The total system service cost for providing electricity to Ontario consumers was in the vicinity of $23 billion according to a 2019 audit of the Independent Electricity System Operator (IESO). The cost breakout is 68% for electricity, 17% for distribution, 7% for transmission, 4% for wholesale market charges, and 4% for all others.
The Ontario Electricity Market cost changes by category 2015 – 2019
The IESO audit reports the total cost of electricity in 2019 as $23 billion which represents a 12% increase over the 2015 number of $20.5 billion from the IESO’s ‘State of the Electricity System: 10-Year Review, August 2016’. The Bank of Canada says the inflation rate over the 2015 to 2019 period was 7.83%. Electricity costs continue to rise faster than the rate of inflation.
System costs were reported slightly differently by the IESO in 2015, however, the main categories are available. Categories that were not identified the same have been grouped as ‘Other’ and represent a small portion of overall costs.
Electricity
Electricity cost has increased by 19% from $13.1 billion in 2015 to $15.6 billion in 2019 for the system. For a detailed look at what has driven the cost increases of the electricity portion of total cost since 2009, see my commentary here.
Delivery
Delivery refers to infrastructure between a generator and a consumer. It includes the transmission and distribution system with costs recovered through the delivery charge on consumers’ bills. Total delivery costs have increased by 6.7% from $5.2 billion in 2015 to $5.6 billion in 2019.
According to IESO and OEB reports, distribution costs have increased by 8.3% from $3.6 Billion in 2015 to $3.9 billion in 2019. Transmission costs have remained at $1.6 billion comparing 2015 to 2019.
Regulatory and other costs
Regulatory and other costs grouped together make up 7.9% of 2019 market costs. Costs have declined by 17% from $2.2 billion in 2015 to $1.8 billion in 2019. The debt retirement charge which appeared as $1 billion in 2015 system costs ceased for residential consumers on January 1st, 2016, and from all consumers as of March 31, 2018. This charge elimination accounts for a portion of the cost reduction.
Market cost changes do not translate directly to the consumer
System-level cost changes do not translate directly to consumer bills. Rate class, subsidies, and cost allocation have a significant impact on consumer bills.
Monthly billing totals can be examined for the case of a Toronto Hydro customer defined as follows:
- Residential Class
- pays Time of Use (TOU) rates
- consumes 750 kWh of energy in a month
- has a typical consumption pattern of 65/17/18 percent off-peak, mid-peak and on-peak
- May 1st rates (summer)
Consumer bills for residential class customers had fluctuations from 2015 to 2019 that are not shown on the chart because there were various subsidies being applied and removed. It is unnecessarily complex, difficult to follow, and confusing but here is my take on what transpired…
In 2016, the Clean Energy Rebate of 10% expired with nothing to replace it. Bills would have jumped by approximately 10%. In 2017, two new subsidies were applied through the Fair Hydro Act (25% reduction of energy cost) and a provincial tax rebate (8%). The combination of those subsidies provided the greatest cost-relief of the time period from 2015 until the present. In November of 2019, the Fair Hydro Act was repealed, the provincial sales tax re-applied and a new calculation of the Ontario Electricity Rebate (OER) replaced them. The calculation of the OER has changed several times, settling at approximately 17% of the bill. Residential class customer bill increases are said to be capped by the rate of inflation.
There are many more subsidies for electricity consumers that the Ontario Electricity Rebate. More information is available in my article on subsidies here.
Looking past the complicated subsidy changes, the pre-inflation residential-class customer bill is virtually the same in 2022 as it was in 2015. The Bank of Canada indicates that the inflation from 2015 to 2021 was 13.8%. Based on inflation, this billing case indicates the residential consumer pays less for electricity today than in 2015.
The takeaway
Ontario’s electricity market costs continue to rise at a rate that exceeds inflation.
A breakout of cost by category shows that Electricity (generation) continues to account for the largest cost and is increasing faster than the other categories.
In a specific case study looking at the time period of 2015 to 2022, Toronto Hydro residential consumer bills have decreased after considering inflation.
The electricity bills for consumers of other rate classes and Local Distribution Companies may have seen similar post-inflation reductions as the Toronto Hydro residential-class case.
The consumer’s best defense against rising electricity costs is through conservation and avoiding use during peak demand periods.
Consider using an equal billing plan to ease the impact of high seasonal electricity consumption.
Consumers can use the Ontario Energy Board’s billing calculator to determine whether it is most economical to be billed on Time of Use (TOU) or two-tier rates.
Check with your Local Distribution Company for terms and restrictions for changing billing methods.
Derek
