Ivey Energy Centre | A formula for smoothing rising Ontario hydro bills

Researchers from the Ivey Energy Policy and Management Centre estimate some basic financial engineering might reduce Ontarians’ electricity bills.

In their op-ed for The Globe and Mail, Ivey Energy Centre researchers Guy Holburn, Adam Fremeth, Margaret Loudermilk, and Brandon Schaufele outline two ways the provincial government might reduce consumers’ bills in the short to medium term in return for slightly higher bills in the long term:

• Amortize generation costs for a longer period to reduce annual capital charges. Contracts are typically 20 years even though the assets operate longer, leading to higher annual capital charges and electricity bills; or,
• Subsidize a portion of annual contracted payments. The subsidy would equal the difference in annual amortization currently charged and that for amortization for the full life span.

Under such scenarios, the researchers estimate the government might reduce contracted generation charges by up to $1.7 billion in 2018, or eight per cent of total electricity costs. In the past decade, the government has contracted for more than 20,000 megawatts of generation capacity, causing consumers’ electricity rates to nearly double.

“While financial engineering is not a long-term policy solution for ensuring an efficient and reliable generation sector, it would ease the transition for households and businesses in the province over the coming decade,” they said.

Guy Holburn is an associate professor, the Suncor chair in Energy Policy, and director of the Ivey Energy Centre; Adam Fremeth and Brandon Schaufele are both assistant professors; and Margaret Loudermilk is research director of the Ivey Energy Centre.