Why Does Electricity Cost So Much In Ontario?

The 1st Google Images result for “Ontario electricity funny”

If you live in Ontario, it’s hard to go a day without hearing or seeing or reading something about Ontario’s supposed sky-high electricity costs. It’s the Ontario equivalent to bitching about real estate costs in BC or the NDP/Justin Trudeau in Alberta.

This obsession isn’t without some justification. Costs are undeniably up, particularly in rural Ontario. The set rate for electricity increased in both December 2015 and May 2016 and according to this Toronto Sun article, an average Ontario household saw its hydro bill increase by around $90 a month. With the median household income (as of 2014) being just under $79,000, that extra $90 a month can have a big impact.

But even with that knowledge, I wondered if all the noise around rate jumps was warranted. Had, until recently, Ontario been spoiled with cheap electricity? Why had prices risen so high? Was it because of those damn wind farms and other green energy “schemes”? Or was it simply because Kathleen Wynn hates hard-working Ontarians?

Unfortunately, there is no Occam’s Razor-friendly answer to what’s going on with my province’s electricity rates. Instead, there are a number of factors at play. Here are five that stood out to me, in no particular order:

  1. Remember the price freeze?
    Often when older people say things like, “Back in the day, things were so much cheaper,” they’re being nostalgic about the past. But when it comes to electricity rates, they’re right. In 1993, electricity rates in this province were frozen by the NDP government. They stayed that way until 2002, when Harris removed the freeze in preparation for his failed attempt at deregulating the province’s electricity market. It was then frozen again in 2002 by the new Liberal government, a freeze that lasted until 2004. During this period, Ontario Hydro’s debt ballooned and people became accustomed to steady, relatively affordable electricity rates, making our recent increases extra-painful.
  2. It’s not that expensive compared to the rest of the continent.
    According to Patrick Brown, leader of the provincial Conservatives, “Our province is already home to the highest rates in North America.” This is wrong. Based on costs per kilowatt hour, Ontario rates are among the highest in Canada, but as the graphic below and this report by Hydro Québec shows, Ontario rates aren’t that high when you look at what many Americans are paying. Yes, Quebec and Manitoba have significantly cheaper electricity but that’s thanks to their lands being blessed with ample hydro-electricity opportunities. While that method does produce one-third of Ontario’s power, it just doesn’t generate enough to meet our province’s energy needs. So we have to turn to other ways to create electricity. Which brings me too…
    screen-shot-2016-09-17-at-7-45-23-pm
  3. Nuclear power is expensive.
    We’re not here to debate whether or not nuclear power is good. Instead we’re here to realize that this power source, which fuels more than 50 percent of energy needs in this province is expensive, despite its low kilowatt hour price. And unlike most other forms of infrastructure, you can’t cheap out on nuclear power plants, which is why the Darlington nuclear plant and the Bruce plant are about to, respectively, undergo refurbishments worth $12.8 billion and $13 billion dollars. Yes, that’s billion and yes, Ontarians will be covering some of those costs. You’ll find them in the Global Adjustment line
  4. About that Global Adjustment line…
    When Ontarians complain about high electricity bills, it’s usually not the kilowatt hour costs that are angering them. It’s the Global Adjustment line, which is there is cover the difference between the market rate and well, a whole lot of stuff including the already mentioned nuclear power plant refurbishments, paying electricity producers to essentially turn off the flow when we’re in times of excess energy and yes, certain aspects of Ontario’s Green Energy Act. The latter gets a lot of hate and while a strong case can be made that the deal structures between the government and green energy producers do have us overpaying, wind mills and solar panels aren’t creating the bulk of the GA line. According to this TVO article,”…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.” Reading the reasons behind the GA almost make me understand why some people support privatizing hydro; a lot of short-sighted and just plain dumb decisions have been made around power in this province. (Of course privatizing would likely just increase prices even more; good thing we’re not… oh wait.)
    screen-shot-2016-09-17-at-7-44-01-pm
  5. And let’s not forget the Delivery line 
    Rural Ontarians have another reason to hate their electricity bills: the Delivery line. It’s the source of stories like this one were a guy used $3 worth of energy but had a $43 delivery fee. I feel torn on this fee. On one hand, it makes sense for rural residents to pay higher rates since it’s significantly more cost effective to deliver power to a crowded urban centre than rural farms that are kilometres apart and subject to line-destroying weather. But on the other hand, aren’t we all in this together? One thing I do know is that Hydro One could do a much better job that this at explaining what this fee is for and how it is justified. If people knew that reconnecting their specific home after that last power outage cost X amount, they might hate this line a bit less.

While all of the above offers some insight into why Ontario’s hydro bills look like they do, it doesn’t offer any kind of solution. That’s because, despite what any politician tells you, there is no simple, straight-forward way to get the province out of its current situation. Freezing rates, or heavily subsidizing them, would just push costs further down the road, adding to the province’s debt load. Getting rid of the Global Adjustment line would be a legal and financial mess that would make the gas plant scandal look like amateur hour. And not refurbishing our nuclear power plants could just be plain dangerous.

Fine, I get it now, people are understandably pissed about electricity rates in Ontario.

 

 

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