear exactly how much prices for natural gas will increase over the next decade. The company initially argued amalgamation would save consumers roughly $410 million during this period when compared to Enbridge and Union Gas operating independently, but these estimates were based on “high-level” assumptions.

“My experience is that monopolies, whether they are governmental or whether they happen to be private sector, are not necessarily a good thing and often don’t forward the efficiencies [to consumers],” McTeague said.

Several hours after the OEB’s decision was announced, Calgary-based Enbridge Inc. released a statement saying it will look closely at the decision.

“This decision from the OEB is an important step in determining how, and if, Enbridge Gas Distribution and Union Gas will amalgamate,” the statement said. “Enbridge will undertake a detailed review of the OEB’s decision, and approved parameters, and make a final determination on the amalgamation of its utilities.”

Few opposed to merger itself

Approval of the merger was widely seen as a foregone conclusion, with few opposed to the application and with the utilities’ parent companies – Enbridge Inc. and Spectra Energy – having merged in February 2017.

But consumer advocates had raised concerns about the nature of the deal, telling the OEB it needed to consider the potential harm of its decision upon ratepayers, while also ensuring prices remain “just and reasonable” in a future with basically only one natural gas provider in the province.

READ MORE: Construction of Enbridge natural gas pipeline expansion underway in Fenelon Falls

“It’s OK to have a merger south of the border when you have several other competitors, but here in Ontario, there’s no one really to compete with,” McTeague said.

“We have to ensure the OEB is in the position to take into account the latest changes and developments,” he said.

Several key proposals denied

As part of their original proposal to the OEB, Enbridge and Union Gas requested a 10-year hiatus from the requirement to conduct a full review of their books – meaning they’d have to provide details of all their costs and revenues.

The company argued this 10-year period was necessary for the transition to take place and for the full cost savings of the merger to be realized, which Enbridge and Union Gas estimated at roughly $680 million.

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But the OEB disagreed with this assessment, saying the companies would only get five years before having to complete a full review. The OEB’s decision also denied the companies’ proposed profit-sharing mechanism, ruling that if Amalco makes more money than expected, a greater share should be passed on to consumers.

“I’m pleased that the board recognized that the 10-year deferral was inappropriate,” said Julie Girvan, an energy consultant for the Consumers Council of Canada.

“We were hoping for an earnings-sharing mechanism that was better balanced … but I’m pleased that the board recognized the need for sharing beyond what was originally proposed,” she said.

Merger could be in doubt

While OEB decisions are typically viewed as final – excluding appeals – Enbridge and Union Gas have previously expressed their intention to review the decision before moving forward with any plans for a merger.

“At the oral hearing, the [companies] indicated that the decision to proceed with amalgamation will depend on the rate framework that is approved by the OEB,” read Thursday’s decision.

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The companies later denied this assertion. According to the OEB, Enbridge and Union Gas later clarified their position, saying that if any significant changes were made to their initial application then they would evaluate plans for amalgamation in view of the OEB’s decision.

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If Enbridge and Union Gas decide not to merge, or if no decision is made within the next 18 months, the OEB’s order expires and both companies will have to file separate applications going forward.

While the decision wasn’t everything advocates had hoped for, Girvan says the protections granted to consumers are significant and that the merger – if finalized – will likely benefit consumers.

“Given what the utilities were applying for, we got some good concessions,” she said.

© 2018 Global News, a division of Corus Entertainment Inc.

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