In 2022 there are so many electricity subsidies in Ontario, it is a bit overwhelming. This article will look at 16 of them, summarizing what they offer, who is eligible, what agency administers them, how much they cost and where the funding comes from.
Scams
Unfortunately, there are also various scams that claim to be subsidies but in reality, are either marketing schemes or attempts to steal personal information. These schemes are circulating on social media using terms similar to legitimate subsidies and graphics which appear like official agencies. Always check with the Ontario Energy Board and your Local Distribution Company before providing personal information or inviting anyone to your home.
Legitimate Subsidies
Electricity subsidies have been around in various forms since Sir Adam Beck championed public power through the creation of the Hydro-Electric Power Commission of Ontario over a century ago. In the early days of the Commission, the Ontario government was subsidizing half the cost of constructing rural distribution. The spending was considered essential for the economic development of the province.
Subsidies are a government response to public pressure or lobbying used to reduce costs for specific interest groups or as a mechanism for economic stimulation. A rate freeze may also be a form of subsidy as is the case with Ontario’s current inflation rate cap. Increases are being held to the rate of inflation by using funds from the Ontario Electricity Rebate to cap consumer bills.
Subsidies may be temporary to manage a transient condition (i.e. Covid-19) or perpetual as in low density and remote communities.
Subsidies and programs for electricity consumers change frequently. Check with your Local Distribution Company, the Ontario Energy Board (OEB), the Independent Electricity System Operator (IESO), and the Ontario Government for up-to-date programs and their terms. Subsidies are rate class and customer income specific.
Making sense of subsidies
Subsidies are enabled through legislation or Government directive. While they may be administered by a different agency, it is at the Government’s direction. Subsidies may also be referred to as programs.
Subsidies may take the form of rebates, discounts, or billing credits. Energy programs that offer merchandise or services may also be considered as a type of subsidy for consumers. Some programs must be applied for or are determined as part of the annual income-tax process. Some are cumulative and others are exclusive. In the case of the Ontario Electricity Rebate (OER), subsidies are calculated and applied automatically to the bill by Local Distribution Companies. If you receive the OER, other subsidies may be scaled back.
Content
The article content is organized under the major headings:
- What has changed in the last decade?
- What programs and subsidies exist for electricity consumers in 2022?
- An A to Z look at programs and subsidies (January 2022)
- How we pay for subsidies
- Ontario Electricity Rebate winter 2022 example case – residential
- The takeaway
What has changed in the last decade?
The changes in electricity billing practice over the past decade are painfully difficult to follow. One of the most significant changes to subsidies is how we wind up paying for them. Subsidies have moved from the electricity bill to provincial funding. According to a 2019 IESO audit, provincially-funded subsidies paid for 21% of the provincial electricity infrastructure annual cost. Following the December 2020 announcement of the Global Adjustment Subsidy as part of the Ontario budget, the cost associated with provincially-funded subsidies will increase further.
Consumers have had the Ontario Clean Energy Benefit, the Industrial Conservation Initiative, the provincial tax rebate, the Fair Hydro Plan, the Ontario Electricity Rebate, and the Global Adjustment subsidy to name a few (there are plenty more).
Billing reductions have been as high as 31% after-tax for residential consumers during the Fair Hydro Plan (FHP) introduced in 2017 by the Fair Hydro Act. While in place, the FHP would hold annual billing increases of an average or ‘proxy customer’ to the rate of inflation. The discounts under the Fair Hydro Plan were hidden in the commodity cost of electricity as a ‘Global Adjustment Modifier and the average consumer had no insight into what the discount actually was.
The ‘proxy customer’ is defined by the Ontario Energy Board as being an average customer whose electricity consumption is 700 kWh of energy per month
On November 1, 2019 the Fair Hydro Act was repealed and superseded by revisions to the Ontario Rebate for Electricity Consumers Act of 2016. This resulted in changes to the presentation of energy pricing on customer bills to reflect the actual electricity cost. The hidden Global Adjustment Modifier was gone but the discount rolled into the Ontario Electricity Rebate. The changes were part of a claim to make consumers aware of the true cost of electricity.
The customer bill amount did not increase on November 1, 2019 as the energy price increase presented on the consumer bill was offset by the Ontario Electricity Rebate subsidy.
