Energy Affordability: Protecting Ratepayers is How You Attract Investment

The National Electricity Strategy cites modelling showing that seven in ten Canadian households will pay less for energy by 2050. This piece is about the other three in ten, why affordability pressure is an investment risk and not only a household one, and what governments can do about it beyond supplying capital.

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By averages, electricity is not Canada's affordability crisis. Crux Energy has modelled energy costs and affordability burdens across the country, and over the past decade, energy costs have generally grown more slowly than shelter and food. Energy has been a secondary driver of household affordability pressure.

However, current growth rates, and certainly the buildout contemplated by the National Electricity Strategy, are large enough to convert a secondary pressure into a primary one, and the financing choices made over the next several years will determine which it becomes.

Sources: Statistics Canada Tables 18-10-0005-01; 11-10-0222-02; 11-10-0190-01

Our thoughts are organized around a single dynamic that we documented in our work for the Atlantic Energy Collective and now see repeatedly in client engagements in both Canada and the US: affordability is not only a household concern but an investment risk, because affordability stress is what triggers the political intervention that capital markets avoid.

The sequence runs as follows: in many places rates have started to rise faster than household incomes. Political pressure to contain costs follows. Investment is deferred or blocked. Capacity shortfalls appear. Industrial load locates elsewhere. Incomes stagnate. The burden rises again.

 Source: An Atlantic Canadian Energy Future, Crux Energy Consulting on behalf of The Atlantic Energy Collective

Once this cycle is turning, it is self-sustaining, and every turn makes the next intervention more expensive. The cycle is not only a story of poor jurisdictions; it occurs wherever rate increases outpace income growth.

When it comes to policy interventions and financing support we ask one question: does it disrupt the cycle, or does it have the potential to make it worse? Tools that move costs further along the cycle may still be worth deploying, but tools that disrupt the cycle should be prioritized. ^[1]

The three sections below apply this test at a different point in the cycle. Our seven recommendations follow from it.

• Affordability is where the cycle starts, which makes it the first place government financing tools should be tested.

• Governments are uniquely positioned to reduce investment risk, including through long term offtake commitments that give the buildout creditworthy revenue.

• Some of the buildout can be avoided entirely by optimizing infrastructure that already exists in Canada.

Our seven recommendations are summarized below and set out in full in the sections that follow.

Recommendations

Build eligibility and weighting criteria on community and income level energy burden data, using a consistent methodology, rather than provincial averages or fiscal capacity proxies.

Require a standardized customer bill test before major capital is approved.

Recognize that smaller utilities and provinces need different instruments, not larger amounts of the same instrument.

Share long-range government facility and procurement plans with utilities and system planners as a matter of course.

Enter offtake or contribution agreements where government facilities or policies drive system expansion.

Site loads with reference to existing system capacity, or pair them with investments serving regional needs.

Make financing tools resource-neutral, so avoided, existing and new infrastructure compete on cost.

Energy affordability is where the cycle starts

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Affordability is the point in the cycle where engineering and financing questions become political, which makes it the first place government financing tools should be tested.

Where rates^[2] rise faster than household incomes, political pressure to contain costs leads to deferred infrastructure investment, which in turn produces the capacity shortfalls that deter industrial load and stall the very growth the National Electricity Strategy depends on.

Where the cycle has advanced, it also shapes where capital is available. Access to capital is not uniformly constrained across Canada. It is most constrained where the cycle has already advanced: where a small ratepayer (or taxpayer) base must absorb large investments, where incomes are low relative to energy costs, and where a history of political intervention has resulted in investor caution.

We documented this cycle in Atlantic Canada in our work for the Atlantic Energy Collective. Stakeholders across the region describe the same cycle from their own vantage points:

Without a clear policy to address these bigger structural competitive issues, like has been done in both Ontario and Quebec, New Brunswick’s industrial base will continue to contract and New Brunswick won’t be able to attract new investment.

