Ontario’s competitive electricity rates…and other fairy tales?

Rate increases double, triple the rate of inflation, says Parker Gallant

On October 31, 2014 the Toronto Star ran an article on electricity rates scheduled to rise the next day (November 1, 2014) and included this comment:  “Jennifer Beaudry, a spokeswoman Energy Minister Bob Chiarelli, said Ontario’s electricity rates are competitive with similar jurisdictions in North America.”

Just six months before, Energy Minister Chiarelli announced  “We’re lowering the threshold so smaller size businesses…will be able to participate in the system when they couldn’t before,” the minister said at Giant Tiger headquarters in Ottawa Thursday. “That will keep our manufacturing sector more competitive.”

The latter announcement came within days of another press release about the price of electricity rates going up.

It should be made clear that the two articles referenced the “commodity” cost only of electricity and didn’t include delivery, regulatory and debt retirement charges.

It would appear the accompanying chart from the U.S. Energy Information Administration (EIA) contains information that easily dispels the comments from the Ministry spokeswoman and Minister Chiarelli.   This chart shows the total cost per kilowatt hour (kWh) in each of the 50 US States and the District of Columbia as of April 2014 and April 2015 to the end user; in four categories including, “Residential, Commercial, Industrial and Transportation”.

The chart at the end of each state line shows the price (average) of all sectors.  A comparison to Ontario’s “commodity” costs discloses: eight states deliver electricity (all-in) at average prices below Ontario’s “Off-peak” rate of 8 cents per kilowatt hour, 31 states deliver it at less than Ontario’s “Mid-peak” rate and six states deliver it at less than Ontario’s “On-peak” rate.  Only six states have higher (all-in) prices than Ontario’s “On-peak” rate.  Twenty-two  U.S. states experienced a reduction in their rates compared to April 2014 and two of those, New York and Michigan, benefit from Ontario’s surplus exports. Exports will likely cost Ontario ratepayers $2 billion in the current year.

It would be nice—nay, delightful— if Ontario’s Independent Electricity System Operator (IESO) were as transparent as the US EIA … but don’t hold your breath!

In order to calculate the “all-in” average cost to Ontario ratepayers (collectively and individually by local distribution company (LDC) one must visit the Ontario Energy Board’s (OEB) Yearbook of Distributors, which is updated once a year (usually late August) with the prior year’s information.  Information currently available is therefore for the year-end December 31, 2013.

Having a look at Ontario’s position as of the latter date, the average delivered cost of a kilowatt hour discloses the price (before HST and the OCEB) was 12.65 cents/kWh based on total revenue divided by kWh purchased.   If you remove the dollars and kWh for Hydro One the price drops to 11.97 cents/kWh.  If one goes through the same exercise in the first posted “Yearbook” summary for 2005, the all-in price was 9.19 cents/kWh—that means an increase of 30.3% over eight years, or more than double the inflation rate.

If you go through the same exercise for Hydro One their “all-in” delivered price was 10.39 cents/kWh in 2005 and for 2013 was15.26 cents/kWh. That’s an increase of 4.87 cents/kWh or a 46.9% increase in eight years—more than triple the inflation rate.

Again, if transparency was a requirement of Hydro One under the Liberal regime, one would expect the annual report for 2014 allowed for disclosure of the “all-in” delivered cost. But, it includes Hydro One Brampton so it is not possible to determine the 2014 costs of a delivered kWh from information in their annual report!  A rough estimate places “all-in” costs at about 17 cents/kWh, well above all but three of the U.S. states.

Just to make matters worse we now hear that the Wynne-led Liberal government has given “Hydro One workers a fat new contract that includes a 3% pay raise, a signing bonus worth 3% of their salary and stock in the company worth 2.7% of their salary every year for 12 years.” That lucrative settlement in the current environment will mean Hydro One will be knocking on the door of the OEB seeking an increase to cover the wage settlement, and Hydro One’s rates will continue to climb, whether public or privately owned!

Ontario’s electricity rates are now competitive with Alaska, Hawaii, Connecticut and Rhode Island, none of which are contiguous but hey! We heard it from the Energy Minister’s spokeswoman and Bob Chiarelli himself that Ontario’s electricity rates are competitive!

©Parker Gallant,  July 8, 2015