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Report on Business Rate hikes by power utilities complicate Doug Ford’s promise to slash Ontario hydro prices by 12 per cent

Several local utilities in Ontario raised electricity prices on Jan. 1, posing a new challenge to the Ford government’s already daunting promise to slash prices by 12 per cent.

With approval from the provincial regulator, Toronto Hydro raised its prices by 5.4 per cent, mostly to cover a $2-billion capital program to renew its aging infrastructure. A number of other local distribution companies – which are largely municipally owned – increased rates by less than 2 per cent to cover their higher distribution costs and a small hike in transmission charges from Hydro One Ltd.

However, even a small hike in prices runs counter to Premier Doug Ford’s pledge – made during the election campaign last spring and repeated once he took office – to reduce electricity bills by 12 per cent. Such a price cut would be in addition to the short-term savings generated by the former Liberal government in 2017 when it cut rates by an average of 25 per cent by extending payments for new generation and transmission assets. That move was widely criticized for financing current rate cuts with future interest costs.

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Mr. Ford made Ontario’s high electricity costs a key theme in his campaign, cancelling some Liberal renewable energy contracts and targeting the $6-million compensation package for Hydro One’s chief executive, who resigned after the election and has yet to be replaced. However, neither the cancellation of renewable energy contracts, nor the Hydro One resignation has put a dent in hydro costs.

Energy Minister Greg Rickford said the government is working to achieve promised rate cuts.

“The government remains committed to cleaning up the hydro mess left by the previous government and cutting electricity bills by 12 per cent,” Sydney Stonier, Mr. Rickford’s press secretary, said in an e-mail. For now, Ontario will hold rate increases to the rate of inflation by shifting debt charges for old assets onto the government’s books as recommended by the Auditor General, she said.

Last week, the Premier’s office announced it would appoint Mr. Ford’s principal secretary, Jenni Byrne, to fill a vacant seat on the Ontario Energy Board, which regulates rate-setting in the province and will be a key agency used to exert pressure on the industry to lower its costs and pass savings along to consumers. The board oversees all rate applications, but the government can also issue directives to the regulator that would affect its rulings.

The appointment prompted Bank of Nova Scotia analyst Robert Hope to downgrade his expectation for Hydro One shares, saying there will be political pressure to reduce the company’s regulated rate of return to 8 per cent from 9 per cent.

The government has served notice it expects all regulated companies whose costs are passed on to consumers to contribute to the rate reductions. They include the power generators; Hydro One, which owns the big transmission wires; and the local utilities, also known as local distribution companies (LDCs), that distribute power to customers. Last fall, the regulator froze the generation portion of the rate, but some LDCs had approval to pass on cost increases while others have requests for rate hikes pending with the board.

Hydro One, which serves customers directly in some areas of the province, has asked for a retroactive 1.8-per-cent increase for 2018 and another 1.8 per cent for 2019 in combined transmission and distribution charges. That request is still pending with the energy board. However, its rural and suburban customers had their distribution costs capped by the former Liberal government, and so the increase would only hit a small portion of its customers.

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Toronto Hydro, which serves 770,000 customers in the city, had by far the biggest hike, but a spokeswoman said customers will receive a rate reduction in May as part of the government’s commitment to keeping overall increases at the rate of inflation. Toronto Hydro is heading into the final year of a five-year, $2-billion capital program and expects to embark on a similar investment program over the following five years, spokeswoman Tori Gass said Monday.

NDP energy critic Peter Tabuns said the government appears to have no strategy for achieving the promised rate reductions beyond shifting costs on to taxpayers, putting further pressure on the province’s ballooning deficit. Meanwhile, any effort to slash revenue of the local utilities will impair their ability to maintain the system and rob their municipal owners of much-needed revenues, he said.

Editor’s note: (Jan. 17, 2019) An article published January 14 said Ontario Premier pledged in last year’s election campaign to cut hydro rates by January 1, 2019. The promise contained no specific deadline for the rate cuts.
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