How Much NDP Plan Will Save Ontarians

Posted May 18, 2017

With energy prices a key concern for many Ontarians, hydro will remain a key election issue in 2018. Unfortunately, it is very difficult to understand what each party is offering and how the savings they are promising will add-up. To help Ontarians understand their options, we will be providing in-depth looks at each party’s energy platform to help you make sense of the proposals on the table. Let us first take a look at the NDP's plan.

Overview

In the short-term, the proposal from the NDP results in immediate savings of between 11 to 48% in electricity rates for homeowners depending on where they live and how they use their electricity. A number of the other NDP proposals would help to reduce the increase in rates moving forward, but would have little effect on our rates today.

Estimated NDP Savings

In total, the NDP made five key proposals:

  1. Opt-out of Time-of-Use prices (savings of 5 to 13%)
  2. Standardize delivery fees (savings for those in northern Ontario of up to 30%)
  3. Permanently reduce HST (savings of 8%)
  4. Nationalize Hydro One (near-term savings of 0%)
  5. Buy low cost electricity (near-term savings of 0%)

We will look at each of these proposals below and outline how they would affect Ontarians electricity bills.

1) Opt-out of Time-of-Use prices

What it is:

The NDP has pledged to end time of use (TOU) pricing, noting that they have been ineffective in changing user behavior and that they unfairly increase costs for seniors and small businesses that are stuck using electricity during the day. Instead, the NDP plans to eliminate peak prices and move the province to a tiered rate for electricity. This would ensure that most homeowners would simply pay a flat 10.3 cents per kWh instead of paying up to 18 cents per kWh on TOU.

This proposal would help many consumers immediately, especially those who use electricity during the day. It would, however, eliminate any benefit the province was hoping to earn from the more than $2 billion it has invested in smart meters over the past decade. This would be an unfortunate loss of an existing investment, but this proposal would not require any additional investments moving forward.

How much it would save:

This proposal would lead to savings of between 5 to 13% for the average homeowner, depending on when they use their electricity. Seniors who use most of their electricity during the day could expect to save 13%, or $140 per year. Most homeowners do not use much of their electricity during the day, however, so they would likely save 8%, or $80 per year.

Time-of-Use vs Tier rates

2) Standardize delivery fees

What it is:

The NDP plans to eliminate the discrepancy in delivery rates between urban, rural and seasonal consumers by harmonizing delivery rates so that all Ontarians pay the same rate. This measure would be paid for by reducing Ontario Power Generation’s (OPG) water rental rates, which are the fees paid by OPG to the province for the water running through dams.

The Ontario Energy Board (OEB) approves rate increases to allow for profit margins for private companies. These rate increases are designed to aid investment and include the cost of borrowing plus a 5.5% return on equity. In comparison Manitoba has capped the return on equity at 3%. The NDP plans for Ontario to also reduce its cap to 3% to deliver additional savings.

How much it would save:

This proposal would only affect Hydro One customers. Those living in urban areas or small towns would likely see increased delivery fees, whereas those living in remote communities, especially those in Northern Ontario, would see savings of between 15 to 30%. This is because consumers in Northern Ontario are currently paying up to $90 per month in delivery fees when the average Ontarian homeowner is only paying $25 per month. By moving to a flat delivery fee across all of Hydro One, these rate payers would see significant savings.

3) Permanently reduce HST

What it is:

The NDP seeks to permanently remove the provincial portion of HST from energy bills and pledges to enter into negotiations with Ottawa to remove the federal HST portion from energy bills. This would deliver the same 8% savings that have already been offered by the Liberal Party, but it would ensure that these savings could not be removed from your bills after the election.

In the past, the Liberal Party introduced the Ontario Clean Energy Benefit (OCEB) which was a 10% rebate on Ontario bills similar to today's 8% rebate. This rebate was introduced in 2011, but it was removed in 2016 only to be replaced by the 8% rebate a few months later. The NDP would push to make this 8% rebate permanent.

How much it would save:

It is assumed that the NDP would be able to make the 8% reduction permanent, but would not be able to secure the additional 5% HST reduction from Ottawa as this would be far more difficult.

4) Nationalize Hydro One

What it is:

The NDP is seeking to return Hydro One to public ownership within four years. In order to finance this they plan to utilize the province’s share of Hydro One operating profits, with payment to be completed within eight years. According to the NDP, this plan will be fully financed via existing revenue streams and will not necessitate any rate increases. The NDP calculates that this will increase provincial revenue by $1.3 billion ten years after the buy-back process begins, with projections of more than $7 billion in recouped revenue 30 years after implementation. The NDP also plans to make future attempts to sell Hydro One require a referendum to be triggered on the subject.

How much it would save:

This measure would have no impact on our current electricity rates, although it may help to keep rates from increasing in the future. Given that it would have no impact on rates today, however, we will not include this in our savings estimate.

5) Buy low cost electricity

What it is:

The NDP rightfully outlines that Ontario’s energy exports have increased by 289% since 1997, and so they are proposing measures to counter oversupply. Ontario exports energy at spot prices below the cost of production, with importers of Ontarian energy paying 20% of the cost of generation. This resulted in a $1.7 billion loss in 2015. This loss is due to the amount of excess electricity exported at market rates but produced at far higher rates agreed upon in private generating contracts. This difference between price paid and market price constitutes much of the costs of the Global Adjustment charge (GA).

The NDP notes that, despite the availability of low-cost imports from Quebec and Manitoba, Ontario has instead opted to increase in-province generating capacity, thus increasing costs. The NDP argues that we should increase the purchase of cheap electricity from our neighbours instead of installing new projects in-province, and argues for an independent review for when to take the Pickering nuclear plant offline in order to curb oversupply.

How much it would save:

This measure would have no impact on our current electricity rates, although it may help to keep rates from increasing in the future. Given that it would have no impact on rates today, however, we will not include this in our savings estimate.

Summary

In total, the NDP's energy plan would result in fairly significant savings for most Ontarians. The average rate payer would be saving 11 to 17%, and consumers in Northern Ontario would be saving nearly 50%.

Deepdive of Estimated NDP Savings

Although the NDP plan would eliminate the potential benefits from the $2 billion that have been invested in smart meters, it would not lead to any additional cost for future generations or shift costs to the tax base. The total savings may be less than the 25% promised by the Liberal Party, but the list of potential savings are readily accounted for and present fewer negative side effects.

This proposal is a fairly reasonable proposal that would greatly help to reduce the energy costs for Ontario homeowners. As other parties unveil their proposals, we will compare the NDP plan to those made by other parties to see which would deliver the most savings for Ontarians.