The hidden subsidy provided by the Fair Hydro Act became part of the Ontario Electricity Rebate and clearly shown the amount as a separate line item. Consumers were provided with a 31.8% discount on the energy portion of their bill . .
The new billing presentation created shock and confusion for many consumers, as the energy pricing jumped by 50%. The net billing, however, remained unchanged. Any billing increase to the proxy customer in November 2019 was the result of the existing regulatory rate increase process and capped to the rate of inflation.
The Covid-19 pandemic impacted electricity pricing from March of 2020 until October 21, 2020. The government introduced the COVID-19 Energy Assistance Program and COVID-19 Energy Assistance Program for Small Business in the summer of 2020. The Covid-19 programs provided $40 million in financial aid to qualified customers and ran until October 2021 when the funding was depleted.
On January 1, 2021 Class A and Class B customers received a discount on Global Adjustment charges of an estimated 14% and 16% respectively to offset the cost of non-hydro renewable generation contracts. Regulated Price Plan customers would not see a bill reduction as the Ontario Electricity Rebate changed from 33% to 21% at the same time.
The amount of the new Global Adjustment subsidy is, once again, hidden from ratepayers. The electricity rate on the standard bill does not reflect its true cost. So much for transparency.
The amount of financial assistance from the Ontario Electricity Rebate and the formula for its calculation changed several times since 2016 before landing where it is in 2022. The financial assistance is now at 17% of the base invoice amount of the bill – before tax – as defined by Ontario Regulation 363/16, Part I, Section 2 for Electricity Vendors. Other terms apply to a small number of rate-assisted customers and those serviced by Remote Unlicensed Distributors.
Energy rates were reduced due to Covid-19 once again as of January 18, 2022. Off-peak rates of 8.2 cents per kWh were applied for a period of 21 days. The proxy customer would see a bill reduction of approximately $8.
Discounts for various parts of the electricity bill have come and gone, creating much confusion, however, there are still plenty of opportunities for consumers to reduce their bills.
So where are we now?
What programs and subsidies exist for electricity consumers in 2022?
The short answer is that most consumers have a pre-tax bill reduction of somewhere between 14% and 17%. Rural and remote customers and those who qualify for distribution rate protection will see additional discounts through rebates or capped delivery charges. Maybe that’s all you need to know, but bear in mind that the exact subsidy will be different for every ratepayer depending on rate class, total consumption and program eligibility…
Residential
Residential service ratepayers form the majority of consumers in Ontario and are part of the Regulated Price Plan. This class of consumer is currently receiving a 17% subsidy on the total of their bill (before tax) as announced by the Government through the Ontario Electricity Rebate (OER) or the 2020 Global Adjustment subsidy. Qualified consumers receive it automatically as Local Distribution Companies calculate and present the amount as a separate line item on the bill.
Commercial/Industrial
Commercial/industrial consumer subsidies were lost in the shuffle when the Fair Hydro Act was revoked, however, they have been re-introduced with the 2020 Global Adjustment subsidy. These consumers receive a discount on the Global Adjustment cost attributed to non-hydro renewable generation. According to a report by the Financial Accountability Office of Ontario, this provides a 14% reduction in a typical industrial ratepayer’s bill.
Rural
Rural consumers may be eligible to receive rate subsidies in addition to the OER under at least two separate programs. The Rural or Remote Rate Protection (RRRP) program provides a rebate and the Distribution Rate Protection (DRP) plan sets a maximum delivery charge to qualified customers. The RRRP provides a monthly rebate of approximately $60 and the DRP limits the base distribution charge to approximately $37 per month. These customers will receive a higher than average total subsidy.
Large Industrial
Large industrial customers can achieve approximately 30% savings on the energy portion of their bill through the Industrial Conservation Initiative (ICI). How that translates to the total bill depends on too many variables to be specific.
Consumers may need to apply for subsidies and meet qualifications based on income or other specified criteria
There are other important programs available which are summarized in the following section. First Nations and indigenous communities also have programs available.
An A to Z look at programs and subsidies (January 2022)
Here is a list of 16 subsidies and programs which I am aware of with links to the administering agency:
Emergency subsidies
The Low-income Energy Assistance Program (LEAP)
LEAP is an emergency support program for income-eligible consumers that cannot pay their energy bills (electricity or natural gas). The program is offered through Local Distribution Companies and paid through provincial revenues.