- J.D. Irving, Limited (November 2024)

Labrador west in particular is potentially on the cusp of major transitions and expansion of its iron ore mining sector, though without new power, this opportunity will be lost to other competing jurisdictions around the globe.

- Mining Industry NL, October 2025

Affordability is an investment risk

Affordability pressure also changes how capital markets approach and price the sector. Investors understand that affordability stress is a leading indicator of political intervention, and they are increasingly correct to do so. The exposure is not limited to distribution utilities and their rate bases; it extends well upstream of residential customers, to generation and transmission investment.

The United States offers an ongoing demonstration. Fitch downgraded its outlook for the US utility and power sector in June 2026, citing affordability concerns that are raising the risk that political and regulatory pressure will prevent timely cost recovery, even as utilities plan roughly USD $240 billion in capital expenditures.

Connecticut, one of the wealthiest states in the US, shows the cycle completing. S&P downgraded multiple utilities citing a pattern of adverse regulatory decisions, and Eversource responded by cutting USD $500 million from its investment plans and warning of further reductions. The result is a jurisdiction where uncertainty rises, investment falls, and ratepayers ultimately pay more for less.

The pattern is not confined to one US state. New Jersey's incoming governor used her first day in office to order a freeze on electricity cost increases and direct regulators to restructure the utility business model, following state elections in New Jersey and Virginia in which utility bills were decisive campaign issues.

Officials in at least six states, including Arizona, Indiana, Maryland, New Jersey, New York, and Pennsylvania, are now actively moving to block proposed rate increases, and the same number of states have introduced legislation to cap utility returns on equity. Political pressure has also produced price caps in the PJM capacity market.

Canada is not immune. We see this effect regularly in our client work: investors are avoiding jurisdictions where affordability is becoming a greater challenge, and affordability testing now sits high on the due diligence list. In Atlantic Canada specifically, investor appetite for new electricity infrastructure is already thin, and a history of political intervention in utility investment plans due to affordability concerns is part of the reason.

The cycle test also requires a wider definition of cost than direct utility spending. New high-priced generation puts upward pressure on the full cost customers pay even where it does not appear in a utility's own costs, so a tool that encourages such generation can advance the cycle rather than disrupt it.^[3] Requirements that raise the cost or risk of new generation work the same way, which is why the Clean Electricity Regulations belong in this assessment.^[4]

Routing the buildout through rates is a tax decision

Electricity rates function as a collection mechanism for essential infrastructure, and they are inherently more regressive than general taxation unless deliberately designed otherwise. The non-commodity charges embedded in most bills, including riders, delivery charges and program surcharges, are collected at a flat rate regardless of income, so they consume a far larger share of a low-income household's earnings than a high-income household's.

Every dollar of the trillion-dollar buildout that policy routes through rates rather than general revenue is a decision about who bears it. That decision deserves the same scrutiny any other regressive tax would receive. On intergenerational cost recovery, we support policy tools that lengthen cost recovery to match asset lives, while noting that these tools shift costs rather than reduce them.

Affordability is not a story of averages

Affordability is not a uniform national challenge.

• It is regional: it is acutely concentrated in Atlantic Canada and the North where energy prices are higher and incomes are lower.

• It is part of the overall household cost picture: lower income households are being squeezed more than higher income households (see Figure Three).

• It is also much more of a rural problem: across Canada rural areas have a much greater energy burden than urban areas do.

Source: Statistics Canada Table 11-10-0223-01

The National Electricity Strategy’s own analysis illustrates the risk of averaging over this problem. It cites Canada Electricity Advisory Council modelling, suggesting Canadians could save $15 billion in total energy costs, with seven out of ten households paying less by 2050. We do not dispute that figure. The more useful question is who the other three in ten are.

