Natural gas use is on the rise in Ontario, with current consumers in Canada’s most populated province paying surcharges on utility bills to subsidize costs of installing distribution system extensions.

The Ontario government forecasts a subsidy of C$130 million ($98 million) will support projects that have until August 2020 to bid for participation in the second round of the provincial gas expansion program.

The first phase of the program, launched in July 2019, generated C$56.5 million ($42.4 million) in subsidy commitments for nine distribution extensions to more than 9,000 new consumers in 16 communities. Construction has begun on four projects.

Current customers of the distribution systems involved contribute the subsidy by paying a monthly utility bill surcharge of C$1.00 (75 cents), with the Ontario Energy Board (OEB) supervising collection and use of the money.

The province’s conservative administration said, “The government is committed to expanding natural gas access to thousands of households and businesses across the province in Ontario's northern, rural and Indigenous communities.”

Gas service is entrenched in big population centers such as Toronto, Ottawa, Hamilton, London and Windsor in southern and eastern Ontario. About 3.5 million homes and 130,000 businesses are connected to distributors of the fossil fuel.

But the big cities only cover a fraction of Canada’s vast central province. Ontario’s territory of 354,342 square miles is 35% larger than Texas.

The gas expansion subsidy program evolved after a 2016 OEB inquiry showed that extending service to widely dispersed rural Ontario communities and Indian reserves required charging the added customers higher utility rates than the current clients.

The OEB initially rejected surcharges on current gas customers but allowed premium rates to cover the costs of building facilities for new ones. The board predicted the expense would be offset by benefits over time of replacing oil and electric heating.

But communities and the gas industry objected that the extra bills would be prohibitive for new gas users, prompting the government to enact a utility legislation amendment to enable creation of the surcharge on established distribution customers.

The Ontario gas expansion plan is forecast to create jobs by fostering enterprises such as greenhouses and cut annual average home utility bills by up to C$2,500 ($1,875). The program has the potential to spread new gas service to about 33,000 households in more than 70 communities, according to the provincial government.