Note that Covid-19 relief programs have been discontinued, however, the electricity rate is being reduced to the off-peak value of 8.2 per kWh from January 18, 2022, for 21 days. This will reduce the average residential consumer’s bill by approximately $8.
Other subsidies and programs
The Distribution Rate Protection (DRP) program
Reference: Legislation O. Reg 198/17: DISTRIBUTION RATE-PROTECTED RESIDENTIAL CONSUMERS
A consumer who has a residential-rate classification with any of the following distributors* cannot be charged more for base distribution service than a rate as determined by the OEB:
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- Atikokan Hydro Inc.
- InnPower Corporation.
- Chapleau Public Utilities Corporation.
- Sioux Lookout Hydro Inc.
- Northern Ontario Wires Inc.
- Algoma Power Inc. with the R1 residential-rate classification
- Hydro One Networks R1 (year-round medium-density residential) or R2 (year-round low-density residential) residential-rate classification
- Lakeland Power Distribution Ltd. residential-rate classification, within the former Parry Sound Power service area
*additional terms may apply – check with the LDC
According to the Ontario Energy Board Decision and Order EB-2021-0189, the maximum basic charge is set at $36.86 per month. Local Distribution Companies are required, by legislation, to apply this subsidy to qualified consumers. Consumers should not need to apply for this benefit, however, it would be best to check with your LDC.
Based on a 2019 audit of the Independent Electricity System Operator (IESO) the program cost $253 million
This subsidy was once paid for by ratepayers as part of the Regulatory charge on the bill, however, it was moved to provincial funding in July 2017 as part of the OEB Act (79.3).
The Energy Affordability Program (EAP)
The EAP provides help for income-eligible consumers to lower their monthly electricity costs and to increase their home comfort. Assistance is through various energy-saving products and services free of charge. This program is delivered by the Independent Electricity System Operator (IESO) and funded by the province.
The First Nations Conservation Program
The First Nations Conservation Program provides free energy-efficient upgrades to homes in participating communities to help save energy and make homes more comfortable. This program is delivered by the Independent Electricity System Operator (IESO) and funded by the province.
The Indigenous Community Energy Plan Program (ICEP)
The ICEP supports First Nation and Métis communities and organizations to develop and maintain a community energy plan to improve energy security. This program is delivered by the Independent Electricity System Operator (IESO) and funded by the government.
The Northern Industrial Electricity Rate (NIER) Program
Large industrial electricity consumers in Northern Ontario are provided with rate subsidies. The program is provided by the Ministry of Northern Development, Mines, Natural Resources and Forestry and funded by the province.
The Northern Ontario Energy Credit (NOEC)
The NOEC is intended to assist income-qualified Northern Ontario residents with the higher energy costs associated with living in the north. It is part of the Ontario trillium benefit (OTB) administered by the CRA and is determined as part of the annual income tax filing process (5006-TG ON-BEN Application).
The Ontario Electricity Support Program (OESP)
The OESP provides a supplement for low-income consumers with credits applied directly on your bill of $35 to $75 per month. Additional credits of $52 to $113 per month are provided under the criteria specified by the program. This program is made available through the Ontario Energy Board and funded by the province.
The Ontario Energy and Property Tax Credit (OEPTC)
The OEPTC is a two-part non-taxable credit provided by the Ontario Government and administered by the Canada Revenue Agency (CRA). The energy portion of the tax credit is intended to provide assistance to consumers by refunding all or part of the sales tax. It is part of the Ontario trillium benefit (OTB) and is determined as part of the annual income tax filing process (5006-TG ON-BEN Application).
The Ontario Electricity Rebate (OER)
Reference: Legislation Ontario Rebate for Electricity Consumers Act, 2016, S.O. 2016, c. 19
The Ontario Rebate for Electricity Consumers Act, 2016 (OREC Act) establishes a framework under which consumers with eligible accounts are entitled to receive financial assistance in the form of a 17% rebate off of the pre-tax cost of their electricity. The rebate is automatically applied to the bill by the Local Distribution Company and appears as a separate line item. It is funded by the province. The OER is the largest consumer subsidy and will likely be in the order of $4 billion (author’s estimate) in 2021.
