(June 21, 2016) Provincial policies will push Ontario’s gas and hydro bills higher in the coming years.
Ontario’s electricity customers have experienced near double-digit increases on their monthly bills over the last decade – a trend that will continue in the coming years. Now, it’s natural gas customers’ turn for double-digit bill increases.
The reason that bills for both electricity and natural gas customers are outpacing inflation – which remains well below 2% annually – is the same: provincial meddling in the energy sector. In some cases, households will pay more for one form of energy (gas) only to see that money used to lower their other energy bills (electricity).
Here we present a list of the current policies being considered or recently implemented that will increase energy costs – on both gas and hydro bills – for households across the province.
1. Cap and trade. Ontario’s cap and trade program will, according to the province’s early statements, increase home heating bills for natural gas customers by about $5 per month. For customers that also use gas for hot water heating, that figure will likely be an additional $2 higher per month. Add those costs together with the recent rate application by the gas utilities and customers will see their monthly bill increase by more than 10%. It’s worth pointing out that the province originally projected the Green Energy Act would only increase electricity bills by 1%. The peak electricity price has nearly doubled since that legislation was passed. The largest spending item from the money raised in the cap and trade auctions will be subsidies to electricity ratepayers.
2. Uneconomic expansion of the gas system. Queen’s Park has also called upon the Ontario Energy Board (OEB), the provincial energy regulator, to look for ways to expand the gas distribution grid to parts of the province, largely rural and northern communities, where it is currently uneconomic to do so. Current OEB guidelines prevent the utilities from charging current gas customers a premium to subsidize the expansion of the gas grid – something known as the “no harm” principle in regulatory circles. The province directed the OEB to encourage the gas utilities to come up with new plans that would work around the current, economic regulation that protects customers from paying more than the cost to service them. The two largest gas utilities – Enbridge and Union, which serve around 3.5 million customers in Ontario – want to add a levy to all existing gas customers to subsidize their expansion plans. The levy could increase monthly bills by as much as 7% per month.
3. Natural gas conservation programs in the millions. The OEB recently approved conservation programs for the two largest gas utilities in Ontario – Union and Enbridge – totalling nearly $700 million between 2015 and 2020. The typical impact on a residential customer’s bill will be around $2 per month for both utilities.
4. Electricity conservation programs in the billions. The province is also planning on spending $2.6 billion on electricity conservation programs in the coming years. That spending comes at a time when Ontario’s demand for electricity is dropping, as it has done over the last decade, and the province continues to dump an increasing amount of power in neighbouring jurisdictions such as New York at below cost prices. Ontario ratepayers are on the hook for the difference between what it costs to generate that power and what its worth on export markets.
5. Using hydro customers to fund social programs. More than a decade of increasing power prices has led to many Ontario households struggling to pay their monthly hydro bill. As a result, the province launched the Ontario Electricity Support Program (OESP) at that start of 2016, which offers a rebate on hydro bills for low-income households. That rebate is paid for by other electricity customers.
6. Nuclear’s big price tag. The provincially owned Ontario Power Generation (OPG), which owns and operates the nuclear and hydro assets of the old Ontario Hydro, recently asked the OEB for a near 70% increase in the amount it is paid for its nuclear generation over the next five years. The biggest contributor to the increase is the crown corporation’s decision to refurbish the four reactors at the Darlington nuclear plant. The province, rather than have a transparent public hearing on whether nuclear refurbishment is the most economic option, has legislated that the refurbishment go ahead – ensuring that the OEB can’t perform an extensive cost-benefit analysis. Considering nuclear power’s long history of cost overruns, the impact on ratepayers could be felt for decades.
7. More renewable energy supply. The province continues to sign high-priced contracts for renewable energy that isn’t needed. In 2016 alone, Ontario announced plans to add an additional 1385 MW of new generation capacity. While the province says these new contracts have a lower price tag than previous renewable energy deals, the power simply isn’t needed. OPG, for example, now “spills” power – a process where it lets water flow through its dams without generating electricity – in an attempt to control Ontario’s significant power surplus. The company’s “spilled” power grown by more than 80 percent in the last three years and would have powered 330,000 homes in 2015.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236