Hydro One Mess

How Ontario's electricity bills shot through the roof
December 5, 2016, 3:06pm

For people living under the poverty line in Ontario, electricity—once upon a time a basic necessity—has now become a luxury. According to a Fraser Institute report, 8 percent of Ontario households were classified as “energy poor” in 2013, meaning that they spent a substantially higher portion of their income on energy, to a point where it had the effect of lowering their consumption of other goods.

Single mother of four, Sherry-Selena Hucul fits in this category. She isn’t a fan of the term “poor”, but she admits to “scraping by under the poverty line.”

Nine years ago, she had luxuries like a clothes dryer, she wasn’t as frugal with her energy consumption and her monthly hydro bill was on average $80 a month, about 20 percent more than the average Ontario resident. These days, she hangs clothes to dry, turns off lights when they’re not needed, and stays up late to do laundry during off-peak times. But this past month, her Hydro One bill increased $66 to $309. The worst part? Her bill is going to remain high for the foreseeable future.

“There’s no money left over for extra-curricular activities for my children, or vacations, or movies or meals out. I buy second-hand and live frugally,” she told VICE Money.

Hucul and her kids live in a rural community South-West of Ottawa. Households beyond urban areas have suffered especially stiff sticker shock on the electricity front because of steeper delivery costs (which are set by the Ontario Energy Board).

Ontario premier Kathleen Wynne has accepted some blame for the current state of affairs, admitting actions leading to skyrocketing hydro rates were “a mistake.” She offered up a mea culpa at her party’s annual general meeting, saying high electricity prices were her “mistake”. Perhaps it was her conscience. Perhaps it’s a nod to her plummeting popularity. But soaring electricity costs are a huge deal, not only because it directly affects everyone in the province, but also because it takes a disproportionate toll on lower income households, like the Hucul family.

The Ontario Association of Food Banks (OAFB) says it’s seen an increase in clients who can’t keep up to their soaring hydro bills. “It’s making a direct and, sometimes devastating impact on the lives of Ontarians who are already struggling to make ends meet,” OAFB’s Executive Director told VICE Money.

Ontarians collectively have the highest residential power rates in Canada. According to July numbers from Statistics Canada’s Consumer Price Index, electricity prices jumped by 15.7 percent in the last year, about eight times faster than overall inflation. Since December 2015, Ontarians have seen two significant price hikes, adding approximately $100 to the average annual hydro bill.

So how did we get here? This mess is the result of a perfect storm of imperfect decisions. At best, short-sighted thinking. At worst, real incompetence.

For starters, Ontario signed some pretty generous renewable energy contracts which were part of its green energy strategy more than five years ago. A move to support renewables seemed like a good idea in theory. But auditor general Bonnie Lysyk said it was the equivalent of paying “double the market price for wind and three and a half times the market price for solar energy.” Lysyk’s report last year on electricity pricing in Ontario found that Ontarians were paying $9.2 billion more than necessary because of those renewable energy contracts. In fact, between 2006 and 2014, consumers and businesses in Ontario paid a cumulative $37 billion above the market price of electricity.

Adding insult to injury is this fact: Ontario is an energy-rich province. We produce more energy than we consume! This bounty should work to our advantage, but the provincial government is locked into pricey long-term contracts to buy more energy than we need. We’re actually selling some of that extra power to the US at a loss.

The controversial and continuing sale of 60 percent of Hydro One assets (also known as the privatization of Hydro One) that was intended to improve the dismal state of provincial coffers also gets its fair share of the blame. The initial idea behind selling Hydro One was to help pay for Kathleen Wynne’s $29 billion transit and transportation plan. But it didn’t add up. Hydro One was generating a good chunk of money—$750 million a year in profits—and its partial privatization has now created a strange hybrid of public-private ownership that lets Hydro One shareholders have an effective veto over key decisions. Ontario NDP leader Andrea Horwath called the Premier’s numbers fishy, correctly predicting that Ontarians would start paying more for electricity.

There are other factors too, notably the seemingly generous pay of the more than 7,600 Ontario Power Generation employees who made the latest Sunshine List—a list that tracks the total number of Ontario public servant employees making more than $100,000. The auditor general has cited hefty salaries, pensions and benefits among top executives as being partly to blame for climbing hydro prices. The list of reasons goes on, but these are the main culprits.

But there is some relief on the way. The Wynne government’s 8 percent hydro rebate kicks in on the first day of the New Year. In fact, Ontario’s Energy Ministry has promised to double the amount rebated to rural customers “to help cover costs of delivering electricity in those areas.” The ministry claims that combined with the HST rebate, these customers will now be receiving an additional $450 per year in bill support.

The OAFB says the rebate will save the average household about $130 a year. That’s a drop in the bucket when you consider the kinds of monthly bills so many families are seeing. Stewart said it’s leading to “impossible choices.”

She explained that she’d like to see the government lower its requirements for social assistance, and she’s calling for more affordable housing, because electricity is just one piece of the affordability puzzle for their customers.

“The majority of our clients spend more than 70 percent of their income on housing, leaving very little room for anything else,” she said.

The story of Sherry-Selena Hucul and her family tells us that when consumer budgets are stretched on a necessity like power, the ability to afford any kind of luxury dwindles dramatically. And the domino effect of that can be significant—less disposable income equates to a slump in spending, affecting sectors like retail, the second largest industry in Ontario. Maybe not right away, and maybe not every month. But it’s worth keeping an eye on, because while the Ontario government figures out its next steps on the hydro file, something’s got to give.