The Ontario trillium benefit (OTB)
The Ontario Trillium Benefit may be applicable to more than just rural electricity consumers as it is income-dependent. It provides an energy rebate to qualified consumers as determined by the Canada Revenue Agency through the annual income tax process (5006-TG ON-BEN Application). The OTB is a suite of benefits that include the Ontario energy and property tax credit, the Northern Ontario energy credit, and the Ontario sales tax credit.
Rural or Remote Rate Protection (RRRP)
Reference: Legislation O. Reg. 442/01: RURAL OR REMOTE ELECTRICITY RATE PROTECTION
Rural or remote customers that qualify will receive $60.50 per month (O. Reg. 192/17: RURAL OR REMOTE ELECTRICITY RATE PROTECTION). Information regarding who qualifies is included in the legislation, however, revisions to the law and changes within the industry have made it impossible for an average person to interpret. Inquiries regarding the RRRP should be directed to your Local Distribution Company and the Ontario Energy Board. This subsidy is paid for by the province. The program’s administrative costs are recovered through ratepayers as part of the Regulatory charge on the bill.
Based on a 2019 audit of the Independent Electricity System Operator (IESO) the program paid out $293 million which works out to approximately 319 thousand customers receiving the benefit.
Small business financial incentive programs for saving energy
The Independent Electricity System Operator (IESO) provides incentives towards eligible energy-efficient lighting upgrades and retrofits that will save energy. Programs also provide incentives to hire an energy manager or complete an energy assessment. This program is funded by the province.
Commercial and industrial electricity consumers
Commercial and industrial electricity customers use more electricity at different rates than residential and small business electricity consumers. This group of customer subsidies has changed in 2021 as a result of Covid-19 relief and Global Adjustment (GA) allocation.
The 2020 Global Adjustment Rebate for industrial and commercial consumers
The Ontario government announced in their 2020 budget that they would reduce electricity costs for industrial and large commercial consumers by shifting the Global Adjustment cost associated with non-hydro renewable generation to the province. The rebate targets rate classes that were not covered by the Ontario Electricity Rebate or the Industrial Conservation Initiative. The government claims the net result will be a savings of 14 to 16% on their electricity bill and funded by the province.
The Global Adjustment rebate will gradually disappear as the non-hydro renewable contracts expire by 2040.
Industrial Conservation Initiative (ICI) program
Consumers who meet the conditions of the Industrial Conservation Initiative defined by the Independent Electricity System Operator (IESO) are Class A and qualify for a discount on their Global Adjustment (GA). The discount is determined for the participant based on a calculation performed by the IESO which considers how they contributed to Ontario’s top 5 peak demand periods. The discounted amount is paid by the pool of Class B consumers.
Class A customers receive up to a 30% discount on their GA through the ICI. In 2020, the GA reduction for Class A customers totaled $1.5 billion. The cost is transferred to the Class B consumers GA and thereby paid for by electricity ratepayers.
Renewable generators
In some cases, the cost of renewable generation connection is recovered from consumers as a part of the regulatory charges on electricity bills or a temporary adder as a part of delivery charges. I will elaborate on it for completeness, however, it is a bit of a stretch to consider it a subsidy and it is not material to the average consumer, costing less than a dollar a year.
Renewable Generation Connection Rate Protection (RGCRP)
In October 2009 the Ontario Energy Board revised the Distribution Code to require ratepayers to pay some distribution infrastructure modification costs associated with renewable generators connecting to the distribution system (Regulation 330/09). The costs would be paid for by either the Local Distribution Company’s customers or spread out over all electricity consumers in the province. Based on criteria identified in the revised Distribution Code most of the costs (over 90%) would be shared by the entire provincial customer base. The Renewable Generation Connection Rate Protection (RGCRP) program was established to recover the cost. The Ontario Energy Board (OEB) approves the recovery amount annually and the Independent Electricity System Operator (IESO) sets the consumer charges monthly. The costs are recovered through a volumetric energy charge which is posted by the IESO on their website’s Wholesale Market Electricity Charges page. For October 2021, the charge was set at $0.0240 per MWh. The average residential consumer uses approximately 700 kWh per month which works out to 1.7 cents on the monthly bill. The charges for the RGCRP peaked for the average residential consumer in 2014 when it cost $1.19 for the year.
