Why a multibillion-dollar electricity infrastructure gap is threatening Ontario’s housing goals

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The subdivisions planned around the small village of Brooklin, Ont., were billed as neighbourhoods of the future. The dozen housing developers behind them had proposed to build each home with charging equipment for electric vehicles; they would also have rough-ins and conduits ready should owners want to install solar panels and batteries.

But there was a problem: Brooklin lies smack in the middle of one of the most electricity-starved areas around Toronto. The local power utility, Elexicon Energy, couldn’t connect 10,000 new homes without significantly expanding its infrastructure, including building two new low-voltage feeder lines from a transmission station in nearby Whitby, Ont. Disputes arose over who should pay.

Today, Brooklin remains surrounded by grassy, fallow fields, agricultural land and patches of forest interspersed with the occasional presentation centre, excavator and bulldozer. In a 2024 report,), the Town of Whitby acknowledged that the lack of electrical infrastructure has become the main barrier to fulfilling its pledge to build 18,000 homes by 2031.

It’s just one indication of a much larger infrastructure deficit that complicates efforts to address a housing crisis in populous southern Ontario. According to the Electricity Distributors Association, which represents Ontario’s local distribution companies (LDCs), the tab for upgrading networks over the next couple of decades will amount to between $103-billion and $120-billion.

To put that into context, only $450-billion has been spent so far this century across Canada on electricity infrastructure – everything from power plants to transmission lines to distribution infrastructure – according to a recent federal estimate. Ontario’s distributors are contemplating spending $120-billion on last-mile infrastructure alone, in a single province, over a similar time period.

“All of the focus has been on nuclear generation, data centres, all these big things,” said David McFadden, a long-time energy lawyer who has served as chair of Toronto Hydro’s board of directors.

“Almost no attention has gone into the last mile – in other words, the wire to the home or to the business – and how that gets paid for. It would be like organizing a railroad, having all your main lines, all the engineers, but you don’t have any track into a station.”

The government is now paying attention. In a commentary published last fall, Ontario Energy Minister Stephen Lecce wrote that LDCs face a “fiscal cliff” and lack sufficient capital to meet rising demand. He launched the Panel for Utility Leadership and Service Excellence (PULSE) to advise him on reforms. He received PULSE’s report in February but has not yet released it.

What Mr. Lecce decides could change LDC ownership, affect Ontarians’ power bills and help determine whether his government can meet its ambitions to electrify Ontario’s economy, attract new industries and build 1.5 million homes.

Elexicon is what’s often referred to as a “poles and wires” business: It’s responsible for maintaining 36,000 poles and thousands of kilometres of power lines, not to mention 21,000 transformers and 58 substations. All of that is stretched to the limit.

In a regulatory application submitted in December, the utility confirmed that “much of the capacity available in Elexicon’s system has been fully utilized”; three-quarters of its substations have insufficient capacity to hook up a customer requiring more than one megawatt (enough to power hundreds, perhaps thousands, of homes). Moreover, much of its equipment is aging, and more than one-third of it is in poor or fair condition. The utility has been holding off on certain maintenance to suppress rate increases.

According to a recent commentary from the law firm Gowling WLG, nearly half of Ontario’s LDCs serve just a few thousand customers each, and these small providers face the most acute financial pressure.

But even some larger ones struggle. Alectra Utilities serves roughly 1.1 million homes and businesses north and west of Toronto, as well as around Hamilton and St. Catharines, Ont. It, too, reports that its capital budgets have failed to keep pace with its aging and defective equipment over the past decade.

Daniel Hoornweg, a professor in Ontario Tech University’s engineering department who focuses on urban systems including electricity distribution, said governments worry ratepayers will blame them if infrastructure spending starts affecting their monthly bills.

“None of the government levels wants to be the one holding the requirement for $120-billion when the music stops,” he said.

Although other provinces face similar infrastructure deficits, there’s one key difference: Most are served by vertically integrated behemoths like Hydro-Québec and BC Hydro.

Ontario’s LDCs are the product of historical happenstance. In the early 1900s, towns and cities established utilities to move power to their residents and businesses. By the 1920s, there were nearly 400, a situation that persisted for most of the 20th century. Mergers since the 1990s whittled the count below 60, but Ontario’s distribution system remains an unruly patchwork of fiefdoms. (Hydro One Networks Inc. is by far the largest, serving 1.5 million predominantly rural customers.)

The LDCs’ troubles were easier to ignore during the last decade or so, when electricity demand was mostly flat. But now many of the province’s policy priorities and growth plans require power.

