Ontario hydro prices are going up and there’s not much anyone can do about it

Click to play video: 'Electricity prices to rise in Ontario'
Electricity prices to rise in Ontario
WATCH ABOVE: Two years after candidate Doug Ford promised to lower electricity rates by 12 per cent if elected, Ontario consumers are about to start paying more for power. As Seán O’Shea reports, the higher costs will show up on bills in November – Oct 30, 2020

Mary Camastra, a contractor from Milton, Ont., feels deceived — let down by a promise of cheaper hydro bills that has yet to come true.

“I just feel tricked,” she said.

While campaigning to become Ontario premier, Doug Ford told hydro customers he’d slash electricity rates by 12 per cent.

But since Ford took office in June 2018, the cost of electricity for average households has risen by about 1.8 per cent, according to the Ontario Energy Board.

And starting Nov. 1., rates are set to jump again by another two per cent compared to pre-pandemic prices.

The government’s COVID-19 discount on hydro rates, which fixed prices at a lower cost, is also set to expire on Oct. 31.

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Coronavirus outbreak: Ontario announces new fixed rate for Hydro costs

This means roughly five million residential and small business customers on “time-of-use” billing could see a spike in their next monthly hydro bill, especially if they use electricity in the morning and early evening “on-peak” hours.

“The on-peak (price) is insane,” Camastra said.

In June, Camastra started an online petition calling for rates to be lowered. So far it’s gathered about 4,500 signatures.

Under the government’s COVID-19 pricing plan, hydro rates were fixed at 10.1 cents per kilowatt-hour of electricity for time-of-use customers, regardless of the time of day. The government then increased prices under the plan to 12.8 cents per kilowatt hour starting June 1.

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When prices go up on Nov. 1, customers will be paying:

  • 21.7 cents/kwh between 7-11 a.m. and 5-7 p.m. on weekdays (on-peak)
  • 15 cents/kwh between 11 a.m. and 5 p.m. on weekdays (mid-peak)
  • 10.5 cents/kwh between 7 p.m. and 7 a.m. on weekdays and on weekends (off-peak)

Ontarians can, however, now choose to opt-out of time-of-use billing in favour of a fixed rate based on how much electricity they use. This option could save some customers money, depending on their consumption habits.

Speaking to reporters on Oct. 13, the day the most recent price increase was announced, Ford said he hates the fact that hydro rates are going up.

Ford blamed the previous Liberal government for the latest increases, saying that he inherited a “mess” of an energy file and that rates would be much higher if he hadn’t been elected.

“I hate it,” Ford said.

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Ford said the government is working on a plan to lower rates — he said the same thing in March just before the pandemic struck — but didn’t provide any specific details.

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“I know Minister of Energy Greg Rickford is working on a really, really good plan,” Ford said. “He’ll be rolling that out in the next little while.”

Ford also said the government is keeping hydro rates low for residential and small business customers by subsidizing electricity bills at a cost of about $5.6 billion a year.

“We’re still working on it, we’re still chipping away at it,” Ford said.

While the the Liberals have acknowledged past “mistakes” that led to higher electricity prices, they’ve also said it was necessary to upgrade the province’s electricity system after decades of neglect and underfunding.

The Liberals have also credited investments in green energy with creating up to 20,000 jobs in Ontario and ridding the province of coal-fired electricity, which experts have said helped improve air quality by reducing pollution equivalent to about seven million cars per year.

Rising cost of taxpayer subsidies

Over the past decade, if subsidies are not included, average household spending on electricity in Ontario has risen by 48 per cent, according to a report from the province’s Financial Accountability Office. During this time there was a 10 per cent decline in average household electricity consumption.

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Much of the increased cost is because of new energy purchases, including wind, solar, natural gas and nuclear.

Refurbishment of the Darlington and Bruce nuclear facilities will cost Ontario hydro customers at least $26 billion. Renewable energy contracts signed by the previous Liberal government — which helped rid the province of coal-fired electricity — have also cost tens of billions of dollars.

To stem public outrage over rising costs, particularly among rural residents, the government of former Premier Kathleen Wynne introduced subsidies in 2017 to lower hydro bills by 25 per cent. The Liberals also promised future price increases would not exceed the rate of inflation between 2017 and 2021.

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How a small-scale homeowner energy program contributed to cost escalations in hydro bills

These subsidies have continued under the Ford government — although it’s now taxpayers and not ratepayers who are responsible for paying them back — and account for roughly 33 per cent of the total cost of electricity for residential and small business customers.

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According to a report published in April by the Ontario Energy Association (OEA), the cost of continuing these subsidies and keeping price increases fixed to the rate of inflation could be as much as $9.1 billion a year between now and 2045 — roughly $228 billion in total.

