Electricity pricing - overview

Ontario continues to make the investments it needs to ensure a clean, reliable, and modern electricity system. The government has worked hard to fix a system that was in need of repair. It also eliminated coal as a source of electricity generation and moved to cleaner forms of energy that will benefit the environment and the health of Ontarians. It also brought stability and transparency back to rates.

The OPO indicates the average unit cost of electricity service in the flat demand outlook will decrease by an average of 0.3% per year in real terms over the next 20 years. The OPO, in turn, indicates the average unit cost of electricity service increased by an average of 3.9% per year in real terms between 2006 and 2015.

Conservation and energy efficiency remain the most effective ways to manage electricity bills for all consumers. Shifting usage to off-peak periods can also reduce the strain on the electricity system and avoid or defer future system upgrades.

Residential electricity pricing
Most residential electricity consumers in the province pay time-of-use prices that are adjusted twice a year, in May and November. The prices are set by the Ontario Energy Board (OEB) using its Regulated Price Plan. To calculate Regulated Price Plan prices, the OEB forecasts the cost of supplying electricity to residential and small business consumers for the next 12 months. These forecasts include factors such as:

  • A forecast for natural gas prices;
  • Supply forecasts from each type of generation (nuclear, hydroelectric, natural gas, etc.);
  • A forecast for electricity consumption; and
  • The recovery of any variance between what was collected from ratepayers and what the costs were.

Time-of-use prices offer people lower rates for electricity consumed during off-peak periods. The intention is to encourage consumers to shift consumption away from periods of high demand when the cost to meet peak demand is higher. Residential consumers typically use about 65% of their electricity during off-peak hours, 17% in mid-peak hours and 18% in on-peak hours.

The cost of generating the electricity used by consumers can be found on the "Electricity" line of their bills. Residential consumers also pay Delivery and Regulatory Charges. Delivery Charges cover the costs of building and maintaining the transmission and distribution lines, towers and poles. Regulatory Charges pay for the costs of administering the provincially run electricity system and maintaining its reliability. They also cover the financial assistance given to consumers in rural and remote areas and to low-income residents helped by the Ontario Electricity Support Program.

Industrial electricity pricing
Industrial electricity consumers are billed differently than residential users. They pay the Hourly Ontario Energy Price, the Global Adjustment, Delivery and Wholesale Market Service Charges and the Debt Retirement Charge.

The Hourly Ontario Energy Price fluctuates in response to hour-to-hour changes in the province’s electricity market. The Global Adjustment ensures generators are able to fully recover costs. Together, they cover the cost of generating electricity.

The Wholesale Market Service Charge is similar to the Regulatory Charge paid by residential consumers. It pays for the costs of administering and maintaining the reliability of the provincially run electricity system. The Debt Retirement Charge contributes to servicing and paying down the stranded debt and liabilities left over from the old Ontario Hydro. The government eliminated the Debt Retirement Charge for residential users as of January 1, 2016, and the charge will be removed for commercial, industrial and all other users' bills by April 2018.

Electricity pricing - rate mitigation

The government has taken a number of actions to reduce ratepayer costs, including:

  • Renegotiating the Green Energy Investment Agreement to reduce contract costs by $3.7 billion;
  • Reducing fit and microfit prices for new solar projects since 2009 by 50-75%, and moving procurement of electricity from large renewable projects to a competitive Large Renewable Procurement process;
  • Deferring the construction of two new nuclear reactors at Darlington. This was in response to the supply and demand expectations of the 2013 LTEP, avoiding an estimated $15 billion in new construction costs.
  • Deciding on a later start for the refurbishments at the Bruce nuclear generating station. Work will begin in 2020 instead of 2016. This will make the best use of our existing nuclear fleet and save $1.7 billion compared to what was forecasted in the 2013 LTEP. The government also plans, pending regulatory approvals, to operate the Pickering nuclear station up to 2024, saving ratepayers as much as $600 million; and
  • Suspending the second round of the Large Renewable Procurement and the Energy from Waste Standard Offer Program. This is expected to save up to $3.8 billion in electricity system costs compared to the forecast in Ontario’s 2013 LTEP. This would save the typical residential electricity consumer an average of approximately $2.45 per month.

Mitigation of residential prices
Ontario is committed to helping households and businesses make their everyday life easier by managing their electricity costs. The government has introduced legislation to rebate, effective January 1, 2017, the equivalent of the provincial portion of the HST on residential, farm and small business bills. The average household would save about $130 annually. When combined with proposed enhancements to the Rural or Remote Rate Protection Program, eligible rural ratepayers would receive additional relief, saving a total of approximately $540 per year.

Ontario has additional programs to help consumers manage rising electricity prices, including:

  • The Ontario Electricity Support Program provides on-bill rebates for low-income electricity consumers who have applied and meet the eligibility requirements. These consumers may be able to decrease their monthly electricity costs on an ongoing basis by between $30 and $50. Customers with unique electricity needs may be eligible for a higher level of assistance.
  • The government also eliminated the Debt Retirement Charge for residential customers on January 1, 2016. This will save a typical residential electricity customer (who consumes 750 kWh per month) about $65 per year.
  • The Ontario Energy and Property Tax Credit provides relief for low to moderate-income individuals and families to assist with their property taxes and the sales tax they pay on energy. The credit provides up to $1,008 for non-seniors and $1,148 for seniors for the 2016 benefit year.
  • The Northern Ontario Energy Credit helps low to moderate-income individuals and families facing higher energy costs in northern Ontario. Qualifying individuals received up to $146 for the 2016 benefit year and families, including single parents, received up to $221.
  • The OEB has brought in the Low-Income Energy Assistance Program to provide emergency financial assistance for qualifying low-income consumers in critical need of support. The program also includes special customer service rules to help keep the power on for the most vulnerable energy customers.
  • The saveonenergy for Home Program provides rebates to help with the cost of buying and installing new heating and cooling equipment in the home. Rebates are also available for electricity-saving devices such as LEDs, Energystar certified ceiling fans, programmable thermostats for baseboards and advanced power bars.

Mitigation of industrial prices
For industry, Ontario developed a number of programs that reduce electricity costs and keep them competitive with other jurisdictions. They include:

  • The Industrial Conservation Initiative encourages eligible industrial consumers to save money by reducing electricity consumption during peak hours. Current participants reduce their electricity bills by an average of one-third.
  • The Northern Industrial Electricity Rate Program provides electricity price rebates of 2 cents per kilowatt hour for large northern industrial consumers that are eligible. This represents a reduction of about 25% in their electricity prices.
  • The saveonenergy for Business Program offers financial incentives to reduce the costs of energy audits and upgrading to energy-efficiency lighting and equipment.
  • The Industrial Accelerator Program provides financial incentives to make transmission-connected companies more competitive by helping them invest in important energy conservation projects.
  • The Demand Response Auction offers incentives to businesses that agree to reduce their electricity consumption when called upon. This lowers the costs of the electricity system and enhances its reliability.

Larger businesses would see relief through a proposed expansion of the Industrial Conservation Initiative, which encourages large energy users to reduce their electricity use during peak periods. This improves the system’s reliability, while lowering total costs. If proposed regulatory changes are approved, the Industrial Conservation Initiative would be expanded to include the agricultural sector and smaller participants in the commercial and institutional sectors. More than 300 businesses already use the Industrial Conservation Initiative to save electricity, and these proposed changes would make 1,000 businesses eligible for reductions. On average, the Industrial Conservation Initiative reduced participants' bills by one-third. It also cut peak electricity demand by an estimated 1,000 MW in 2015.

Fuels pricing - overview

The wholesale prices for fuels in Ontario, such as gasoline, diesel, propane and natural gas, are determined in an integrated and competitive North American market. That means Ontario fuel buyers must pay the market price to attract supply from outside the province.

Ontario imports virtually all of its crude oil from Western Canada. As such, Ontario refineries must compete with other users by paying market prices for crude oil. Since crude oil is refined to produce gasoline, changes in crude oil prices affect the price of gasoline. Gasoline prices are also affected by supply and demand in North America, local market conditions and government taxes.

The Ministry of Energy monitors the pricing and supply of gasoline and diesel oil on an ongoing basis, and publishes the information in the Ontario Energy Report on the Ministry’s website. Between April and June of this year, the price of gasoline averaged $1.04 a litre and diesel fuel averaged $0.93 a litre. This is a significant reduction from the prices seen in the second quarter of 2014, about 25% less for gasoline and 30% less for diesel fuel. The drop is largely attributable to the decline in crude oil prices.

In setting the price of natural gas, the OEB uses forecasts of market prices over the next 12 months to set the price charged by its regulated utilities. Natural gas distributors only sell natural gas at cost. They earn their income by charging regulated amounts for building and maintaining the pipes and equipment required to deliver the natural gas to their customers.

According to the Ontario Energy Report, Enbridge Gas Distribution charged 11.38 cents per cubic metre for the natural gas it delivered between April and June of 2016. The other major distributor in the province, Union Gas, charged 9.21 cents per cubic metre. Comparable prices in the second quarter of 2014 were a lot higher because of the abnormally cold winter of 2013-2014.

Fuels pricing - rate mitigation

For residential users of natural gas, Enbridge Gas Distribution and Union Gas offer a wide range of programs to help with consumers' energy costs.

  • The Enbridge Gas Distribution Home Energy Conservation Program and the Union Gas Home Reno Rebate Program offer rebates for energy audits and energy efficient improvements such as new furnaces, new water heaters and insulation upgrades. Enbridge Gas Distribution also provides rebates for programmable thermostats.
  • The Enbridge Gas Distribution Home Winterproofing Program is free to its eligible low-income customers. Enbridge Gas Distribution will pay the cost of energy efficiency improvements such as insulation and draft proofing measures. The program can lower energy bills by cutting energy use by 30%.
  • The Union Gas Home Weatherization Program is free to its eligible low-income customers. Participants will receive a free energy audit to determine what improvements can be made to their home. Then, if needed, Union Gas will install insulation in the homes' basement, walls and attic. The utility may also install a programmable thermostat, an energy-efficient shower head and other equipment that lowers heating and hot water costs.

The province is investing $100 million from the Green Investment Fund to enhance the existing home energy audits and retrofits programs offered by Enbridge Gas Distribution and Union Gas to be available across the province to homeowners who heat their homes with natural gas and other fuels, including oil, propane or wood. The Green Investment Fund is part of the province’s Climate Change Strategy.

  • Homeowners who heat their homes with natural gas, oil, propane or wood will be able to qualify for rebates towards energy audits and home energy efficiency retrofits. Examples of retrofit rebates include replacing furnaces and water heaters and upgrading insulation. These measures will conserve energy, save consumers money on their energy bills, and reduce greenhouse gases.
  • This investment is expected to enable audits and retrofits for approximately 37,000 homes and save approximately 1.6 Mt of greenhouse gases, contributing to the province’s targets for reducing GHG emissions.