The Fair Hydro Act, 2017

The Fair Hydro Act, 2017 came into effect on June 1, 2017

The Fair Hydro Act, 2017 came into effect on June 1, 2017. The Act puts in place the framework for giving effect to the Fair Hydro Plan initiatives that the government has stated will: 

  • lower electricity bills by 25% on average for all residential customers and as many as half a million small businesses and farms;
  • hold increases to the rate of inflation for four years; 
  • provide  additional bill relief for residential customers in rural or remote areas of the province and for on-reserve First Nations residential customers; and
  • remove the cost of certain electricity-related relief programs from electricity bills, and instead fund those programs through taxes.

The Fair Hydro Act, 2017 will affect different parts of an electricity bill in different ways for different customers. For example, lowering electricity bills and holding increases to the rate of inflation will affect the part of the bill that covers the cost of the electricity that customers use in their homes or businesses. The additional bill relief for eligible rural, remote and on-reserve First Nations customers, on the other hand, will affect the part of their bills that covers the cost of delivering electricity to their homes. For an explanation of the different parts of an electricity bill, click here.

This page explains how the Fair Hydro Act, 2017 will affect different parts of electricity bills, starting July 1, 2017. It also explains that the Fair Hydro Act, 2017 is not a distribution or transmission rate freeze. Utilities may still apply to the Ontario Energy Board (OEB) for approval to change their distribution or transmission rates.  The OEB will continue to review and test any proposed rate changes through the same open, robust and inclusive process that we use today, and to make decisions that serve the public interest.

Electricity:

The “Electricity” line of your bill covers the cost of the electricity you use in your home or small business. If you buy your electricity from your utility, the electricity prices on this line of the bill are set by the OEB and are referred to as the Regulated Price Plan or RPP. For most customers, these are time-of-use prices.

A couple of things to keep in mind about the 25% fair adjustment:

  • The 8% rebate that came into effect on January 1, 2017 is part of the 25%. It is not in addition to the 25%. This rebate will continue to be funded through taxes.
  • The impact of removing the cost of the Ontario Electricity Support Program (OESP) and most of the cost of the Rural or Remote Electricity Rate Protection (RRRP) program from electricity bills is also part of the 25% reduction. The government has stated that it intends for these programs to be largely funded through taxes.

The Electricity line is where you will see most directly the impact of the reduction required to lower electricity bills by 25% on average for all residential customers and many small businesses and farms. The effect will be to reduce your total bill when compared to what it would have been without the Fair Hydro Act, 2017. The Electricity line is also where you will see the direct impact of holding increases to the rate of inflation. The Fair Hydro Act, 2017 refers to these changes under the heading “fair adjustments”. The fair adjustments are seen on the Electricity line of your bill because the Fair Hydro Act, 2017 is mainly about spreading the cost of Ontario’s investments in electricity supply over a longer period of time.

To protect consumers, the OEB took into account part of the reductions that had been announced as part of the Fair Hydro Plan when it set RPP electricity prices on May 1, 2017. So if you are buying your electricity from your utility, you already started seeing a bill reduction for electricity that you used since the beginning of May.  

Except where intended to be funded through taxes, the fair adjustments are intended to be funded through a refinancing of a portion of the costs of the Global Adjustment (GA). In later years, the cost of this refinancing will be recovered through adjustments to electricity bills called a Clean Energy Adjustment. The government currently expects that Clean Energy Adjustments will start to appear on electricity bills in the mid- to late-2020s. 

How the 25% fair adjustment works:

If you buy your electricity from your utility, you will see this fair adjustment in the form of lower electricity prices. On June 22, 2017, the OEB announced new lower RPP electricity prices.  The table below shows what the time-of-use (TOU) RPP prices would otherwise have been for RPP customers in the 2017 summer period (May 1 to October 31) and the new lower TOU prices set by the OEB to start on July 1, 2017:

TOU price periods TOU prices that would have been in effect during the 2017 summer period without any Fair Hydro Act, 2017 reductions TOU prices reflecting the Fair Hydro Act, 2017 reductions effective July 1, 2017
Off-Peak 9.1 ¢/kWh 6.5 ¢/kWh
Mid-Peak 13.3 ¢/kWh 9.5 ¢/kWh
On-Peak 18.5 ¢/kWh 13.2 ¢/kWh

 

You will pay these lower electricity prices for electricity that you use starting on July 1, 2017 and ending on April 30, 2018. At that time, the OEB will reset RPP prices in a way that holds increases to the rate of inflation in accordance with the Fair Hydro Act, 2017.  

When the OEB set the new RPP electricity prices, it followed the rules in the Fair Hydro Act, 2017 and in a new regulation.

