Ontario budget promises to shift some locked-in hydro costs to general provincial expenditures

Ontario to shift some locked-in hydro costs

Friday, November 6, 2020

The newly released Ontario budget demonstrates that a relatively modest portion of locked-in hydro costs are attributable to renewable energy contracts signed under the previous government’s Green Energy Act. Nevertheless, commercial and industrial electricity customers have been promised a direct hydro bill reduction for some of those costs beginning in January, as part of $4.8 billion worth of initiatives to help businesses recover from the financial strains of the COVID-19 pandemic.

As outlined in the 2020 budget, the Ontario government plans to transfer about 85 per cent of what it dubs “high cost contracts” for solar, wind and biomass power currently embedded in the global adjustment (GA) — the largely opaque bucket of costs that account for upwards of 85 per cent of the commodity cost of electricity — to general provincial expenditures. This is projected to equate to a 14 to 16 per cent hydro cost saving for commercial electricity customers, taking the rate down to an average of 14.31 cents per kilowatt-hour (kWh).

However, the government’s roughly $433-million annual allocation for the relief measure will cover a much smaller percentage of the total global adjustment, which surpassed $1 billion in every month from January to September this year, and topped $1.2 billion in April, May, June, July and August. Approximately 60 per cent of that cost is for nuclear power.

The budget’s breakdown of historical impacts for the commercial and industrial sectors also highlights discrepancies that can be largely linked to the formula for allocating the global adjustment. Through the Industrial Conservation Initiative, the industrial sector and some larger commercial players have had an opportunity to actively manage their global adjustment costs, while the majority of commercial customers have been relegated to pay it on a per-kilowatt-hour basis.

“The price of electricity for industrial employers increased by 37 per cent from 2008 to 2019, while commercial employers have seen their electricity commodity costs increase by about 118 per cent over the same time period,” the budget document states. “These increases far outpaced the overall rate of consumer price inflation (21.4 per cent) over the same period. That means the increase for commercial employers was about five times higher than the rate of inflation.”

With the new relief measure, Ontario electricity prices are expected to drop below average rates in the United States. Currently, Ontario’s average commercial rate of 17.02 cents/kWh is well above the U.S. 14.38 cents/kWh average. Meanwhile, industrial customers currently pay an average of 9.42 cents/kWh versus the U.S. average of 9 cents/kWh, but Ontario’s average industrial rate is projected to fall to 8.05 cents/kWh with the relief measure.

“Although this was an issue before COVID-19, the pandemic has made fixing this problem an urgent priority that must be addressed if Ontario is going to compete successfully to attract new investments, as governments around the world plan for a recovery from the global recession,” the budget document reiterates.

The budget also confirms emergency hydro bill assistance for businesses forced to shut down to comply with COVID-19-related public health protocol. As indicated last month, $300 million will be available to help “eligible businesses” with property taxes and energy bills.

Leave a Reply

Your email address will not be published. Required fields are marked *