Hydro prices 'going up like a rocket'

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Hydro prices 'going up like a rocket'

Homeowners should be 'outraged,' expert says, as increases take hundreds from people's wallets

By Don Butler, The Ottawa Citizen August 22, 2010

Electricity prices in Ontario are "going up like a rocket," fuelled in part by the Ontario government's Green Energy Act, says a longtime observer of the province's energy scene.

"You are going to get screwed, and it's going to be painful," said Tom Adams, a Toronto-based consultant and a former executive director of Energy Probe.

"We're talking about hundreds of dollars a year out of your pocketbook that didn't need to happen. I'm livid about it. People should be outraged." Hydro Ottawa customers have already been hit with a double-digit increase this year, thanks to rate hikes approved May 1 by the Ontario Energy Board (OEB) and the imposition of the harmonized sales tax July 1.

A typical consumer in Ottawa who uses 800 kilowatt hours of electricity now pays $116.82 a month, including tax, according to the OEB.

That's 17.7 per cent more than the $99.35 a month the same residential customer was paying in April. Half the increase is due to higher rates and half because of the HST.

Adams warned that Ontarians should expect to pay at least $110 more a year by the end of 2011 for electricity. That translates into an additional nine-per-cent increase.

After that, rates will move steadily up for four or five years, he predicted.

The OEB has already received several applications for more hefty rate increases.

Hydro One, which operates most of the province's long-distance transmission lines, has asked for a hike of 15.7 per cent in 2011 and 9.8 per cent in 2012. If approved, the increases would apply to the transmission portion of electricity bills.

Ontario Power Generation, which produces about 70 per cent of Ontario's power, has asked for a 6.2-per-cent price increase effective next March. It scaled that back from 9.6 per cent after pressure from Energy Minister Brad Duguid.

Traditionally, Ontarians have paid less for power than Americans. But now, said Adams, "we are leaving them in our dust." He calculated that Ontario electricity rates passed the average U.S. price for the first time early this year, and are now nearly 15 per cent higher.

Adams assigned much of the blame for the rise in electricity rates to Ontario's Green Energy Act, which promotes the use of solar, wind and other alternative power sources.

The Feed-in Tariff (FIT) program, which locks in generous payments for 20 years for large green energy projects, is "just outrageous," Adams said.

The program's rates are far in excess of current electricity prices. The FIT program, for example, offers producers between 44.3 cents and 71.3 cents per kilowatt hour for solar power, and between 13.5 and 19 cents for wind power.

By contrast, the average weighted price for electricity so far this year is 4.02 cents per kilowatt hour.

Four FIT projects are already operating commercially, as are more than 700 small-scale projects under the companion microFIT program, which offers even richer incentives.

Adams said FIT projects will drive up electricity bills as they generate more and more of Ontario's power.

Because 20-year contracts have already been offered for FIT projects totalling more than 2,600 megawatts of power, Adams said, "it's now too late to avoid hundreds of dollars per year of increases." But Tom Carpenter, a research associate at Queen's University's Institute for Energy and the Environment, said claims that green energy will drive up the price of electricity are "simply false." Over the next two or three years, Carpenter said, the impact of FIT projects on electricity rates will be negligible, because the high-priced renewable energy will only represent a tiny fraction of the province's generating capacity.

As the program expands, he said, economies of scale will kick in and prices will come down sharply.

Another impending shift that could raise costs for residential customers is the advent of time-of-use pricing.

Unless they've signed electricity contracts, Ottawa residents now pay the Ontario Energy Board's regulated price for hydro. For the first 600 hours of consumption in summer -- and the first 1,000 hours in winter -- they pay 6.5 cents per kilowatt hour, and then 7.5 cents for each kilowatt hour beyond that.

But smart meters, now installed at virtually all Ottawa residences, make it possible to bill customers at three variable rates, depending on when they use electricity.

The current time-of-use rates are: n 5.3 cents per kilowatt hour between 9 p.m. and 7 a.m., n 8 cents from 7 a.m. to 11 a.m. and from 5 p.m. to 9 p.m., and n 9.9 cents from 11 a.m. to 5 p.m.
Hydro Ottawa plans to shift 4,750 customers to time-of-use billing in November, a further 30,000 early next year and the balance by June 2011. Those who've signed contracts with electricity suppliers won't be affected.

While time-of-use pricing should be cost-neutral overall, Adams said, some people will pay more and some will pay less, depending on their consumption patterns.

Pilot projects in Toronto found many small businesses saved money while residential customers, on average, paid about eight per cent more for their electricity.

Adams said "substantial increases" are also on the horizon for electrical transmission and distribution.

One driver is an OEB decision last December that allowed local utilities to increase their allowed rate of profit. The decision bumped Hydro Ottawa's allowed return on equity to 9.85 per cent from 8.57 per cent.

There's some public benefit to that because the City of Ottawa is Hydro Ottawa's sole owner, but "that is going to drive the distribution and transmission components of the bill up by more than 10 per cent just in and of itself," Adams said.

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