Ontario’s spending watchdog calculates Class B commercial electricity customers will realize an $8.4 billion subsidy over 20 years through the transfer of a major share of renewable generation costs to the provincial tax base. A newly released report from the Financial Accountability Office (FAO) of Ontario pegs the total cost of nine provincial energy subsidy programs at more than $118 billion for the 2020-21 to 2039-40 period, with the largest portion of that ascribed to the Ontario Electricity Rebate (OER) for residential, small business and farm customers.

In 2021-22, the renewable cost shift — which removes approximately 85 per cent of the costs for 33,000 wind, solar or bioenergy generation contracts from the electricity rate base — resulted in a 16 per cent average hydro bill reduction for Class B commercial customers paying the global adjustment on a volumetric per-kilowatt-hour basis, and a 14 per cent average reduction for Class A customers with the option of participating in the Industrial Conservation Initiative. The provincial outlay for subsidies will diminish annually as renewable generation contracts expire, dipping to about 10 per cent over the next 10 years then falling sharply and dissipating entirely over the remainder of the 2030s.

For the purposes of the report, the FAO lumps Class A commercial customers, with an annual average energy demand of 1 megawatt, in with industrial consumers. Together, those groups are projected to receive a $7.2 billion subsidy over the 20-year period of the renewable cost shift. Small business customers will be eligible for an estimated $24.3 billion via the OER during the same timeframe.

For small business and residential account holders, including the multi-residential rental and condominium sectors, the FAO confirms that future costs will be lower than was envisioned under the previous government’s pricing scheme. It would have seen electricity rates jumping 6 per cent annually from 2022 to 2028, following a four-year period in which increases were kept on par with the inflation rate. In contrast, the current government has said it intends to hold increases to 2 per cent annually.

While the subsidized hydro bill is slated to increase by 2 per cent annually, taking it from a monthly average of $121 in 2021 to $178 by 2040, the FAO notes that the “unsubsidized” bill — meaning the actual after-tax cost to supply residential and small business customers — will increase at a more moderate 0.7 per cent annual rate. In the absence of the OER, it’s estimated the average bill would increase from $171 per month in 2021 to $194 by 2040.

“The slow growth in the unsubsidized electricity bill is due primarily to slow projected growth in the cost of generating electricity in Ontario,” the FAO report states. “The IESO (Independent Electricity System Operator) projects that the unit cost of electricity in Ontario will grow at an annual average rate of 0.6 per cent from 2021 to 2040.”

Programs to address energy poverty accounted for $694 million in provincial spending or about 10 per cent of the subsidies for 2021-22. This includes the energy portion of the Ontario Energy and Property Tax Credit (OEPTC) and the Ontario Electricity Support Program (OESP), which provides monthly on-bill credits for residential ratepayers with low to moderate incomes.

During the 20 years from 2020-21 to 2039-40, the FAO projects approximately 13.7 billion will be allocated to the energy portion of the OEPTC, which applies on heating fuel costs as well as electricity. The tax rebate amount, which topped out at $243 for eligible claimants in 2021-22, is indexed to the rate of inflation, underlying the FAO’s projection that it will increase by 2.8 per cent annually.

In contrast, the OESP, which provides direct on-bill credits ranging from $35 to $113 per month for eligible customers, is not indexed to inflation and is projected to represent a smaller portion of total subsidies over time. In 2021-22 it accounted for 2.5 per cent of Ontario electricity subsidies versus a projected 2.1 per cent for the entire period to 2040.

“The FAO projects that annual OESP spending will decline by $99 million from $181 million in 2020-21 to $82 million in 2039-40,” the report states. “Changes to the credit amounts and income brackets can be made through regulation, which the Province has done only once (in 2017) since the creation of the program in 2015. Consequently, the FAO has assumed no change to the credit amounts or income brackets over the 20-year review period. If the Province does change the credit amounts or income brackets, then the cost of the OESP will increase.”