Is Ontario’s new ‘Fair’ Hydro Plan fair for all Ontarians?

 

 

 

 

 

 

 

 

 

 

 

 

WE NEED A FAIR ONTARIO HYDRO PLAN
By: John Kiemele, Vice President and COO
March 14, 2017

On the home screen of the Ontario Liberal website it reads, “Coming this summer: The biggest hydro rate cut in Ontario’s history,” and above this caption is stamped, “25% OFF.”

This is terribly misleading.

Over the past 10 years, rates for electricity supply have risen by more than 125% (average supply rates went from $0.0496/kWh in 2007 to $0.1114/kWh in 2017). Considering that utility rates seldom drop – and most always increase – to keep pace with inflation, any rate cut could potentially be touted as the, “Biggest in Ontario’s history.”

Putting that aside for a moment, we‘ve taken a closer look at what is actually being offered, and the revelations are not only misleading, they’re somewhat disturbing considering the cuts are nowhere near as high as 25% and there are sectors of the market that are being left out

The Ontario Fair Hydro Plan as it is called by the government says it will lower electricity bills by 25% on average. Still, there are many details regarding this plan that remain unclear, such as will this be 25% off the total bill including supply, distribution, regulatory and transmission charges? The few points that were released indicate it is not going to be lowering everyone’s bill by 25%, it is not going to benefit all electricity accounts, and in fact, the reductions for most will be much less.

To begin with, 8% of the 25% has already been provided for as of January 1, 2017 – and only residential and small business consumers (the regulated sector of the market, those with billing demands under 50 kilowatts) saw that benefit.

Second, the remaining 17% will, in part, be used to pay for expanded government programs for low income Ontarians, part will be used to expand the Industrial Conservation Initiative (ICI) to a small group of industrial consumers, and the rest will be used to lower actual regulated electricity rates (those paid by residential, small business, and farm consumers).

So the people who stand to benefit the most from this ‘lower electricity bill’ are:

  • Consumers with household incomes less than $40,000 per year with four or more residents in the household,
  • First Nations peoples living on reserves,
  • Rural consumers who have been hit with large hikes in distribution charges,
  • Manufacturing and warehousing facilities with demands between 500 kilowatts and 1,000 kilowatts that either have stable loads, or are able to load shift during the highest provincial peak hours, and;
  • Regulated consumers (residential, small businesses and farms) will see rates fall back to 2015 levels.

Of the areas above, only the last covers a reduction to the actual electricity rate and it only applies to residential customers, small businesses, and farms. Further, it only returns those rates to 2015 levels!

In mid-2015, regulated rates for supply averaged 0.102 per kilowatt-hour. Today, those rates are $0.111 per kilowatt-hour. Returning to the 2015 level amounts to an 8% reduction to the “supply charge” portion of the bill, and when applied over the total bill, it amounts to a reduction of less than 5%.

This a far cry from the 25% the government is disseminating in their messages.

We are happy to see low income Ontarians receive increased rate relief as they have struggled unnecessarily through a 10 year period of unprecedented rate hikes. But for the government to insinuate this is a wide spread, historical cut to electricity rates is inaccurate, and in my opinion, unfair.

THE FOLLOWING ARE VERIFIED FACTS ABOUT ELECTRICITY RATES:

  • Large and medium-sized business consumers are currently experiencing some of the highest electricity rates ever, and there is nothing in the Ontario government’s rate announcement to help them.
  • Prior to this announcement, medium-to-large sized businesses in Ontario had two classifications – Class A and B. Class A consumers were those who had electricity demands over 1,000 kilowatts and who opted to be part of the Industrial Conservation Initiative, (ICI). Those consumers would then pay a Global Adjustment (GA) charge based on their contribution to Ontario’s five highest peak hours rather than pay the fluctuating monthly GA rate. If they had stable loads, or were able to load shift (so as not to peak when the Ontario market peaks), they would stand to pay much less in GA charges.
  • The government is now expanding the ICI to a very specific industrial category of Class A customers with demands between 500 kilowatts and 1,000 kilowatts. This only includes manufacturing, refrigerated warehousing, oil/gas production, mining and greenhouse operations. For all the rest of the mid-sized consumers, there is no offered rate relief. So, large office buildings, retail malls, non-refrigerated warehouses, rec facilities, etc. are all left out. Further, the GA charges these consumers will have to pay will be even higher because the Class A category of consumers is growing, and as they pay less the rest of the market has to pay more.
  • This is very unfortunate for consumers who will get absolutely no benefit out of this announcement, and that’s a shame because they make up a significant portion of the business sector in Ontario – the backbone of our economy.

The true cost of the Ontario Fair Hydro Plan is unclear. What is clear is that the government is refinancing a portion of the GA in order to provide immediate relief to regulated consumers. The relief is estimated at an average of $2.5 billion per year for the next 10 ten years – with annual interest costs on that refinancing at $1.4 billion. The cost of the enhancement to low income support programs is expected to be applied to the general tax base, so Ontarians can expect to see higher deficits or higher taxes.

In the final analysis, this new ‘fair’ plan seems more like long term pain for consumers and taxpayers for very modest rate relief for select consumers and political gain for the government in the upcoming 2018 election.

Twitter: @JohnKiemele @En_ProEnergy

LinkedIn: www.linkedin.com/in/johnkiemele

Click here to view the PDF version: Ontario Fair Hydro Plan – March 2017