TORONTO—Facing a steady decline in popularity over the high cost of electricity and barely a year and a half from the next election, Premier Kathleen Wynne announced the largest reduction in hydro rates in the utility’s history on Thursday, March 2. The plan will see many energy bills drop by 25 percent, with some suggestion that Northern Hydro One customers could see reduction of as much as 50 percent.
“We’re here today to talk about the high cost of electricity in Ontario: how it got to this point, how it must be fixed and how exactly we’re going to put that fix in place,” said the premier in her announcement. “For too long, governments—my own included—have made mistakes in the way we’ve structured Ontario’s electricity system. That has resulted in rates that are unfairly high. It’s time to fix those mistakes, in ways that work for today and for the future.”
The bulk of the reduction has been accomplished by spreading out the cost of infrastructure maintenance and repairs in the province to 30 years. The premier likened the approach to refinancing a home mortgage and said the plan will more fairly distribute the costs associated with refurbishing the province’s grid and supply system among those who will benefit from the costs.
“Let me just pause and say on this point that we all bear responsibility for that. Liberal, Conservative and NDP governments,” said the premier during her announcement. “For the better part of 50 years we didn’t pay our way. Until about a decade ago, when it came to a head. The system needed major rebuilding. Which meant a major price tag. A lot of that money came in the form of rates—higher bills. So, for the past few years, customers have been paying not only for the power they consume but for the past neglect, for the price of major new refurbishments and for the cost of renovating a system that went without proper repairs for far too long.”
Ms. Wynne noted that it was not all grim news. “So the good news is that we’ve created an electricity grid that is second-to-none,” she said. “In the past few years we’ve invested more than $50 billion in electricity infrastructure—new dams in the south, new towers in the North, $13 billion to refurbish nuclear power plants alone and billions more to ensure new transmission and distribution lines everywhere. These are enormously important assets that meet the demand for cleaner and reliable power everywhere in the province. These are assets that belong to all the people of Ontario and that will serve us for many decades to come.”
The mea culpa came soon after as Ms. Wynne explained how the rate reductions were made possible. “But the way we financed those investments was a mistake,” she said. “We asked one generation—today’s generation—to unfairly shoulder the burden of nearly all of those costs. We had to play catch-up and we asked today’s ratepayers to cover nearly the whole tab. Think of it in terms of a mortgage. We needed to rebuild the system and so we went to the bank for that money. But the terms that were set weren’t fair—particularly the amortization. Instead of paying off the mortgage over 30 years, we agreed to a term of 20. That means that we pay things down faster. But the monthly mortgage payments, or, in this case, your hydro bills, are higher. And it doesn’t really make sense since that house—or in this case the electricity system—is an asset that will continue to benefit people far past that contract term.
“In effect, this generation has been subsidizing not just those who came before, but those who will come next. That’s not right, and it has been notably unfair on today’s hydro users. So we’re fixing that. We’re refinancing the mortgage and setting a new term that stretches over a longer period. Over time, it will cost a bit more. And it will take longer to pay off. But it is fairer—because it doesn’t ask this generation of hydro customers alone to pay the freight for everyone before and after. The burden will now be shared more evenly and more appropriately. That’s the first and most important fix we’re putting in place.”
Critics have charged that the Ontario Liberals are seeking to buy votes and burdening future generations with the cost.
“Ontario deserves a break on their hydro bills,” said Algoma Manitoulin MPP Mike Mantha, but he pointed out the cost will see $40 billion added to the bill down the line. “We will be paying for this for over 30 years. The real benefits will be going to the banking sector.”
Mr. Mantha said the NDP would reduce rates by 30 percent while reversing “the wrong-headed decision to sell off Hydro One.” Mr. Mantha noted that the sale will prevent revenue from the utility from coming into provincial accounts.
He went on to challenge the continued implementation of time of use pricing, using the example of a person on oxygen at home who requires the electricity to live. He advocates moving back to a fixed cost on electricity.
Manitoulin Hydro One critic Brian Parker characterized the move as “the current smoke and mirror play,” adding that the move “does nothing to alleviate the mess created by a government and is intended to appease the 905 voters and the electorate in the corridor down south.” Mr. Parker continued by pointing out that “extending the amortization period of any contract or sale only extends the pay-off period into our kids’ pockets and costs Ontarians countless millions of hard fought dollars.” The end goal, he contends, is, “without a doubt influencing next year’s election results in their favour at our personal detriment and long term suffering.”
Hydro One, the semi-privatized utility that distributes electricity to much of the province was positive on the development, however, issuing a press release that “thanks Premier Kathleen Wynne and Energy Minister Glenn Thibeault for introducing immediate measures to reduce the burden of rising electricity costs on our customers.”
“The changes announced today will provide significant relief, particularly for those who need it the most—our fixed-income, rural and Northern customers and small businesses,” said Mayo Schmidt, Hydro One’s CEO. “Ontario households and small businesses could start to see their bills drop by an average of 31 percent each month as early as this summer.”
The Government of Ontario’s announced plan will see a reduction in the Global Adjustment charge by 20 percent, a lowering of the delivery charge for low-density customers; an acceleration of the move to more fixed delivery charges; the introduction of an affordability fund to help those customers in need; and the introduction of a First Nations electricity rate.
Businesses will not see as much of a boost from the changes announced on March 2, however. Instead they see an expanded rebate program for those that can shift their consumption to off-peak hours. Companies in Northern Ontario and rural areas will, however, also benefit from a reduction in delivery charges that have driven up bills in less-populated regions.
To pay for the rate reductions the province will add $25 billion in interest costs over 30 years as a result of it stretching out financing for existing generation projects. It will also shift $2.5 billion over three years in costs from ratepayers to the general provincial account—essentially moving that amount from the bills of the user to that of the general taxpayer.
Hydro One notes that the initiatives were developed following discussions with interested stakeholders that included Hydro One. Hydro One noted that its recommendations were “based on direct feedback and data from our customers and focused on providing greater fairness for rural and Northern customers who will see their delivery charges fall in line with the provincial average. This underscores our ongoing advocacy on behalf of our customers.”
“As a new public company with new leadership, we have put our customers first,” added Mr. Schmidt. “The recommendations we brought to the table reflect what we have heard from our customers across the province, many of whom were struggling to afford their monthly electricity bills. On behalf of our customers, we want to thank the government for consulting with us and accepting our advice to create a fairer and more affordable electricity system and for providing additional assistance to customers who need it the most.”
To help customers see how relief measures will stack up for their household, Hydro One has posted some real examples of profiles at HydroOne.com/Affordability.