  • Because distribution rates vary across the province and customers use different amounts of electricity, the Fair Hydro Act, 2017 establishes a “proxy” customer for the OEB to use when setting RPP electricity prices to give effect to the 25% fair adjustment.  In other words, the goal in calculating the new RPP electricity prices is to achieve that fair adjustment for the proxy customer. Under the Fair Hydro Act, 2017, the proxy customer is described as a residential customer of Toronto Hydro who uses 750 kWh of electricity a month, pays time-of-use RPP electricity prices and has the TOU consumption profile of a typical residential customer. The RPP prices calculated for this proxy customer will apply to all RPP customers. The the total bill impact for individual customers across the province can vary depending on the customer’s electricity usage and the utility that serves them.
  • If you have a contract with an energy retailer or have opted out of the RPP, you are also eligible for a fair adjustment starting July 1, 2017. Because you are not paying RPP prices, you will see the fair adjustment in a different way. It will be in the form of a credit that reduces the Global Adjustment (GA) charges that appear as a separate line item on your electricity bills. We sometimes refer to that credit as the “GA modifier”. The GA modifier will also benefit customers that are not eligible for the RPP but are eligible for the 8% rebate (for example, eligible institutional residential complexes). 
  • The GA modifier announced by the OEB on June 22, 2017 is $32.90/MWh (or about 3.3¢/kWh). This credit is designed to provide eligible customers that are not paying RPP prices with a level of benefit that corresponds with the benefit being provided to the proxy customer through the lower RPP prices that were also announced on June 22, 2017. 
  • When the OEB set the GA modifier, it followed the rules in the Fair Hydro Plan Act, 2017. The credit is based on the difference between what RPP prices would have been for the proxy customer without the Fair Hydro Act, 2017 and the new lower RPP prices announced by the OEB on June 22, 2017.  

The GA modifier will be in effect from July 1, 2017 to April 30, 2018. Utilities will apply the credit to your consumption in a billing period to reduce the GA charges that you would otherwise have paid during that period.   

If you live in a condo or apartment that has its own individual meter and your bill comes from a company other than your utility, you are a customer of a unit sub-meter provider. You are still eligible for a fair adjustment. In this case, your electricity charges will be reduced by your proportionate share of the fair adjustment that was applied to the electricity bill for the building as a whole.

How the rate of inflation fair adjustment works:

For May 1, 2018 to April 30, 2019, the OEB will set new RPP electricity prices and a new GA modifier in accordance with rules set out in a new regulation.

  • This next fair adjustment will be calculated using the same proxy customer that the OEB used when calculating RPP prices for July 1, 2017. Unless the rate of inflation is zero or negative, the new RPP prices will be set so that the proxy customer’s bill as it was on July 1, 2017 will increase by the rate of inflation. These new prices will apply to all RPP customers across Ontario.
  • The OEB will also set a new GA modifier for other eligible customers that are not paying RPP prices. This credit will continue to be designed to provide these customers with a level of benefit that corresponds with the benefit provided to the proxy customer under the new RPP prices that will take effect on May 1, 2018.

Delivery:

The “Delivery” line of your bill covers the cost of delivering electricity from generating stations across the province to your home or business through high voltage (transmission) and low voltage (distribution) lines.

For most consumers, the bulk of the impact of the Fair Hydro Act, 2017 will be on the Electricity line of their bills. As mentioned earlier, that is because the Fair Hydro Act, 2017 is mainly about spreading the cost of investments in Ontario’s electricity supply over a longer period of time. It is not about freezing distribution or transmission rates. Your utility needs to continue to maintain its existing wires, equipment and buildings and invest in new ones when needed so that it can keep providing you with the reliable supply of electricity and quality of service that you need for your home or business. Sometimes, that means that the distribution or transmission rates for your utility may need to go up to cover the cost of providing that service. So, some consumers in the province will see their delivery rates fluctuate from time to time over the coming years. But they will also see the fair adjustments that will take place through their electricity prices.

This means that the OEB’s work in reviewing rate applications is just as important under the Fair Hydro Act, 2017 as it has always been.

The proposed [Fair Hydro] Plan is not intended to limit the OEB’s mandate to set just and reasonable rates or payment amounts.  The government fully expects that the OEB will continue exercising its mandate in the public interest as it does today.
 - Letter from the Honourable Glenn Thibeault, Minister of Energy, to Rosemarie Leclair, Chair & CEO of the OEB, April 10, 2017

Utilities must still apply to the OEB if they want to change their rates. And it is up to the utility to prove to the OEB that any increases in their costs are justified and why. Before being allowed to raise rates, utilities must show that they are doing everything possible to be more efficient and keep improving. The OEB will continue to help control costs through its open, robust and inclusive process for reviewing and testing proposed distribution rate increases. And we have a very strong track record of doing just that:

  • Since 2009, the OEB has reviewed more than 130 major rate applications and reduced requested rate increases by an average of about 40 per cent.
  • Overall, the OEB has kept the annual growth in average distribution rates close to the rate of inflation during the same period.