The Transition Accelerator’s modelling gives a strong indication of who those households are. The result hinges as much on vehicle ownership as it does on geography. Households that own a car capture the projected fuel savings of switching to an electric vehicle, and households that do not are worse off financially (see Figure Four). Those households face the electricity rate increases required to fund the buildout without the offsetting transportation savings that make the national average work.

Vehicle Ownership by Income Quintile (Canada)

Lowest: 67%

Second: 83%

Third: 88%

Fourth: 91%

Highest: 95%

Source: Crux Energy analysis of Statistics Canada Survey of Household Spending: Public Use Microdata File, 2023

Source: Martin, N., Bowie, D., Fakhoury, R., & Kabbara, M. (2024). Household Energy Affordability

in a Net-Zero Future. The Transition Accelerator.

Geography matters too: under every rate scenario it tested, median households in Alberta and Saskatchewan face higher energy costs in 2050 than they do today, while median households in most other provinces see reductions (see Figure Five).

Source: Martin, N., Bowie, D., Fakhoury, R., & Kabbara, M. (2024). Household Energy Affordability in a Net-Zero Future. The Transition Accelerator.

This is where the burden is likely to compound, moving forward. Households without a vehicle are disproportionately lower income, which means the group least able to absorb an electricity rate increase is also the group least likely to receive the offsetting benefit.

A policy tool calibrated to the average household will systematically miss the households most in need of intervention in the energy affordability cycle.

We also note that this modelling did not consider the retirement of existing gas distribution systems. Gas distribution systems recover largely fixed costs over their customer base, so as higher-income households electrify first, the fixed costs of the remaining system are spread across a smaller and progressively lower-income customer base. Left unmanaged, this produces a cost spiral whose last customers are the ones least able to absorb the costs of transition.

We raise this as an affordability question rather than a fuel preference. The issue is not whether the gas system should eventually be retired. The issue is whether it makes sense to retire a useful system when building out electric infrastructure to replace it is going to require a massive amount of capital in a short period of time.

Our recommendations

We recommend three specific changes to government financing program designs. Each recommendation disrupts the cycle at the affordability node rather than moving costs further ahead, and none of our recommendations require new programs to administer:

Eligibility and weighting criteria for government financing tools should be built on community and income level energy burden data, using a consistent methodology (after-tax income, a defined burden threshold such as the commonly cited 6% marker) rather than provincial averages or fiscal capacity proxies such as equalization.

Government support should require a standardized customer bill test before major capital is approved, so the household-level effect of an investment is understood before it is committed, rather than after.

Government support should explicitly recognize that utilities and provinces with smaller populations and constrained balance sheets require different instruments, not simply larger amounts of the same instrument, to achieve the same affordability outcome.

Governments as anchor energy customers

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Capital pulls back at a specific point in the cycle, and governments have several tools that act there. Direct financing, loan guarantees and tax incentives all reduce the cost or risk of capital. We would add one that works differently: long term offtake arrangements do not supply capital, they supply the revenue that makes capital bankable.

Government support is usually discussed entirely in terms of supplying capital. We suggest a complementary framing: governments can become some of the largest new electricity customers in the country. A creditworthy anchor customer gives investors the certainty they need to proceed and relieves the affordability impact by directly supporting new infrastructure rather than putting that cost onto existing ratepayers.

With respect to the Federal government, defence spending commitments are the clearest example. NORAD modernization, Arctic infrastructure, base expansion, and associated industrial activity all represent significant new load, much of it in regions where utilities have small customer bases and limited capacity to fund speculative expansion.

This is how they can do it:

• Early and transparent load disclosure. Departments and agencies should share long-range facility and procurement plans with utilities and system planners as a matter of course, so that defence-driven load appears in resource plans rather than as interconnection surprises. Defence forecasts should also move beyond simple energy demand and specify their needs for capacity, grid reliability and resiliency.

• Long-term commitments that support investment. Where government facilities or policies drive system expansion, the government should be prepared to enter into offtake arrangements or contribution agreements that allow that infrastructure to be financed against a committed revenue stream rather than socialized across a small ratepayer base.

• Coordinated siting. Locating government loads with reference to existing system capacity or pairing them with generation and transmission investments that serve broader regional needs, converts government spending and policies into grid value rather than grid burden.

Maximizing existing infrastructure before financing new infrastructure

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Another way for the government to disrupt the cycle is to reduce the peak demand that determines how much new infrastructure has to be financed at all.

We should be asking: which investments can be avoided entirely? The doubling of Canada's electricity system is a peak-driven problem: generation, transmission, and distribution are all sized to the hours of highest demand, and every kilowatt shaved from peak avoids capital that would otherwise need to be financed, recovered, and carried by ratepayers for decades. Peak reduction is not free, but it competes on cost per kilowatt avoided against supply-side capital that is typically larger, slower to deploy, and carried in rates or the tax base for decades longer.

Canada already owns much of the infrastructure needed to manage the peak. Demand response, energy efficiency, distributed and localized generation, and storage at the distribution level all reduce the peak that drives system sizing. So do the country's existing natural gas networks. Gas distribution systems represent decades of paid-for energy delivery capacity, and in cold-climate provinces they carry the winter heating peak that would otherwise land on the electric system. Premature electrification of heating converts an already-financed asset into a stranded cost recovered from ratepayers or taxpayers, while simultaneously creating new electric peak that must be financed all over again.

Optimizing across both systems, including dual-fuel approaches and gas as a peak-shaving resource, treats the buildout as a physics and economics problem. The test should be cost per kilowatt of peak avoided and the resulting household bill, whichever resource delivers it.

The current government toolkit is structurally biased against these solutions. ITCs, CIB financing, and targeted programs such as SREPs reward large supply-side capital deployment. Demand-side measures, distribution-level solutions, and optimization of existing assets, which frequently deliver the best affordability outcome per dollar, fall between the tools. The partial relaunch of Greener Homes in some provinces is a welcome exception, but its narrowness illustrates the point. A utility that avoids a substation through demand response receives no federal support; a utility that builds one may qualify for several programs.

Government financing tools should be resource-neutral with respect to how a system need is met, so that avoided infrastructure, existing infrastructure, and new infrastructure compete on cost.

Conclusion

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Taken together, these three points describe a government role broader than the deployment of capital. Affordability determines whether private capital participates at all, which makes protecting it a financing measure as well as a social one. Demand created by government policy or load can reduce investment risk in ways no program can replicate if it is committed early and transparently. And the infrastructure Canada already owns can absorb load that would otherwise have to be financed a second time. Each of these improves the efficiency and effectiveness of government support, and none requires a new program to administer.

Each of these also meets the test we set at the outset. Affordability data shows where the cycle is closest to turning, and therefore where public capital does the most work per dollar. Government offtake disrupts the cycle at the point where investors pull back. And avoided infrastructure reduces the size of the cycle itself.

One thing runs through all three. The challenge is shared across Canada; the answer is not. Investor-owned, Crown and municipal utilities finance the buildout in fundamentally different ways, with different access to capital and different constraints. Provinces differ in the resources they can bring to bear, in the decarbonization burdens they have absorbed or will need to absorb, and in how the rural/urban divide shapes their costs. Tools designed for the average jurisdiction will miss most of them, for the same reason tools designed for the average household miss the three in ten.

[1] Because of the inflationary environment we are in, especially where electricity infrastructure supply chains are under strain, delays in capital deployment have also been resulting in increased cost for projects.

[2] When we use the term “rates” in this paper, we refer to the full cost paid by customers for electricity including delivery, generation, taxes, fees and other costs and charges.

[3] We are hearing concerns from distribution utilities that they have no control over upstream costs and that high priced generation is going to create affordability issues for their customers.

[4] We are hearing from developers that the requirements of the Clean Electricity Regulations are increasing their risk and cost for new plant proposals in Atlantic Canada in part because of the need to build quickly.