Ontario Energy Association calls for end to most hydro subsidies
Paper says most of the nearly $6 billion spent annually to cut electricity costs goes to customers who don't need help.
TORONTO — The association representing Ontario’s energy producers and distributors says the province should stop subsidizing the price of hydro and instead offer targeted help to customers who need it most.
The Ontario Energy Association makes the request of the Ontario government in a policy paper released April 29, saying most of the nearly $6 billion the province spends every year to cut electricity costs goes to customers who don’t need help paying their bills.
If the province continues with its current pace, it will spend $228 billion subsidizing hydro rates over the next 25 years, according to the association.
“Ontario is also now spending more on electricity subsidies than on its entire transportation system,” the report states.
The paper, which was developed in partnership with former federal spending watchdog Kevin Page, makes a series of recommendations, including phasing out subsidies to help improve price stability.
The hydro file has been a problem for successive governments, with former premier Kathleen Wynne’s Liberals introducing their Fair Hydro Plan in 2017 to address a public outcry over soaring hydro rates, particularly in rural areas.
The policy lowered time-of-use rates by 25% by removing from bills a portion of the global adjustment – a charge consumers paid for above-market rates to power producers.
Over the next decade, a new entity overseen by Ontario Power Generation was to pay that difference and take on debt to do so.
The energy association says looking back now, the impact experienced by some customers “cascaded into a broader reaction by voters that was vastly disproportionate” to the actual impact.
The association’s report says that despite years of relatively high increases, residential rates in Ontario remain among the lowest in North America.
Vince Brescia, the association’s president, said the group decided to publish the paper now because it believes the anger that surrounded electricity costs in 2017 has dissipated.
But he acknowledged that removing subsidies, thereby increasing costs for some customers, will not be a popular message.
“It may fall on deaf ears. It’s not a message a lot of people want to hear,” he said in an interview. “But most of people aren’t aware that we’re borrowing money to subsidize electricity, and when they find out that we’re doing that they really don’t like it. They think it’s a bad idea.”
The province will need the money it’s been spending on subsidies for other things coming out of the COVID-19 pandemic, Brescia added.
“We need them for other societal issues,” he said. “The point is, we don’t see them going to good use and we think somebody needs to say this.”
The report does recommend the government keep some subsidies in place for rural and low-income residents, while also continuing to remove the provincial portion of the sales tax from bills.
In March, Premier Doug Ford reaffirmed a key campaign promise he made during the 2018 election to slash costs by 12%.
“We’re trying to hold the line,” he said at the time. “We are going to keep our promise (and) reduce it by 12%. It’s a very, very complicated, complicated issue.”
Brescia said Ford should also reconsider making good on his promise to cut rates by heaping on any further subsidies.
“Who really cares about that commitment now … we’re in a post-pandemic world,” he said. “We need to really think about what our priorities are.”
During the pandemic, Ford’s government has cut hydro rates for residential consumers, farms and small businesses in response to a surge in people working from home – spending $162 million to subsidize the 45-day switch to off-peak rates.
In January, Ontario’s finance minister announced the province would spend $1.6 billion more than it had budgeted to “stabilize” hydro rates for customers in 2019-2020.
Rod Phillips blamed the previous Liberal government’s Fair Hydro Plan and green energy deals for creating an environment that has led to an increase in hydro rates.
“There’s no question that $1.6 billion of additional spending is troubling,” he said at the time. “This is the legacy of a failed Liberal energy strategy that provided energy people didn’t need at prices they couldn’t afford.”