Lower Electricity Costs for Residential Users
Ontario intends to remove the Debt Retirement Charge (DRC) from residential users' electricity bills after Dec. 31, 2015.
The DRC, which is calculated based on electricity consumption, has appeared on electricity bills since May 1, 2002 to help pay down the debt and liabilities of the old Ontario Hydro after it was broken up into smaller entities.
Ontario Electricity Support Program
The electricity bill for a typical household consuming 800 kilowatt hours of electricity per month represents on average eight per cent of the total income of a family with an annual income of $20,000, while amounting to less than two per cent on average of the total income of a family with an annual income of $100,000 or more. The Ontario government is working with the Ontario Energy Board (OEB) to develop the Ontario Electricity Support Program. The program would support efforts to reduce poverty in Ontario by providing ongoing assistance directly on the bills of eligible electricity consumers. After Dec. 31, 2015, eligible low-income Ontarians could expect to receive similar relief as currently provided by the Ontario Clean Energy Benefit (OCEB) directly on their electricity bills, when the OCEB is set to expire.
Options for the program's design, including administration, delivery and eligibility criteria, will be developed by the Ontario Energy Board in collaboration with utility companies and social service delivery agents, as well as consultation and engagement with the public. The Ontario Energy Board will be required to report-back to the province with a range of options by December 2014. The government will review these options and decide on the final program design.
When the former Ontario Hydro was restructured on April 1, 1999, the Ontario Electricity Financial Corporation (OEFC) was established to manage and retire the former Ontario Hydro's debt and certain other liabilities, which totalled $38.1 billion. The debt was accumulated by building Ontario's electricity generation and transmission infrastructure.
A portion of the total could be supported by the value of the assets of Ontario Hydro successor companies and other assets; however, OEFC was left with $19.4 billion in unfunded liabilities (often referred to as stranded debt).
Paying Down Stranded Debt
OEFC receives dedicated revenues to service and retire the stranded debt from a number of sources, including:
- Payments in lieu of taxes (PILs) from Ontario Power Generation (OPG), Hydro One and municipal electricity utilities
- Electricity Sector Dedicated Income from the province in respect of the net incomes of OPG and Hydro One
- DRC paid by electricity users.
As confirmed in the 2011 Auditor General's Annual Report, the DRC is used by OEFC exclusively to meet its mandate, which includes servicing and retiring its debt and liabilities.
The Auditor General audits OEFC's annual financial statements and has provided a clean opinion every year since the initial 1999-2000 financial statements. This includes OEFC's interest expense, which is currently about $1.6 billion per year and has totalled about $27.7 billion between April 1, 1999 and March 31, 2013.
The electricity sector reforms in the Electricity Restructuring Act have put the stranded debt recovery plan back on track, leading to nine consecutive years of stranded debt reduction, down to an estimated $11.3 billion as at March 31, 2013.
Debt Retirement Charge and Residual Stranded Debt
The DRC came into effect on May 1, 2002, when Ontario's electricity market opened to competition. Under the Electricity Act, the DRC will only remain in place as long as there is residual stranded debt, which is the difference between the remaining stranded debt and the estimated value of OEFC's future PILs and certain other dedicated revenues.
The initial estimated residual stranded debt, as at April 1, 1999, was $7.8 billion.
The Minister of Finance reports annually on the residual stranded debt. In accordance with a regulation made under the Electricity Act, residual stranded debt has been determined to be $3.9 billion as at March 31, 2013. This is a decrease of $8 billion from an estimated peak of residual stranded debt of $11.9 billion as at March 31, 2004.
Estimated End of the Debt Retirement Charge
The 2013 Ontario Economic Outlook and Fiscal Review provided an estimate for when the residual stranded debt would likely be retired of between 2015 and 2018.
The estimated retirement of the residual stranded debt and the end of the DRC has been provided as a range to reflect the uncertainty in forecasting future dedicated revenues to the OEFC. It depends on the financial performance of OPG, Hydro One and municipal electricity utilities, as well as other factors such as future tax rates and interest rates.
It is estimated that the DRC would end for all other electricity users by the end of 2018, in line with the estimates in the 2013 Ontario Economic Outlook and Fiscal Review.