What Ontarians don’t know about rising hydro rates

By Daniel Kitts - Published on November 6, 2015
hydro poles
Ontario's off-peak residential hydro rates have more than doubled in less than 10 years.

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It’s no wonder electricity costs in Ontario are often described as “skyrocketing.”

The November 1 increase in Ontario electricity prices is the second in six months, with another rise coming in January when the government cancels the 10 per cent discount consumers get on their bills through the Clean Energy Benefit.

However, it turns out the electricity bills of Ontarians are in line with other comparable jurisdictions, and the main drivers of price increases are more mundane — and less political — than some might think. 

It’s true that Ontario’s electricity prices are much higher than neighbouring Quebec and Manitoba. However, that’s because both those provinces have an abundance of cheap hydroelectric power. Ontario doesn’t have that luxury because the demand for energy here is far greater than the amount of hydroelectric power that can be generated in the province, says Mark Winfield, co-chair of the Sustainable Energy Initiative at York University.

“Places whose systems are essentially 100 per cent hydroelectric, it’s fortunate for them, but they’re not necessarily reasonable points of comparison to Ontario,” he adds. “You need to look at the Californias, the New Yorks and the Michigans and places like that.”

And in comparison to those places, Ontario holds its own: A recent Hydro Quebec report estimated that earlier this year the average monthly electricity bill, including taxes, was $164.04 in Toronto and $167.95 in Ottawa. In San Francisco, $277.31; in New York City it was $314.35; and in Detroit, $197.21. The report priced all the bills in Canadian dollars, but even when the exchange rate used is taken into account, the Ontario prices cited in the study are still competitive with those other jurisdictions.

“We’re not exceptionally high [in terms of prices] by any stretch of the imagination,” says Winfield. “We’re sort of middle of the pack.”

Still, there’s no question the province’s hydro prices have been going up: According to the Ontario Energy Board, the off-peak price for residential users of electricity has gone from 3.5 cents per kilowatt hour in May 2006 to 8.3 now – more than double in less than 10 years.

What’s driving the increase? Is it the cost of cancelled gas plants? Green energy schemes? Rising salaries and benefits for hydro workers?

Those all contributed. Yet a much bigger driver of electricity cost is inflation. The University of Toronto’s Don Dewees has found that between 2000 and 2010, inflation accounted for almost half the increase in cost for the average residential consumer. Since then the rate of inflation has slowed, but Dewees estimates it is still responsible for somewhere around 30 per cent of electricity price increases in recent years.

The government’s much-criticized renewable energy projects also account for some of the cost, but not as much as many people seem to think, according to Jack Gibbons, chair of the Ontario Clean Air Alliance.

“The rising rates now are driven partly because they’ve been paying high prices for wind and solar through the feed-in-tariff, and that’s what people like [Progressive Conservative Leader] Patrick Brown only talk about,” he says. A much larger factor, says Gibbons, are the costs associated with the province’s nuclear plants.

Looking at what’s called the global adjustment (GA) shows just how much more nuclear has driven rising costs than any other form of generation. The GA is a surcharge on the province’s electricity bills that covers a variety of costs including closing down the province’s coal-fired plants and Pickering nuclear plant, building new generating capacity and maintaining existing power plants.

A breakdown of the global adjustment shows that nuclear costs accounted for 42 per cent of the GA, while gas-powered generation took up 26 per cent and renewables — including hydroelectric, wind and solar power — accounted for just 17 per cent.

Winfield says there was essentially no choice but to spend billions of dollars on Ontario’s energy infrastructure by the time the Liberals took office because for about 20 years prior, provincial governments of all political stripes had spent very little on maintaining the energy system and building new capacity.

“We essentially were living off assets that were built some time ago,” he says. “We were keeping prices artificially low, and we reached a point where those assets began to reach end-of-life and had to be replaced. And in some cases those capital costs proved to be much more than anticipated.”

However, while much of the energy investments over the past decade were unavoidable, both Winfield and Gibbons say the government erred by deciding to refurbish Ontario’s nuclear reactors.

“As a result we now have surplus generation, in fact surplus nuclear generation, which we’re often exporting at a loss,” says Gibbons.

To prevent energy costs from spiralling out of control, Gibbons argues, Ontario should abandon its nuclear plans, invest in more energy conservation measures and look more seriously at imported hydroelectric power from Quebec as a key part of the province’s energy mix. 

Not all energy industry observers think doubling down on nuclear is a mistake for consumers. Jatin Nathwani, executive director of the Waterloo Institute for Sustainable Energy, thinks that in the long run nuclear generation will still provide cheap power for the province. He also says that over-capacity is a good problem to have compared to the shortages and reliability problems Ontario faced in the early 2000s.

In Nathwani’s view, the investments the province made as a result of shutting down its coal-fired generating stations could become a competitive advantage as other jurisdictions — particularly in the U.S. — that haven’t reduced their carbon emissions from electricity generation face increasing pressure to do so because of climate change concerns.

“They have not yet had to absorb any costs like that,” he says. “We have absorbed it. Done.” 

» Look at how Toronto's hydro prices compare to other cities in Canada and the U.S. 

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