Higher Rock Education - Economics Blog

Friday, May 05, 2017
We would like to welcome a new contributor from Ontario. Her family has been struggling with double digit increases in electrical rates. This is her story.

I live in Ontario, and I have noticed a decrease in my quality of life. I believe that many others share my view that rising electricity prices have been the culprit. Residents of Ontario pay the highest power rates in Canada. For example, I learned that power in a home in Toronto costs more than twice the cost to power a similar home in Montreal when I completed this Global and Mail exercise. (It is a great site to compare electrical prices throughout North America.)

My household has restricted any "unnecessary spending". A few years ago, unnecessary spending referred to going out for expensive dinners or shopping too frequently. Now, it seems to refer to any shopping for more than groceries. My household never seems to have enough money to splurge on nice things, even if they aren't considered luxuries to most people. Our average electric bill is $500 a month. My neighbors tell me this is appropriate for a 3,000 square foot home with 4 people living inside. I'm not entirely sure that's accurate. My prior home (just as big with just as many people) had a $70 per month electrical bill. Initially I thought the difference was because we moved from Northern Ontario to just outside Toronto. However,
The Toronto Sun recently reported that families living in northern Ontario have also seen large increases in their electrical bills. Even if we are being charged the "typical amount", it's far more than we've ever been charged. The rates for electricity in Ontario increased by approximately 12% in 2016. (The Globe and Mail) This compares to a general inflation rate of 2%. There's no easy way around that. It's quite a jump and my income has not kept pace.

I feel sympathy for area merchants. They are hit with rising electrical costs and less business. People have less money to spend, so they purchase less from local stores and restaurants. The cost of electricity is a major consideration for most businesses when deciding where to locate a manufacturing facility. If Ontario is not competitive – these companies will choose to locate elsewhere. (To learn more read this article in the
Global News.)

I had previously believed that the real culprit was the privatization of electrical companies and blamed the companies for taking advantage of their monopoly power. However, there are other reasons including the fact that rates are not set by the companies. The Ontario Energy Board establishes rates semi-annually. My research revealed two primary reasons for the increase. Both result from Ontario's excess capacity.

The Ontario government contracted with private companies to build and supply the power needed. Negotiated into the contract was a requirement to supply 30,203 megawatts at a guaranteed return on investment. This is much more than was necessary - only 15,959 megawatts are needed on the average day and 22,774 megawatts on the busiest day – thereby adding to the cost of providing electricity. This means that we are paying for the excess capacity. In fact, the Auditor, General Bonnie Lysyk, estimated that this cost "accounts for some 70% of the average electrical bill". (
The Globe and Mail)

Believe it or not, the price increase might actually relate to the attempt to "Go Green" for our electricity needs. According to energy analyst Steve Aplin, renewable energy sources require large capital investments and an infrastructure to transmit the electricity to the power grid. These expenses have added to the cost, when the province already has an excess capacity. (Read
Global News.)

I'm not knowledgeable enough to understand all of these reasons. I know what I see on my monthly bills and not much else. I believe getting involved with the politics might help to identify some of what is going on. Until then, there isn't much I can do personally. The rates increase. I pay the increase.

I have welcomed the
subsidies in place to help residents. Read the Ontario Energy Board's publication if you want to learn if you qualify. These options may not make the biggest difference, but they certainly help. My household does everything it can to go green and save energy costs. I hope our leaders will make wise decisions to lower our monthly bills.

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