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Here from energy economist Robert Lyman, a comment on recent remarks made by Energy Minister Bob Chiarelli, on actions taken by his government, and whether electricity bills will rise (again).

BOB CHIARELLI THINKS YOU ARE STUPID

Ontario’s Energy Minister, Bob Chiarelli, was recently quoted in the Toronto Sun as saying, “When the OCEB (Ontario Clean Energy Benefit) comes off the (hydro) bill, residential customers don’t face additional costs.”

The accompanying news article explained that the OCEB was a subsidy funded by taxpayers that was imposed years ago when Ontario realized that the cost of its “green” energy policies would drive electricity rates much higher. Under this subsidy, ratepayers get a 10 per cent reduction off their electricity bills. This subsidy is scheduled to be ended in July 2014. To offset the increase in electricity rates, the Ontario government apparently plans to end the debt retirement charge (DRC).

What does this mean?

When former Ontario Energy Minister Brad Duguid announced Ontario’s Long Term Energy Plan in 2005, he predicted that this would increase rates by 7.9 per cent per year annually for the ensuing five years. The Provincial sales tax of 8 per cent was also added to electricity rates, and the actual increase in transmission, distribution and energy costs far exceeded 7.9 per cent per year. To “offset” this, Ontario introduced the Clean Energy Benefit, a subsidy from taxpayers to electricity ratepayers amounting to 10 per cent of residential bills.

The average ratepayer in Ontario consumes 800 kilowatts (kWh) of electricity per month. The ratepayer’s bill is now about $130.00 per month, which means that the OCEB reduces it by $13.00.

The debt retirement charge is a component of nearly every Ontario ratepayer’s electricity bill. Collection of the DRC began on May 1, 2002, at a rate of 0.7 cents per kilowatt hour (kWh) of electricity and it remains at that rate today. The charge remits to the Ontario Electricity Financial Corporation (OEFC), and thus to the Ministry of Finance, about $925 million per year. The DRC was authorized by the Energy Competition Act of 1998, which included the restructuring of the former Ontario Hydro into four main successor companies. The OEFC was given the responsibility to manage the legacy debt of the old Ontario Hydro, which resulted from the fact that, at its dissolution, the former Crown Corporation had debts of $38.1 billion and assets of only $17.2 billion. The $20.9 billion difference was to be repaid partially out of the future profits of OPG and Hydro One. The rest, called the “residual stranded debt’ was to be repaid by consumers directly via the DRC.

Here’s the problem. As of March 31, 2013, the Ontario government had collected $12.9 billion from the DRC, more than enough to eliminate the original “residual stranded debt”. The government claimed, however, that the debt had not been retired because in the meantime the OEFC had incurred other costs. The Auditor General of Ontario, in his 2011 Annual Report, took the position that the Ontario government should determine what the balance of the residual stranded debt was and provide periodic reports to the public on its progress in reducing the debt.

The Ontario Minister of Finance included a report in the 2012 Ontario Economic Outlook and the 2013 Budget on the residual stranded debt. The report revealed that the debt was $4.5 billion at March 31, 2012. The report gave no explanation or commitment as to when the debt would be fully paid and the DRC charge removed.

If one considers only the average rate of reduction from 2003/2004 to 2011/2012 of $925 million per year and projects this forward, it means that the residual stranded debt will not be paid off until the end of 2016/2017. By that time, the Ontario government would have collected about $15.3 billion to repay the original $7.8 billion. This assumes that no other unexplained charges get added to consumers’ bills.

Suddenly, the Energy Minister has discovered that the government does not need to go on collecting the DRC and so will delete it from consumers’ bills. What effect would that have?

That average ratepayer consuming 800 kWh per month would pay $5.60 per month in DRC. The loss of the OCEB would increase his bill by $13.00.  The net effect would be an increase of $7.40 per month. Add the HST and the additional cost increase becomes $8.11 per month, or $97.00 per year for the average ratepayer. If Mr. Chiarelli believes that consumers will be kept whole, he either does not understand mathematics or he assumes the average resident of Ontario will not understand it either.

So who gains and who loses? Ontario electricity ratepayers are today paying rates far higher than the government predicted when it instituted it green energy policy, even with the “Clean Energy Benefit”. Now, those rates will be higher still. Ontario taxpayers will no longer have to pay the subsidy, so they will save about $1.2 billion annually. However, who will end up paying the balance of the “residual stranded debt” that, up to now, the government has claimed is owed? Could there be some creative accounting done by the Ontario government to transfer the costs to ratepayers or taxpayers in some other way? We will just have to watch and see. You can be sure that the Liberal Party of Ontario will not be paying it.

Robert Lyman, Ottawa, February 3rd, 2014

The views expressed here are those of the author.

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