2017 Hydro Rates Reduction Explained
In Sept 2016 the government announced an 8 per cent rebate to consumers effective Jan 2017
- This will cost the province $1 billion
- The 8 per cent amount equaled the provincial portion of the HST amount
In March 2017 the government announce another 17 per cent rebate effective early summer of this year tallying a new total of 25 per cent in rebates to consumers.
- Reductions will cost approximately $2.5 billion over the first 10 years of a 30-year refinancing period with a maximum annual interest of $1.4 billion based on projected interest rate of 5 per cent
- The added 17% reduction is made up from refinancing the Global Adjustment (GA) and transferring social programs costs from hydro invoices onto the tax base
- Refinancing the global adjustment charge which is variance between the hourly hydro rate and rate contracted to electricity power generators such as wind, solar, nuclear and gas as well as the expenses from power conservation programs.
- The thinking has been that the 20 year lengthy contract costs to electricity power generators can be shifted to a be paid over a lengthier pay-back time. The contract power generators are estimated to be operating past 20 years.
- In the long term and similar to remortgaging a house a lengthier pay-back time brings a higher cost to the new plan as the consumers pay less now but for a longer pay period –a debt for over 30 years.
- The extra costs will be paid by tax dollars.
Forecast Global Adjustment Cost (nominal $ million) (source IESO)
How will these reduction changes be processed?
The Independent Electricity System Operator (IESO) who operates the electricity grid and market will be responsible in defining and calculating the balanced cost variance of power generator contracts from the recent rate reductions announced to consumers. This variance which in reality is the debt to repay all shifted money owed will be managed through as an independent asset by Ontario’s owned Ontario Power Generation(OPG).
- There will be $2.5 billion less annual money paid to the IESO by consumers.
- The OPG’s new independent asset will borrow $2.5 billion from financial institutions to make up the money.
- The OPG new independent asset will then pay the IESO $2.5 billion to cover the difference paid by consumers.
- The ISEO will have now the proper amount to pay the power generators the money owed under contract (Global Adjustment)
In our opinion, as with many others, the changes in the political climate have forced the Ontario government to initiate these changes and admit past energy policies have failed to consider the impact to Ontarian’s. If they could they would most likely cancel the power contracts that lead to the punishable Global Adjustment (GA) but they would be faced with stiff legal repercussions. They are stuck with past decisions.
It is disappointing that in this political agenda with voters the business world is once again forgotten. There are many similar cases that one would think the “unintentional consequences” are “intentional”. Penalizing businesses not only hurts their success but limits investment and job growth hurting economic advances for the whole province. Click here for ORHMA’s recent letter to the Minister of Energy that includes Ontario’s Hospitality Energy Report.
Cap and trade is coming Jan. 1, 2017
As part of its climate change initiatives, the provincial government has introduced a cap-and-trade program beginning January 1, 2017. The program’s aim is to reduce greenhouse gas emissions by giving an incentive to polluters to cut emissions and by placing a “cap” or limit on the amount of GHG emissions that polluters can release into the atmosphere.
Climate change occurs when long-term weather patterns are altered – such as through human activities like burning fossil fuels, which releases GHGs into the atmosphere. Climate change produces negative economic and environmental impacts including: higher food costs; increased energy insecurity, and extreme weather events that damage infrastructure and property. Reducing greenhouse gas emissions helps slow the effects of climate change.
Participation in Ontario’s Cap and Trade program is based on the volume of emissions by an individual end user and the program focuses on major GHG emitters (e.g. steel or cement factories, mining, natural gas distributors, petroleum product suppliers, and electricity importers). It is mandatory for emitters of 25,000 tonnes of GHG emissions per year or more and voluntary for emitters of over 10,000 tonnes of GHG emissions per year. ORHMA members would typically not be considered emitters under Ontario’s cap and trade program, and natural gas distributors will be required to manage their participation in this process.
Under this new legislation, Union Gas and Enbridge must buy emission allowances for the natural gas used by its residential and business customers, as applicable. These costs will then be recovered through your natural gas bill. The cap-and-trade cost will be added to the Delivery charge on your bill. If the price of emission allowances changes, the charge on your bill will be adjusted accordingly, just as it is for other annual rate adjustments. The Ontario Energy Board will review and approve all cap-and-trade costs before they are included on your bill.
The price of GHG emission allowances will vary with supply and demand, and can change over time. The cap-and-trade cost is expected to be about 3.3 cents per cubic metre (m3) of natural gas used in 2017. The total cost will therefore depend on how much gas you use and funds generated by the cap-and-trade program will be used to support the Ontario government's Climate Change Action Plan (CCAP) to promote low-carbon energy solutions.
Letter to Minister of Energy, Hon. Glenn Thibeault on Ontario Hydro & the Hospitality Industry
ORHMA Energy Research Paper