Ontario’s 2023 Electricity Rate Increase

On October 19, 2023 the Ontario Energy Board announced an electricity rate increase to be effective November 1, 2023. The Ontario Electricity Rebate (OER) increases to 19.3% at the same time. Conspicuously missing is any reference to the net impact on customer bills. It is not a simple task for the ratepayer to figure out and can lead to unfounded speculation.

How much does the monthly bill increase?

The short answer is that the Average or Proxy Customer (see definition) will see a 2.3% increase in their total monthly bill (Author’s calculation).

The long answer starts here.

The energy portion of the average customer’s electricity bill accounts for approximately 60% of the total charges.

Rate increases to the delivery or regulatory portion of electricity charges are managed separately through a different process and are not part of the November 1^st change.

Abbreviations Reference

Historical Electricity Rate Comparison vs November 2023

The rates prior to, and after November 1, 2023 from the OEB website are as follows:

Time of Use (TOU):

Ultra-Low Overnight (ULO):

Tiered Rates:

At first glance it’s easy to see that the electricity rates have increased way more than 2.3%. The Regulated Price Plan Report prepared for the OEB for the November 2023 to October 2024 period calculates a 19% increase in the kWh rate. Fortunately, the full increase doesn’t find its way to the bottom line on the bill.

The reasons for rate changes are provided by the OEB in their Backgrounder Report associated with the Regulated Price Plan report as follows:

• An increase in the forecast payments to nuclear and natural gas generators.
• Higher-than-forecast supply costs over the past 12 months, which led to an under-collection from RPP customers in the November 2022 to October 2023 period.
• Lower forecasted wholesale electricity market prices, which increases the costs paid by RPP customers.

Breathe easy

Consumers do not see a 19% electricity rate increase on their total charges for two primary reasons.

1. The Ontario Electricity Rebate removes a fixed percentage from the customer’s pre-tax basic charges. The OER has increased from 11.7% to 19.3% to reduce the customer impact of the rate change.
2. Electricity (the kWh commodity) makes up approximately 60% of the average or Proxy Customer’s bill. A 19% increase in commodity charges would increase the total bill by 11.4%.

Ontario Electricity Rebate (OER)

The OER falls under the Ontario Rebate for Electricity Consumers Act, 2016 (OREC Act). The Act establishes a framework under which consumers with eligible accounts are entitled to receive financial assistance in the form of a rebate based on the pre-tax cost of their electricity. It is funded by the province and administered by your Local Distribution Company.

The amount of the rebate is set out in Ontario Regulation 363/16 and has varied widely from 8% in 2016 to a maximum of 33.2% in 2020. The rebate is used as a mechanism to reduce consumer bill increases to the rate of inflation.

The OER increased from 11.7% to 19.3% on November 1, 2023 – largely offsetting the increase in energy rates.

Historical Ontario Electricity Rebate (OER) values

• November 1, 2023 – 19.3%
• November 1, 2022 to October 31, 2023 – 11.7%
• November 1, 2021 to October 31, 2022 – 17%
• From May 1, 2021 – October 31, 2021 – 18.9%
• From January 1, 2021 to April 30, 2021 – 21.2%
• From November 1, 2020 to December 31, 2020 – 33.2%
• From November 1, 2019 – October 31, 2020 – 31.8%

The Average or Proxy Customer Impact

Ratepayer bills vary widely depending on rate class, consumption and the Local Distribution Company that services them. This analysis applies to an average or Proxy Customer.

The OEB has historically referred to a Proxy Customer when announcing rate changes:

“The proxy customer’s bill is determined by calculating a weighted average of province-wide delivery and regulatory charges, assuming consumption of 700 kWh/month and a TOU usage profile of 65% used in off-peak, 17% in mid-peak and 18% in on-peak.”

The November 2023 rate announcement does not include a reference to the customer billing increase, however, it can be calculated relatively easily for specific cases.

Electricity rate increase

A Toronto Hydro residential customer using 700 kWh in a month is representative of a proxy customer. The rate impact analysis can be made using the OEB bill calculator with November 1, 2023 rates and a manual calculation of the November 2022 OEB historical rates. Delivery and regulatory charges have been kept the same in the pre and post cases.

In this case the proxy customer would see a 10.6% electricity bill increase offset by the OER to become a 2.3% bill increase. Individual cases will vary.

Manipulating electricity charges

Over the last two decades the consumer electricity rates have changed substantially (see The Rising Cost of Electricity in Ontario). Consumers have seldom seen the true cost of electricity on their bills – or paid for it – due to various subsidies and billing practices.

In November of 2019, the Ontario Government instituted changes to subsidies and billing formats to reflect the actual commodity cost (electrical energy in kWh). The rationale for making the changes was to bring transparency to electricity cost and standardize billing (see the November 2019 Electricity Bill Explained).

Residential customers who are part of the Regulated Price Plan are charged a rate which is based on the forecasted sum of the wholesale electricity price and a share of the Global Adjustment as calculated for Class B customers.

Prior to November 2019, a hidden Global Adjustment Modifier (GAM) reduced the OEB kWh rates making them appear artificially low. Few people knew what the GAM was – or that it even existed.  On November 1, 2019 the Global Adjustment Modifier was eliminated and the equivalent amount was added to the Ontario Electricity Rebate as a separate line item at the end of the new standard bill (see Ontario Electricity Bill Increases Explained – November 2019). For the first time in many years, customers could see closer to the true electricity cost for their customer rate class.

The 2019 bill format change was a big surprise to customers as kWh peak rates went from 13.4 cents/kWh to 20.8 cents/kWh. Bill increases, however, were still held to the rate of inflation by the OER subsidy.

The Non-Hydro Renewables Funding Amount

In January 2021 the government brought back a hidden global adjustment modifier under a different name of “Non-Hydro Renewables Funding Amount” and once again cloaked the true cost of electricity. It is funded by the province and administered by Ontario’s Independent Electricity System Operator (IESO) and the OEB. The adjustment amounts were initially set out in a communication from the Minister of Energy, Northern Development and Mines in December 2020. The funding amounts for April 2023 through March 2025 have been provided by the ministry here. The subsidy is fixed at approximately $3.2 billion annually, however, the Global Adjustment is highly variable. In 2022 the Non-Hydro Renewables Funding Amount reduced the Global Adjustment by approximately 50%.

The IESO describes the Non-Hydro Renewables funding in their Market Report:

*As of January 1, 2021, Global Adjustment costs for all electricity consumers are reduced as approximately 85 per cent of non-hydro renewable energy contract costs are being shifted from the rate base to the tax base. ..

…Note that the Non-Hydro Renewables Funding Amount is based on an annual forecast and may not align with the GA components each month.”

Bottom line, ratepayers no longer see this amount as part of their kWh charge on their bill. It transfers to the Province’s ledger.

The takeaway

The new rates and subsidy changes announced by the OEB for November 1, 2023 will impact a Toronto Hydro residential TOU customer consuming 700 kWh in a month by increasing their monthly bill 2.3%. Individual cases will vary and may be calculated using the OEB Bill Calculator, historical rates and some manual calculations.

Consumers are not presented with kWh energy rates based on electricity generating costs. The OEB rates do not reflect the true industry cost but are the result of complex formulas, subsidies and forecasts for different ratepayer classes. The good news for the average customer is that the Ontario Energy Rebate and the “Non-Hydro Renewables Funding Amount” are keeping bill increases at or below inflation.

The industry lacks transparency on rates. Whether or not that is a problem depends on your perspective.

Special thanks to Patrick James Kelly of Simcoe, Ontario for providing the beautiful image 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

Author: Derek Hughes

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