Last year, an Ontario Energy Board review of LDC practices for connecting major loads found that “stakeholders consistently identified delays as a critical issue.”

Developers are among the loudest complainants. The Brooklin Landowners Group, an umbrella group representing the developers hoping to build homes in the area, faced connection costs from Elexicon that would have to be recouped through the price of the new houses. The developers argued they were being asked to shoulder the entire cost of new feeder lines (estimated at $26.7-million) that would benefit the community for decades.

Matthew Cory, a project manager with planning firm Malone Given Parsons who represents the developers, declined to speak about the dispute’s specifics. But he said that for the last 15 years, LDCs have invested little in their infrastructure “across the board” – to the point where they are now effectively unable to connect major new customers.

But LDCs typically do not have the luxury of investing heavily in their networks in anticipation of growth. They’re tightly regulated by the Ontario Energy Board (OEB), which is charged with protecting ratepayers from utilities that otherwise would enjoy unrestricted monopoly powers.

“We’re not allowed to preinvest in our grid in the hopes that the industrial revolution is coming back to Ontario,” said Teresa Sarkesian, president of the Electricity Distributors Association.

Ms. Sarkesian said LDCs have no intention of overbuilding. But if “suddenly a lot of customers come knocking at our door, and we have to build transformer stations and substations and new feeder lines and things like that, that can’t be done overnight.”

She added: “So much is changing right now, and the reality is we do have to build.”

Under existing rules, developers are largely on the hook for any new feeder lines their new subdivisions require. This follows the so-called “beneficiary pays” principle, which holds that whoever benefits from a project to expand power transmission and distribution infrastructure should pay for it.

The Brooklin developers and Elexicon struck a deal that would have put the cost of the feeder lines on Elexicon’s ratepayers, in exchange for the developers building rough-ins for rooftop solar and EV chargers. The OEB, though, concluded that the developers were the main beneficiaries and rejected the proposal.

“The fact that a project is innovative cannot automatically override the OEB’s responsibility to protect the public with respect to price,” it explained.

Mr. Cory said the developers continue to negotiate with Elexicon to get power to the proposed neighbourhoods.

“Everything else is in place,” he said. “Planning approvals – the municipality has been great to work with. We’ve done all the work required to move everything forward. There’s just no power.”

This year, the OEB is drawing up standard procedures for how all LDCs connect major new loads to the grid. But that does little to address the larger problem: How should they pay for any major upgrades?

One obvious solution would be for LDCs to borrow more. They aren’t allowed to borrow wantonly, however; the OEB caps the maximum allowable debt at 60 per cent of capitalization.

Municipal owners could be another source. In 2024, Toronto City Council approved hundreds of millions of dollars of taxpayer support for Toronto Hydro. Whitby and the other municipalities that own Elexicon followed suit last year, making an equity investment of more than $62-million.

These sums are probably no more than modest down payments. Toronto Hydro, for example, has estimated spending requirements of up to $10-billion by 2040.

For smaller municipalities, large cash injections can seem far-fetched. Indeed, many of them rely on dividends from their LDCs as a means of lowering residents’ property taxes. LDCs are supposed to fill municipal coffers, not drain them.

A third option is to make Ontarians pay. But that would require the OEB’s acquiescence, and could harm competitiveness: The province already has some of the priciest electricity in the country, according to a recent study by the C.D. Howe Institute.

The Building Industry and Land Development Association, which represents homebuilders, suggests the province should open its wallet. But the government already heavily subsidizes power bills through measures such as the Ontario Energy Rebate, at a cost of billions of dollars each year. It may struggle to come up with additional billions for grid upgrades.

And that’s why some hope that pension funds will ride to the rescue.

Private equity already owns small portions of some LDCs. Entegrus, which serves 63,000 customers in Southwestern Ontario, is 8 per cent owned by Corix Utilities Inc., a utility company that is indirectly owned by the British Columbia Investment Management Corp., one of Canada’s largest pension funds. Ontario Municipal Employees Retirement System, another large pension fund, owns 3 per cent of Alectra.

The small size of these investments is no coincidence. If an Ontario municipality sells a large stake in its LDC to private investors, it gets whacked with a huge tax bill. The government could eliminate or reduce some of these penalties, which might encourage further consolidation and entice major new investors.

Prof. Hoornweg, though, is skeptical that pension funds will rush to supply capital.

“At the moment, the pension funds in Canada aren’t all that excited about owning LDCs,” he said. To entice them to invest, he added, electricity prices would likely have to increase.