The Ontario government under its populist Premier Doug Ford has announced a set of policy and legal changes that will restructure key agencies and put its stamp on the electricity sector for years to come. On March 21 the provincial government introduced new legislation, issued two directives, and announced a set of policies that impact conservation programs, funding for electricity rate reductions, the regulation of the energy sector and more.
Ontario’s power generators welcomed the proposals to reform the energy sector. APPrO said it supports in particular the improvements to the regulatory structure sought by the government, noting they were consistent with the recommendations of the Ontario Energy Board Modernization Panel Final Report.
“APPrO supports the need for independent decision‐making at regulatory tribunals, and the use of best‐practices in adjudication to ensure Ontario’s regulatory system remains responsive to the changes in the economic, social and technical conditions surrounding the electricity system,” said APPrO President and CEO David Butters. He noted that other changes the government is considering to provide further rate relief and transparency to customers across the province are also important initiatives to maintain public confidence in Ontario’s electricity system. “As the people who generate the electricity that keeps the lights on for Ontarians, we are committed to playing a constructive role in building and maintaining a reliable, cost‐efficient system for the benefit of us all,” Mr. Butters said.
One of the more prominent changes announced by the government was the winding down of the Fair Hydro Plan instituted by the previous Liberal government in 2017, and replacing it with a system for pegging residential rate increases to the rate of inflation. If the proposed changes are approved, increases to the average residential electricity bill will be held to the rate of inflation starting May 1, 2019. The Fair Hydro Plan effectively borrowed money using the value of long term electricity assets, to reduce current electricity rates without relying on the tax base. The Ford government intends to continue subsidizing electricity rates at roughly the same rate, but will do so with direct transfers from the tax base. The total cost of borrowing will be less under the new system because the money needed to subsidize electricity rates will be part of overall government borrowing. Moreover the government subsidies will appear in their own line item on electricity bills. Although direct subsidies from the tax base might not have been politically feasible for the last decade or two, circumstances have clearly changed. A number of stakeholders praised the plan as a positive step in the direction of transparency and cost reduction. Other stakeholders had more mixed reviews, some noting that changes to the province’s conservation programs and budgets may affect the progress of efficiency investments.
The proposed changes to the Ontario Energy Board were informed by the “OEB Modernization Report,” released a few days before the legislation. See the separate article on page 6 by George Vegh, “The OEB Modernization Report,” for observations and comments on the report.
In addition, the government announced that it would be “Consulting with Ontario’s industrial sector on electricity pricing to inform new policies to manage electricity costs and help Ontario businesses grow and compete.” Reforms to the ICI program could be one potential outcome.
In terms of reforming the regulatory system, the government’s March 21 announcement noted that the new framework would allow the regulator greater separation of its administrative and adjudicative functions. The government will be reducing the OEB’s role in consumer education and requiring the OEB to report annually on its efforts to simplify regulations for the energy sector.
Perhaps most contentious is the government’s proposal to “upload” responsibility for electricity conservation. Where a good part of this responsibility has resided for years with local power distributors, supported by central agencies, it is now expected that the primary responsibility for conservation will be held by the IESO, and a smaller budget will be allocated for this work. This change will likely reduce the cost of the conservation programs and make it easier for the provincial government to exercise control over them. At the same time, the costs of conservation programs are being moved from electricity rates to the tax base. Some commentators criticize this move because it will reduce electricity prices, which weakens the natural economic incentives to take part in all manner of conservation programs. It also makes the programs vulnerable to cuts as part of future government belt tightening initiatives. The Electricity Distributors Association said, “Conservation program cuts will mean less value for electricity customers.” It stressed that, “local hydro utilities have saved over 5.8 billion kWh,” and that, “Ontario LDCs have achieved these results at the lowest cost on record, well below previous centrally delivered programs.”
APPrO expects to publish further information on the programs, policies and legislation in coming issues of IPPSO FACTO.