“The numbers are just astounding,” said OEA chief executive Vince Brescia.

Brescia says the best solution for Ontario would be to gradually phase out the across-the-board rate subsidy, while maintaining help for those who need it, including low-income customers, rural and northern residents, and Indigenous communities.

This strategy could save Ontario taxpayers as much as $180 billion compared to the status quo, he said.

Few cost-saving options

One of Ford’s election promises was that he’d go through every energy contract signed by the previous Liberal government to find any available cost savings for hydro customers.

It was this approach that led Progressive Conservatives to cancel 758 renewable energy projects in July 2018, at a reported cost of roughly $231 million to taxpayers.

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Ford said tearing up the contracts would save electricity customers hundreds of millions of dollars in unnecessary spending.

“I’m proud that we actually saved the taxpayers $790 million when we cancelled those terrible, terrible, terrible wind turbines,” Ford said in November 2019.

“If we had the chance to get rid of all the wind mills we would.”

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But a report from the Independent Electricity System Operator (IESO), which manages the province’s electricity system, says the government can’t cancel the remaining long-term energy contracts signed by the Liberals without incurring significant financial penalties.

“Once a project is operational, in the earlier years of a facility’s life, there is often little (if any) costs to be saved by unilaterally terminating the contract,” the IESO report says.

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A third-party review that formed the foundation of the IESO’s report found the government could save between $303-$443 million over the lifetime of the remaining long-term contracts by offering suppliers lump-sum payments to reduce the cost of electricity they produce in the future. That equals about 0.17 per cent of total electricity cost.

But these potential savings come with “significant uncertainty,” the third-party review said.

This includes the chance that many electricity suppliers won’t accept an offer from the government because the risk of losing money is too great and because their current money lenders might not agree to change the terms of their existing contracts.

The province would also need to borrow $2.1 billion to finance the lump-sum payments, the IESO report said.

“There really aren’t any silver bullets in terms of dealing with the contractual structures that have been put in place over the last 20 years,” said Seán O’Neill, a Toronto lawyer who represents energy suppliers and financiers.

“If there was any hope that contracts could be ripped up and that would somehow reduce costs, the implication [of the IESO report] is that that really isn’t an option.”
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This doesn’t mean there aren’t any cost saving opportunities to be had, O’Neill said. It just depends on the situation of each company and whether they’d be willing to accept a deal from the government.

Global News asked the government if it is considering any of the possible cost saving options identified in the report.

In a written statement, a spokesperson for the energy minister said the government is considering a few options that it believes could help consumers save money.

“Early results of the review indicate limited savings to be found from existing contracts. We continue to work with the IESO to identify opportunities for savings that benefit Ontario’s electricity consumers,” said Alex Puddifant.

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“Our government continues to take action to fix the hydro mess left behind by the previous government, and we have made progress to date to bring trust and transparency back to Ontario’s electricity system.”

The 12 per cent promise

NDP energy critic Peter Tabuns says the IESO’s report and the third-party review show that Ford’s promises to reduce hydro bills and find cost savings for customers are “hot air.”

He also says the government’s decision to cancel 758 renewable energy contracts did nothing to reduce current costs because none of the projects were operational at the time they were cancelled.

“They’re all talking about future, potential savings,” Tabuns said.

And while it’s true that much of the electricity savings announced by Ford to date refer to future costs, these policy choices do have the potential to save hydro customers money.

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Ontario Auditor General accuses Wynne government of intentionally hiding true cost of hydro reduction

For example, scrapping the previous government’s Fair Hydro Plan in 2019 could save Ontarians roughly $4 billion.

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That’s because the Liberals’ plan created a “needlessly complex” accounting scheme that would have cost Ontarians about $4 billion in extra borrowing costs to finance the hydro subsidies, according to a 2017 report from auditor general Bonnie Lysyk.

Lysyk also criticized the Liberals for using this scheme to “improperly” keep the cost of these subsidies off provincial books.

Still, Tabuns is worried about the growing cost of subsidizing hydro bills through taxpayer dollars.

If the NDP is elected it would reverse the Liberal government’s decision to sell Hydro One and then use any future profits from the company to offset electricity costs, Tabuns said.

The government holds 47 per cent of Hydro One’s shares and receives $288 million in annual dividend payments. Based on the company’s current stock price, it would cost about $9.3 billion to buy back the privately-owned shares.

Experts have criticized this plan, however, saying it ignores the fact that Hydro One shareholders would likely expect to be paid a premium if the government tries to take over the company, which would drive up costs even higher.

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