High electricity costs dogged the Liberal governments of both Dalton McGuinty and Kathleen Wynne and helped elect the Tories under Premier Doug Ford in 2018. Everyone felt the pain in one form or another: families took the hit in their pocketbooks, and businesses shuttered their operations and moved to jurisdictions where energy prices were lower (or simply never located in Ontario in the first place). But meeting one of Ford’s signal promises of that election campaign — reducing hydro bills by 12 per cent — has been difficult.
On Thursday, the government unveiled a new plan to lower hydro costs for businesses. It will pay for the cost of renewable-energy contracts out of the province’s tax bills instead of making electricity consumers pay those costs on their own bills.
The core of the issue is that a relatively small amount of Ontario’s total electricity generation makes up a disproportionate share of the hydro-system costs. According to the estimates in the budget, 18 per cent of system costs are coming from only 8 per cent of the province’s supply. So the government is proposing, starting January 1, to shift approximately 85 per cent of the costs of those most-expensive electricity contracts from the “rate base” (that is, hydro bills) to the “tax base” (that is, provincial taxpayers).
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The result, if the government plan works as intended, will move Ontario from being a relatively high-cost electricity market for industrial and commercial consumers to being a lower-cost one. The average commercial rate would fall from 17.02 cents per kilowatthour to 14.31 cents, making it roughly comparable to Minnesota. Industrial rates would fall from 9.42 to 8.05, which sounds less dramatic, but for some energy-intense industries the costs could add up: the government estimates that iron and steelmakers would see their hydro bills fall by 11 per cent. Automakers could see a 16 per cent break.
The government’s plan comes with a substantial cost: $1.3 billion over three years, and $71 million from January 1 to March 31, 2021. And those costs could continue for decades, as those energy contracts will last well until the 2030s.
This kind of move isn’t unheard of. The Liberal government removed some costs from the rate base as part of its Fair Hydro Plan, announced in 2017, and shifted them to taxpayers. In that sense, the budget plan has some precedent. However, it’s still the case in Ontario that there’s no such thing as a free (hydro) lunch — the government is shifting costs, not reducing them.
But shifting costs away from businesses is the entire point, from the government’s perspective. The budget suggests that a small hotel operator could see a cost reduction of more than $130,000 annually — money the government hopes will be put toward hiring new workers as the province’s economy recovers from COVID-19.