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The Impact of Differential Distribution Rates on Rural Residential Electricity Consumers

On June 30, the Global National Ottawa Bureau Chief, Jacques Bourbeau, reported on the skyrocketing electricity bills of rural Ontarians. On July 6, Shirlee Engel released an update to the crises reported by Mr Bourbeau.  As noted by both Bourbeau and Engel, Ontario has some of the highest electricity bills in Canada with rural communities, in particular, facing the greatest increase in cost.

One of the reasons for the high electricity bills in rural areas is the cost of distribution. Distribution rates are charged to recover infrastructure costs of, amongst other things, electricity poles, meters, transformer stations, and computer systems that bring electricity from a high voltage transmission system to individual homes and businesses. Currently, distribution rates are a combination of a fixed monthly charge and a separate charge for each unit of electricity that a customer uses (a usage charge). This means the more electricity a customer uses, the higher the total charge for distribution.

This is about to change.

On April 2, 2015, the Ontario Energy Board (“OEB”) issued a new rate design policy, A New Distribution Rate Design for Residential Electricity Customers. The new policy will change the way local electricity distributors bill residential customers. Under the new policy, all the costs for residential distribution services will be collected through a fixed monthly charge.

Over the next four years, the fixed monthly rate for distribution will increase gradually while the usage rate for distribution will decrease and, by 2019, there will be only a fixed monthly rate for distribution and no usage rate. The impact of a shift to a fixed distribution rate on a customer’s bill will vary depending on how much electricity they use: higher volume customers will pay lower distribution charges than they currently pay, while lower volume customers will pay higher distribution charges than they currently pay.

As lower volume customers, rural community members will continue to see an increase in their electricity bills as the new OEB policy is implemented. For example, the OEB recently approved Hydro One’s proposed changes to its rate design to meet the new OEB policy. Hydro One sub-divides its residential customers into classes based on customer density. Where Urban (UR) has the highest customer density and R2 the lowest (Seasonal includes areas without permanent year round residence). Table 1 illustrates the monthly increase in distribution cost for Hydro One’s customer classes as a result of the new policy.

Table 1 Impact on Hydro One’s Customer Classes

Customer Class

Monthly Distribution Charge 2015

Monthly Distribution Charge 2016

UR (Urban Density)

$19.28

$22.86

R1 (Residential Medium Density)

$27.73

$30.88

R2 (Residential Low Density)

$41.42

$43.32

Seasonal

$30.86

$33.57

Table 2 breaks down the change in distribution cost for the different customer classes based on their level of consumption.

Table 2 Impact on Total Bill of  Hydro One’s Customer Classes based on Typical use in 2016 as predicted by Hydro One

Customer Class

Level of Use

Monthly Consumption (kWh)

Change in Distribution Cost ($)

Change in Total Bill

UR

Low

350

$1.29

$7.45

Typical

800

-$0.78

$9.75

High

1,400

-$3.54

$12.81

R1

Low

350

$2.57

$10.43

Typical

800

$1.08

$14.33

High

1,800

-$2.22

$23.00

R2

Low

450

$6.85

$18.18

Typical

800

$6.92

$23.14

High

2,400

$7.24

$45.80

Seasonal

Low

50

$3.40

$8.20

Typical

400

$2.73

$13.59

High

1,100

$1.40

$24.39

Both tables illustrate how the new OEB policy will disproportionately increase electricity bills for consumers who live in rural areas.

There are, however, programs provided by the OEB designed to help alleviate the burden of high electricity bills for rural and low-income communities. The first of these is the rural or remote electricity rate protection (RRRP). that reduces costs for eligible customers located in rural or remote areas where the costs of distributing electricity are higher. The RRRP is a credit of $31.50 (for 2016) that is applied to the monthly distribution service charge and is available to customers in year-round residences in low-density zones. Seasonal residential customers that only occasionally occupy dwellings such as cottages and chalets do not meet the year-round criteria and are ineligible. However, seasonal residents that do reside in the zone year-round or have a farm with a primary residence can apply for year-round residential rate status to benefit from the credit.  The second program is the Ontario Electricity Support Program (OESP), which provides a monthly credit to customers based on their household income and household size. The OESP credit is applied directly to customers’ bills. 

The question is whether the OESP and RRRP will be sufficient to reduce the electricity bills of Ontarians living in low-density zones to affordable levels.


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Low-Income Energy Network (LIEN)
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