Ellen Roseman
The Toronto Star
May 29, 2000

LAST FEBRUARY, the Ontario Energy Board gave municipal utilities the go-ahead to raise distribution prices as part of the province’s restructuring of the electricity market.

So, it’s no surprise that utilities are now applying for price increases.

Last week, Toronto Hydro-Electric System Ltd. released details of its plan to increase the average residential customer’s bill by 13 per cent.

To lessen the impact, the municipal utility wants to phase in the increase over two years, starting with an 8.7 per cent increase on July 1.

Toronto Hydro has 650,000 customers and supplies one- quarter of Ontario’s electricity. Toronto Hydro is the largest municipal utility in Canada and supplies power to the economic hub of the country.

For business customers, the average rate increase is 5.3 per cent in the first year. But some will be hit harder as Toronto Hydro harmonizes rates across the six former utilities amalgamated into one.

This is alarming news for Toronto businesses, already reeling from large property tax hikes resulting from changes in the province’s assessment system. Many cannot survive if forced to pay more for electricity, too.

Here’s a guide to Toronto Hydro’s proposed rate increase.

Q What is the distribution price?

A Distribution makes up 10 to 20 per cent of your electricity bill.

Toronto Hydro breaks it out into two components: the distribution charge (which varies with volume) and the customer charge (which is fixed).

On my own Toronto Hydro bill, which covers the two-month period to May 17, the distribution and customer charges add up to $45 of the $224.59 total. That’s exactly 20 per cent.

“In general,” the utility says, “smaller volume consumers in any class will experience the greatest rate increases on a percentage basis as the level of the customer charge is increased.”

Some businesses were never charged a fixed monthly fee (in Scarborough, for example), so their increases will be much higher than average.

Q Why are distribution prices going up July 1, when electricity restructuring begins in November?

A The province gave municipalities the option of operating their utilities on a for-profit basis.

Incorporation was intended to lead to mergers and consolidation. Ontario has 257 municipal utilities, compared with 25 in all the rest of Canada.

Toronto Hydro incorporated itself a year ago and assumed more debt in its capital structure. (Before, the utility operated virtually debt-free.) It now needs more revenue to pay interest on the debt to the city of Toronto.

The utility also wants to earn a commercial rate of return. Last year, Toronto Hydro’s return on equity was 1.28 per cent.

The energy board ruled in February that municipal utilities can earn up to 9.88 per cent.

Toronto Hydro says it can’t wait until November to raise rates. Making things worse, the utility plans to apply the higher price to the entire consumption on bills issued after July 1, even if that consumption occurred before that date. This unfairness is unavoidable, the utility says. Prorating customers’ bills to reflect electricity consumed before and after July 1 is “unjustifiably expensive” and not a viable option.

Q What is the impact of Toronto Hydro’s plan to split the increases over two years?

A While promoted as a benefit, the phase-in will actually cost customers more in the end.

The difference between the phased-in amount and the maximum allowable rate under the energy board’s formula will be recovered, with interest, in later years.

Tom Adams, executive director of Energy Probe, a Toronto advocacy group, says the deferral (with interest) means the public will be borrowing money from Toronto Hydro.

“There’s no indication that the utility intends to disclose to customers how much money they involuntarily borrow,” Adams says.

Q Can the government do anything to stop this rate increase?

A As part of the provincial restructuring plan, the energy board regulates distribution prices charged by municipal electric utilities.

The board gave newly incorporated utilities the freedom to raise rates by adopting a formula allowing them to move to a commercial return.

The only matter in dispute is whether Toronto Hydro is entitled to the maximum return of 9.88 per cent or something smaller. The utility has tried to alleviate that concern by phasing in price increases over two years.

Bottom line: Customers will pay more for electricity in an age of choice, despite Ontario Energy Minister Jim Wilson’s protests that price increases were not inevitable.