For the entire year 2021, the average ratepayer was charged approximately twenty cents for the RGCRP as a part of the regulatory charge on their bill. These costs will gradually disappear since renewable generator projects that would qualify under the Code change are no longer being approved.
How we pay for subsidies
Subsidies may be funded by (in order of least to most):
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- electricity consumers (ratepayers) as part of their regulatory charge (e.g. Rural or Remote Electricity Rate Protection program – administration only),
- electricity consumers (ratepayers) as part of their electricity charge (e.g. Class B customers subsidize Class A customer’s Global Adjustment), or
- taxpayers through provincial taxes (e.g. the Ontario Electricity Rebate).
In 2010 the Government introduced the Industrial Conservation Initiative (ICI). This began a process where qualified industrial consumers received a discount on their Global Adjustment (GA) as a financial incentive for conservation. They would be called Class A customers. The reduction in Class A customer’s GA was shifted onto all other consumers who would be referred to as Class B customers. In 2020, approximately $1.5 billion was shifted to Class B customer’s costs. Class B customers subsidize Class A customers.
Prior to 2011, ratepayers paid the cost of electricity. Beginning in 2011 with the Ontario Clean Energy Benefit, some costs were moved from the ratepayer to provincial funding. The benefit took 10% off the total bill for qualified consumers from 2011 to 2015. Following a year without significant rate reduction initiatives, new measures and programs emerged in 2017. The programs included the Fair Hydro Plan. and measures included moving some regulatory costs to the province. The Rural or Remote Electricity Rate Protection (RRRP) program funding was transferred to the province. The RRRP cost $293 million in 2019. The Distribution The Rate Protection (DRP) Program began in 2017 under Ontario Regulation 198/17 with provincial funding. The DRP cost $253 million in 2019. Provincial revenues began to pay the cost of some significant relief programs including the Ontario Electricity Rebate and repayment of the Fair Hydro Trust fund in 2019.
In 2019, the Fair Hydro Pan transitioned to the Ontario Electricity Rebate. The Fair Hydro Plan cost reduction was actually a deferred payment (a loan) held by the government with the expectation that it would be repaid over time (including interest) by ratepayers – not through provincial revenues. The financing was set up through The Fair Hydro Trust and administered by Ontario Power Generation. In November 2019 the Fair Hydro Trust was shut down and on December 1, 2019, the repayment was transferred to the Ontario Government through the enactment of the Fixing the Hydro Mess Act, 2019. As of the 2019 year-end, the Trust’s liability was $1.77 billion.
Ontario’s Financial Accountability Office (FAO) reported that high-income and rural customers received the highest subsidies in 2019. The high-income customers receive the largest subsidies because they tend to use more electricity than low-income customers. Subsidies are partially funded through provincial income taxes, therefore high-income households contribute more money to provincial revenue through taxes than low-income households – theoretically. Shifting part of electricity costs to the province has the effect of tying a portion of energy rates to income through income tax.
Moving costs around – a political shell game or a win for Ontario?
Shifting electricity system costs from 5 million ratepayers to provincial funding effectively shifts cost recovery to the much larger provincial revenue base and may provide much-needed economic stimulation by lowering electricity rates.
Most taxpayers know little about the shifting of subsidies to the province and how (or if) it impacts their taxes.
Spoiler: The electricity funding accounted for less than 3% of provincial program spending in 2019-20 and did not result in any personal tax increases
According to provincial financial reporting, Ontario collected $108 billion in taxes in the 2019/2020 fiscal year along with $48 billion from the federal government and other business enterprises. Ontario spent $152 billion on its programs. Burying $4.84 billion (from the 2019 IESO audit) in annual electricity costs in $152 billion worth of programs is more politically palatable than recovering it from 5 million ratepayers who see their bills monthly. Out of sight and out of mind.
Moving costs associated with renewable generation to the province is reasonable given that the carbon and emission reduction benefits they provide apply to all of Ontario, not just ratepayers.
Increased program spending during a time of deficit budgets is generally not a good approach, however, there are additional considerations (such as economic stimulation) that make government spending on energy the preferred alternative to charging ratepayers.