How Delivery line changes work for eligible customers:

Under the Fair Hydro Act, 2017, two new programs will provide additional electricity bill relief for certain electricity customers in the province. Unlike the fair adjustments described above, no intended end date has been announced for these new programs. These two new programs are being funded through taxes.

Distribution Rate Protection (DRP):

  • About 800,000 consumers in the Province will benefit from a new program called the Distribution Rate Protection program or DRP. These are residential customers in Hydro One’s two mainly rural rate classes, as well as residential customers served by the following utilities: Algoma; Atikokan; Chapleau; InnPower; Lakeland (former Parry Sound Power service area); Northern Ontario Wires; and Sioux Lookout.
  • Under the DRP, the OEB will set a maximum monthly base distribution charge for eligible customers at least once a year using the method set out in a new regulation. This cap provides an immediate decrease in the base distribution charges paid by most eligible customers. The benefit that individual customers will see will vary depending on the utility that serves them.
  • On June 22, 2017, the OEB set the maximum monthly base distribution charge at $36.43. This charge will apply to electricity used starting on July 1, 2017 and will remain in effect until changed by the OEB.

First Nations On-reserve Delivery Credit:

  • On-reserve First Nations customers will receive a 100% credit to fully off-set the costs covered by the Delivery line (or the monthly service charge for utilities that do not have a separate Delivery line). The credit applies to a home located on or within a reserve that is served by a licensed utility if the account holder for the home is a member of a band within the meaning of the federal Indian Act. The credit applies to electricity used on and after July 1, 2017.
  • In 2016, the OEB engaged with First Nations and the utilities that serve them and submitted a report to the Minister of Energy on options for electricity rate assistance for on-reserve First Nations customers. Based on information we collected at the time, about 21,500 on-reserve residential customers are served by the following utilities: Algoma; Attawapiskat; Bluewater; Cat Lake; Cornwall; Fort Albany; Kashechewan; Hydro One; Hydro One Remote Communities; PUC (Sault Ste Marie); and Thunder Bay Hydro.

The OEB will continue to set distribution rates for the rate-regulated utilities mentioned above that are covered by these two programs, using the same rigorous process that it uses today. Like all utilities in the province, these utilities need to continue to maintain existing assets and invest in new ones when needed so that they can keep providing the reliable electricity supply and quality of service that their customers need. To the extent that these two programs mean that the cost of providing that service is not recovered from their customers, the difference is intended to be funded through taxes. So, the OEB still has an important role in ensuring that these utilities provide an appropriate level of service quality to their customers at a reasonable cost, and that they are doing everything possible to be more efficient and keep improving.

Regulatory Charges:

The “Regulatory Charges” line of your bill covers the cost of operating the wholesale electricity market and maintaining the reliability of the province’s high voltage power grid.  It also includes the cost of funding the Rural or Remote Electricity Rate Protection (RRRP) program, which helps to offset the higher cost of providing electricity service to customers in rural or remote areas of the province. Until recently, the Regulatory Charges line also included the cost of the Ontario Electricity Support Program (OESP), which provides eligible low-income customers with monthly on-bill credits to reduce their electricity bills.

The cost of the OESP and most of the cost of the RRRP program is being removed from your electricity bill and funded instead through taxes.

OESP:

  • From January 1, 2016 to April 30, 2017, all electricity customers in Ontario paid a charge of 0.11¢/kWh to fund the cost of the OESP. The OEB removed the OESP charge from customer bills as of May 1, 2017.
  • The OESP will continue to help eligible low-income customers. But the program will be funded through taxes once the existing funding runs out.

RRRP:

  • Electricity customers have been paying for the cost of the RRRP program for many years. At the time when the Fair Hydro Act, 2017 was passed, the RRRP charge was 0.21¢/kWh, much of which has been helping to off-set the cost of serving eligible customers in one of Hydro One’s two mainly rural rate classes.
  • On June 22, 2017, the OEB set a new RRRP charge of 0.03¢/kWh effective July 1, 2017. This lower RRRP charge means that electricity customers will pay a much smaller share of the cost of the RRRP program, with the rest (about 80%) being funded through taxes. 
  • The new RRRP charge will remain in effect until the end of 2017. For each subsequent year, the OEB will calculate a revised RRRP charge in accordance with the rules set out in a regulation. 

More information: