January 2017
Backgrounder

It’s critical that municipalities have a voice in energy policy. Municipal concerns about energy are two-fold. First, as large consumers of energy for public facilities, energy prices impact municipal budgets. Second, energy policies impact large industrial consumers and residential customers, who are both critical ratepayers in the community.

Increasing Costs
During the past 10 years, Ontario has seen its electricity rates increase rapidly. Off-peak rates in Ontario have increased by 149% in the past ten years, which is significant, considering that inflation during that period was 18%.  

Businesses and families in Ontario’s rural municipalities, particularly those in northern Ontario, face significant challenges as energy costs increase. Electricity costs impact quality of life and take a toll on local economies. For residents and social housing providers, high energy prices can lead to precarious housing and even jeopardize food security. Across the province, high energy rates and connection fees are negatively impacting efforts to attract and retain industry. Some businesses have left for neighbouring jurisdictions with lower energy prices.

Electricity cost increases are a result of a number of factors, including:
  • Upgrade costs for aging infrastructure and importing electricity to fill the need during the upgrades;
  • Paying private companies to build power plants through twenty-year fixed deals, which includes payments for surplus, unused energy;
  • Costs associated with the conversion of coal plants to biomass facilities;
  • Debt retirement for Ontario Hydro’s over-budget nuclear construction projects;
  • High Feed-In Tariff (FIT) rates for wind and solar generation;
  • Lack of capacity to connect renewable generators; 1
  • Conservation efforts during surplus power periods, leading to expensive electricity curtailments and exports;2 and,
  • Steady electricity demand across the province. If demand grew, fixed costs (which make up the most significant share of electricity system costs) would be shared between more users, resulting in a lower cost per user.
Provincial Cost Mitigation Efforts
The Ontario government has recently introduced a number of initiatives to help mitigate the high cost of electricity. These include:
  • Rural or Remote Rate Protection: Keeps distribution rates in rural and remote parts of the province at levels similar to those paid by the rest of the province.
  • Sale of Hydro One shares: Beginning in 2015, the Ontario government sold shares of Hydro One. To date, 30 per cent of the company has been sold on the stock market to fund transit plans and to pay down debt.
  • Ontario Rebate for Electricity Consumers Act, 2016:  Reduces electricity costs by 8% on the amount before tax for residential consumers, farms, and small businesses (including some small municipal accounts), with additional reductions for rural electricity consumers.
  • Ontario Electricity Support Program: Subsidizes electricity bills for low-income Ontarians.  
  • Change to long-term supply: In 2013 the Ontario government decided to stop building more nuclear reactors and renegotiated a deal for wind and solar power which reduced energy prices.
High electricity rates hit rural communities even harder than their urban counterparts. This is because many rural homes and businesses rely on electricity for home heating. Distribution costs are also higher in sparsely populated rural regions. ROMA will be monitoring if these cost reduction measures are effective.

1. Ontario Auditor General Report, 2015
2. Ibid.