The reality is that Ontario taxpayers have not paid any more personal income tax as a direct result of moving subsidies to the province – yet. Ontario’s basic personal income tax rates haven’t changed since the 2014 tax year (although the first two income brackets have had their ceilings increased by roughly the rate of inflation). Ontario has seen steady revenue growth over the last decade with the exception of the pandemic impact in 2020-21. Energy cost reduction may be playing a role in economic growth.
About the deficit
The expense of programs and subsidies when there is a budget deficit will contribute to increasing the provincial debt, which is in the neighborhood of $400 billion for 2020-21. It’s useful to consider the debt impact of incremental cost due to subsidies and programs. According to the 2021-22 Ontario Budget, planned spending is $186 billion with a $33 billion deficit adding to a $400 billion debt. This means for every dollar the government spends, 18 cents goes to the provincial debt. The electricity program costs will likely be around $5 billion in 2021 (2.7% of spending), which means $887 million of that would go toward our debt. While that number is certainly frightening to most people, it equates to a 0.22% increase in debt – which is small but cannot be ignored. The difference between the investment in energy subsidies and other programs is the potential for creating economic growth.
Give and then take
The government is giving $billions in annual electricity subsidies to ratepayers, however, it takes $billions back from the electricity industry through various mechanisms. The electricity sector is a money generator for the provincial government.
The Give: According to a 2019 audit of the Independent Electricity System Operator (IESO), the electricity system costs were $23 billion. Government programs gave $4.8 billion of funding to offset ratepayer bills.
The Take: In 2019-20 the provincial government collected almost $1.2 billion in profits from Ontario Power Generation and Hydro One. Provincial sales taxes from the $23 billion industry would generate $1.6 billion in revenue. The government benefits from other revenues associated with the electricity business including property tax, income tax, water tax for hydro generation (section 92.1 of the Electricity Act), and Payments-in-Lieu which are collected by the Ontario Electricity Financial Corporation. These payments would be in the vicinity of $1 billion annually. Without drilling any deeper into the economic benefits which the Ontario Government receives from the electricity business, it’s easy to account for $3.8 billion in 2019-20 which the government takes.
Finally…
Bottom line is that Ontario taxpayers are not paying higher taxes or incurring a major debt increase due to electricity subsidies at this point in time. If the lower electricity rates stimulate the economy, taxpayers will see a long-term benefit that will help offset the cost of subsidies.
Moving costs around is a political shell game, however, it may well be a win for the Ontario economy.
Ontario Electricity Rebate winter 2022 example case – residential
The typical or ‘proxy customer’ in Ontario is residential class and consumes 700 kWh of energy per month based on an annual average. According to the OEB billing calculator on January 4th, 2022 a Toronto Hydro residential customer on tiered rates set November 1st, 2021 (9.8 cents/kWh) pays the following:
Electricity
700 kWh @ 9.8 ¢/kWh $ 68.60
Delivery $ 52.03
Regulatory Charges $ 3.06
Total Electricity Charges $123.69
HST $ 16.08
Ontario Electricity Rebate (-$ 21.03)
Subsidy Percentage (before tax) 17%
Total Amount $118.74
The takeaway
There are a large number of electricity subsidies and programs available to Ontario consumers. It is incumbent on the consumer to ensure they receive the benefits for which they are eligible.
Scams targetting vulnerable customers are becoming increasingly common. Check with the Ontario Energy Board and your Local Distribution Company before engaging with any organization offering rebates or subsidies.
Most consumers are currently receiving an automatic discount between 14% and 17% on their bills before taxes. Funding the discount was moved from ratepayers to provincial funding in November of 2019.
The Ontario Electricity Rebate for the proxy customer is 17% of the pre-tax bill or $21.03 per month using the winter 2022 two-tier rate. The Ontario Government then recovers $9.90 or 47% of the rebate through the provincial portion of the HST on the bill.
Moving subsidies and program costs to the province aren’t increasing our taxes at this time or resulting in a material increase in the $400 billion debt. It is making a difference to ratepayers.
If lower electricity rates benefit low-income earners and stimulate the economy, provincial rate subsidies are a net benefit to everyone in Ontario.
Special thanks to Patrick James Kelly of Simcoe, Ontario for providing the beautiful images for the article. Patrick is a forestry tech with a passion for photography. He is part of the workforce that keeps the lights on in Ontario.
Derek
