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Ontario passes legislation to lower electric rates

Ontario's Legislative Assembly on May 31 passed a bill that will cut residential electric rates by an average of 25% and as much as 50% for residential customers in eligible rural and northern communities.

Under the Fair Hydro Plan, which was proposed earlier this year and introduced earlier this month as the Fair Hydro Act, Ontario residents will see their electricity bills cut through an 8% sales tax rebate and the removal of charges for conservation programs. Electric rate increases would also be limited to the rate of inflation for four years.

The legislation provides that the Independent Electricity System Operator and the government-owned Ontario Power Generation Inc. would spread the province's electricity investments over a longer period of time through refinancing the so-called global adjustment. Starting July 1, about 800,000 customers will also get a distribution charge relief under the Rural or Remote Rate Protection program.

However, an analysis by Stephen LeClair, the financial accountability officer of Ontario, concluded that the act will cost the province C$45 billion despite saving ratepayers C$24 billion over 29 years.

"Temporary savings are achieved for electricity ratepayers by moving costs to the province and by deferring [C]$18.4 billion in electricity costs for 10 years," LeClair said. "After 10 years, ratepayers will be required to repay the deferred electricity costs plus approximately [C]$21.0 billion in interest which will result in higher electricity bills than under the status quo."

To cover the rate reduction, Ontario will borrow about C$2.5 billion per year over the next 10 years. Costs plus interest will be recovered starting 2028 for another 18 years.