Ontario should target its electricity subsidies

The COVID-19 pandemic has devastated many families and businesses. During this unprecedented emergency, Ontario needs to take a hard look at its spending priorities and marshal its resources to help families and businesses hurt by the lockdown.

This week, the Ontario Energy Association (OEA) released a report titled “Help Those Who Need Help” that puts Ontario’s much-discussed electricity system into context. Few Ontarians likely realize their provincial government is now spending about $6 billion annually to subsidize electricity rates. At a time when the province is being called on to support people and businesses with major new spending to address the pandemic’s fallout, it is striking to consider that only about $800 million of the $6 billion goes to people who have low incomes or live in rural or remote regions. This escalation in subsidy spending began in 2017 when the government of Premier Kathleen Wynne responded to voter agitation over rising electricity bills by introducing these huge subsidies.

Ontario is subsidizing electricity even though its pre-pandemic rates were among the lowest in the world at about 12.8 cents per kilowatt-hour (kwh). By comparison, rates are as high as 35 cents per kwh in Germany, 24 cents in the United Kingdom and 15 cents in the United States (and those are all in U.S. dollars, not Canadian, as the Ontario figure is). As a per cent of household income, Ontario’s rates are at historic lows and close to the lowest in the world. On average, Ontario electricity bills represent 1.2 per cent of household income.

Let’s put Ontario’s electricity subsidies in context. Six billion dollars is more than the budget of the following government ministries combined: Agriculture, Food and Rural Affairs; Economic Development, Job Creation and Trade; Environment, Conservation and Parks; Indigenous Affairs; Infrastructure; Labour, Training and Skills Development; Municipal Affairs and Housing; and Natural Resources and Forestry. Here’s more context: $6 billion is more than the Ontario government spends on its entire transportation system, both roads and transit.

Although electricity bills did increase over the last decade by an average of about $8 per month, natural gas bills declined by about $30 per month. As a result, the typical Ontario household’s total energy bill declined. That’s right: we added new energy subsidies even though household energy costs declined.

Because the $6 billion in subsidies is not targeted, wealthier households with larger homes and larger electricity bills get larger subsidies. A lower-income household in an apartment might receive a typical annual rate subsidy of $200, while someone living in a McMansion might get a rate subsidy of $1,750.

When the pandemic forced many households to begin working from home and self-isolating, electricity rates jumped to the top of the public agenda again. People complained, many of them loudly, about having to pay peak electricity rates while at home during the day. Premier Doug Ford responded by lowering time-of-use rates to the “offpeak” rate of 10.1 cents/kwh — roughly a 21 per cent rate reduction. This new emergency subsidy is estimated to cost $162 million for the 45-day period it is currently scheduled to be in place. On balance, the premier’s response is understandable. (In fact, the OEA commended it in a statement.) But public reaction was wildly disproportionate to the actual problem. The OEA estimates that most households would have seen their bills increase by at most $10/ month due to the increased consumption required by working at home — this at a time when households working from home likely have seen other household expenses plummet. For most such people, spending on transportation, retail shopping, restaurants, child care and recreation have dropped dramatically.

By phasing out untargeted broad-based electricity subsidies, Ontario could free up almost $5 billion of budget room at a time when demands on government funds seem almost unlimited. Ontario should also end the emergency off-peak subsidy on May 8, as planned, and avoid extending this expensive non-targeted subsidy.

Recommending that electricity bills should go up for consumers who can afford it probably won’t be popular. But the reality is that Ontario’s government should focus its scarce resources on programs targeted to those who have been most affected by COVID-19. It needs to help those who need help.