Ontario Hydro Rate Reductions Causing Controversy

It's no secret that Ontario's astronomically high hydro rates are an incredible hardship for many residents whose budgets are already tight due to high housing costs and near-stagnant wages.

For that reason, the government is moving towards addressing the significant issue—but some say the solution will only create higher costs down the line.

According to a recent Canadian Press article, the government's plan to reduce electricty rates by 24 per cent this summer will end up costing ratepayers up to $1.4 billion in extra interest payments.

While those extra payments won't be paid immediately, but they will have to be paid at some point—something that future ratepayers probably won't enjoy.

On the subject of cutting rates as soon as possible, Wynne released a lengthy and apologetic statement that you can read in its entirety here.

While the statement is worth a read, here are some crucial passages.

“We’re here today to talk about the high cost of electricity in Ontario: how it got to this point, how it must be fixed and how exactly we’re going to put that fix in place. For too long, governments — my own included — have made mistakes in the way we’ve structured Ontario’s electricity system. That has resulted in rates that are unfairly high. It’s time to fix those mistakes, in ways that work for today, and for the future.

Last September, I committed to reduce electricity bills by 8% across the board, equivalent to the provincial portion of HST. But it hasn’t been enough. It’s made too small a dent. For that reason, we are taking further action. We are tripling the size of the cut we’re making to people’s hydro bills from 8% to an average of 25%. Electricity rates in Ontario will come down significantly, they’re going to stay down and everyone will benefit.

Let me emphasize that last point — the cut will go to all households that pay for electricity. There will be no asterisks, no loopholes and no exceptions. Our plan will lower electricity bills by 25% on average for all residential consumers in the province. And for those living in rural communities or with low incomes, the break will be even greater.

In addition, this rate relief is designed to last. After we bring bills down by 25% we will hold them there with rates rising only with inflation — or roughly 2% — for at least four years. This is the largest cut to electricity rates in the history of Ontario. In dollars and cents, the exact benefit will vary by household. But if, for example, your monthly bill adds up to $135, this cut will drop it down to around $101.”

While that's all promising, critics say the issue at hand are the increased payments future generations will incur. While the province fully acknowledges that the piper will be paid at some point, they insist the new system will be fairer over all.

“…But the way we financed those investments was a mistake. We asked one generation — today’s generation — to unfairly shoulder the burden of nearly all of those costs. We had to play catch-up and we asked today’s ratepayers to cover nearly the whole tab. Think of it in terms of a mortgage. We needed to rebuild the system and so we went to the bank for that money. But the terms that were set weren’t fair — particularly the amortization. Instead of paying off the mortgage over 30 years, we agreed to a term of 20. That means that we pay things down faster. But the monthly mortgage payments — or, in this case, your hydro bills — are higher. And it doesn’t really make sense since that house — or in this case the electricity system — is an asset that will continue to benefit people far past that contract term.

In effect, this generation has been subsidizing not just those who came before, but those who will come next. That’s not right — and it has been notably unfair on today’s hydro users. So we’re fixing that. We’re refinancing the mortgage and setting a new term that stretches over a longer period. Over time, it will cost a bit more. And it will take longer to pay off. But it is fairer — because it doesn’t ask this generation of hydro customers alone to pay the freight for everyone before and after. The burden will now be shared more evenly and more appropriately. That’s the first and most important fix we’re putting in place."

While the solution certainly has its drawbacks, it's easy to see why the government—especially with an election looming—would want to tackle astronomical hydro prices now. For years, hydro bills have been top of mind for tapped out consumers who are paying double what they were just 10 years ago.

As for why rates have risen astronomically, the Wynne Liberals said that every government—theirs included—contributed to the crisis by letting the system fall into disrepair before eventually passing all the costs of maintenance, repair and constructing new systems down to residents all at once.

“In effect, this generation has been subsidizing not just those who came before, but those who will come next. That’s not right — and it has been notably unfair on today’s hydro users. So we’re fixing that. We’re refinancing the mortgage and setting a new term that stretches over a longer period. Over time, it will cost a bit more. And it will take longer to pay off. But it is fairer — because it doesn’t ask this generation of hydro customers alone to pay the freight for everyone before and after. The burden will now be shared more evenly and more appropriately. That’s the first and most important fix we’re putting in place."

So, what do you think, Mississauga? Is this a reasonable proposal or a bandaid solution?

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