Ontario Reducing Electricity Prices

The Ontario Government announced today that it will reduce electricity rates for residential consumers by 25% starting in summer, 2017. While the immediate steps for doing this are fairly straight forward, the consequences of this over the long term are unclear.

The plan is to reduce prices in two ways:

1. it will transfer some costs (rural distribution costs and low income support) from rate payers to tax payers. The cost of doing this will be $2.5 billion over the next three years; and
2. it will refinance a portion of the cost of global adjustment by extending the time for its recovery to 30 years (to 2047). A portion of the global adjustment costs will be held in a fund operated by Ontario Power Generation and presumably overseen by the Ontario Energy Board. The cost of this refinancing is dependent upon a number of factors which will be addressed below. The government says that the maximum annual interest costs for doing this is $1.4 billion.