Commission on the Reform of Ontario's Public Services

Direct Program and Tax Expenditures: The OCEB provides a 10 per cent rebate on
Executive Summary
electricity bills for residential, farm and small business customers, even though the
government acknowledges that electricity prices will continue to rise. This program distorts the
true cost of electricity and discourages conservation. As troubling as this is, the <strong>Commission</strong>
foresees that the scheduled demise of this generous incentive in 2015 will create a large price
shock for ratepayers. We worry that an extension of the OCEB would risk Ontario’s ability to
return to a balanced budget in 2017–18. Also, removal of the Debt Retirement Charge (DRC)
may be delayed until 2018. Ending the DRC and the offsetting OCEB at the same time would
provide a “soft landing” for ratepayers, but this would evaporate if such a delay occurred.
Finally, because the <strong>Commission</strong> strongly believes the OCEB’s $1.1 billion could be used
more effectively, the OCEB should be eliminated as quickly as possible. All other electricity
subsidies should be reviewed as well.
Electricity Stranded Debt: When the electricity system was restructured in 1999, only part of
Ontario Hydro’s debt was supported by the assets of its successor companies. The result was
$20.9 billion in stranded debt. The Ontario Electricity Financial Corporation (OEFC) was set up
to manage this debt and certain revenue streams were dedicated to pay it down. Also, the
DRC levied on consumers was part of this solution. The fiscal impact of the OEFC revenue
streams is significant; OEFC revenues, expenses and debt are part of the province’s budget.
The financial performance of OPG and Hydro One matters because their payments in lieu of
taxes and some of their combined net income go to service the OEFC debt. It is imperative
that OPG and Hydro One be run efficiently to maximize their contribution to deal with this
legacy of the old Ontario Hydro.
Options to Reduce Long-Term Electricity Costs: This report’s principles, set out in
Chapter 3, Our Mandate and Approach, can be transferred to the electricity rate base. In the
face of electricity prices that are projected to rise by 46 per cent between 2010 and 2015, the
province should seek efficiencies in the sector that would help slow electricity rate increases.
At the same time, the <strong>Commission</strong> recognizes that after so much change since 1999, a period
of normalcy may be helpful. Consequently, the <strong>Commission</strong>’s recommendations are meant to
balance the need for stability with the need to curb costs. The government should produce a
detailed, 20-year blueprint for the energy sector. It should also consolidate Ontario’s 80 Local
Distribution Companies (LDCs) along regional lines to create economies of scale; this would
result in direct savings on the delivery portion of the electricity bill. Further, the government
should mitigate the impact of the FIT program on electricity prices, first by reducing the initial
prices offered in FIT contracts and reducing the tariff over time, and second by making better
use of “off-ramps” built into existing contracts. Among other measures, the government should
seek administrative efficiencies in various electricity sector agencies and restructure the
wholesale electricity market so consumers located closer to generation stations can benefit
from lower electricity prices.
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