As the cost to produce hydro reaches record lows, Ontarians are paying more than they ever have on their hydro bills. The Liberal government has been under fire lately due to rising hydro bills, especially in rural communities. The causes range from an oversupply of power, global adjustment fees, over paying for green energy, and privatization of Hydro One.
Ontario currently has to produce a certain amount of power each day to meet the demand of consumers. According to Gridwatch, an iPhone app that tracks how much energy is created in Ontario, how much is exported, and how much of each type of energy is used shows that Ontario produces between 15,000 and 20,000 Megawatts (MW). To avoid power outages, more electricity is created than the amount needed and the excess energy is sold to Canada’s neighbouring states south of the border at rates lower than the cost of production.
“There is a fine balance between making sure we have enough power and not too much,” says press secretary to the minister of energy, Colin Nekolaichuk.
According to Nekolaichuk, Ontario has contracts with the United States and has sold around $200 to $300-million worth of extra energy in 2015.
The money lost through the existing contracts with the U.S is paid for by ratepayers in the “global adjustment” line of their bill.
Daniel Hoornweg, the associate professor and research chair in Faculty of Energy Systems and Nuclear Science, says the “global adjustment” fee is where electricity consumers pay for the costs to run and keep the system going.
“It’s an attempt to capture the long-term costs of maintaining and fixing the energy supply’s infrastructure. As well as the cost of building a new plant.” Says Hoornweg.
Bonnie Lysk, the auditor general, concluded in the 2015 Annual Report that ratepayers paid an extra $37-billion more than what was needed from 2006 to 2014 through the “global adjustment” part of their bill.
She also found electricity consumers will pay an additional $133-billion by 2032, due to the global adjustment line on the hydro bill.
Lysk has criticized the government in the past for signing overly generous contracts, especially when the big push for green energy came in 2009.
Although, In 2013 the provincial government took a small step in the right direction when they renegotiated its green energy contract with Samsung and managed to save Ontario $3.7-billion.
Even after the renegotiations Lysk found in 2014, Ontario still pays twice the market price for solar energy and three and a half times the price for wind energy.
The Provincial government has not since renegotiated any of their generous contracts with green energy companies. Nekolaichuk says the costs will drop over time.
“As the technology matures, the price of wind and solar will continue to go down,” Nekolaichuk says.
The hydro bills customers receive in Ontario look different than the simple two line ones received in other provinces, such as Quebec and Manitoba.
In Ontario our hydro bills consist of an energy charge, line loss charge, basic monthly charge, regulatory charge, delivery charge, and meter charge.
Even though Quebec and Manitoba have a different structured bill than Ontario, there are still three sections that make it up.
The first section is the cost to produce the electricity.
The second part of the bill is the cost of distributing it, getting it from the plant to the consumer. Ratepayers in rural areas pay more in this part of the bill because in a rural area it may take 50 hydro poles to get to one residence. However, in urban areas, 500 people might all be getting their energy from the same pole, so the price of distribution for them will be significantly cheaper.
The third part of the bill is the previously mentioned “global adjustment” fee.
A month’s use of electricity in a rural residential home amounts to about 1,000 Kilowatts per hour (kWh) of electricity. Ontarians pay a whopping $239.23 for every 1,000 kWh which is almost three times as much as what people pay in Quebec where it is only costs $89.62 per 1000 KwH.
Quebec pays so much less on their electricity bill compared to Ontario because they get most of their energy from hydro which is at record lows, only costing 2 cents a kWh. Whereas Ontario gets most of its energy from nuclear plants, costing almost 7 cents a kWh.
Part of the increasing cost of our hydro bills comes from smart meters. Smart meters charge consumers more money to use electricity during peak hours to avoid overloading the system.
If all Ontarians did their laundry at the exact same time, we would see a power outage. Smart meters were created to avoid this problem by charging consumers less when they use energy during off-peak hours.
“The reason that structure exists is to incentivise people to use power at different times of the day. Which means that were not putting such a strain on the system and we don’t have to build more capacity because of it,” Nekolaichuk says.
A provincial decision that is costing the government hundreds of millions in the long run is the privatization of Hydro One. Hydro One is already over 40 per cent sold to the private sector and is set to reach 60 per cent by the end of Wynne’s term in 2018.
In 2015, Hydro One reported $1.22-billion in regulated earnings before financing charges and income tax. Since privatization, the government loses 40 per cent of the earnings that otherwise would have gone to them. This amounts to almost $500-million in earnings that once went to the government, now goes to private sector.
Premier Kathleen Wynne stands by her choice to sell off a total of 60 per cent of Hydro One to the private sector. “The reality is that we have to invest in infrastructure,” she said during a visit to Durham College in Febuary.
Wynne says they needed money to fund public transit projects and build new infrastructure. “The broadening of the ownership of Hydro One was to give us access to 4, 5-billion dollars to pay off debt in the electricity sector and that 4-billion dollars we can invest in transit,” said Wynne.
According to the premier, the one-time cash payout was more valuable than the hundreds of millions of dollars that used to be generated by Hydro One.
Oversupplying power, overpaying for green energy, and privatizing hydro are some of the reasons ratepayer’s bills are consistently increasing.
Nekolaichuk says, “It’s not that we’re really more expensive compared to anyone else, it’s because we’re more expensive than we used to be. But those prices were kept artificially low by rate freezes and other policies that previous governments had engaged in, as well as a lack of investment in the system.”
Prices will continue to climb until the summertime when Ontarians will see a 17 per cent on average drop in their hydro bill on top of the 8 per cent rebate that went into effect in January. There has also been a 50 per cent increase in rebate programs for low income households which was recently announced by the provincial government. The rebates should save low income households about $35 to $60 a month, costing taxpayers $2.5-billion over the next three years.
Rebate programs are good for helping families in the short-term but to fix Ontario’s skyrocketing electricity bills long-term, the provincial government needs to address the root of the problem. To lower hydro bills long term, the Liberals must renegotiate contracts, freeze the privatization of Hydro One, and adjust the costs that are absorbed by ratepayers through the global adjustment fee.
Until the government begins to work on these issues, skyrocketing electricity bills for Ontarians should come as no shock.