Canada: Legislation Introduced To Implement Ontario's "Fair Hydro Plan"

On May 11, 2017, the Ontario Government introduced Bill 132, which is intended to implement the government's promised Fair Hydro Plan (discussed in earlier posts, here and here). The main part of Bill 132 is the Ontario Fair Hydro Plan Act, 2017, which is included as Schedule I and is referred to as the Fair Hydro Act, 2017.

As set out in the accompanying News Release, the legislation will lead to an immediate 25% reduction in electricity bills as of July 1, 2017. This is to be achieved through refinancing a portion of the Global Adjustment (GA), shifting the cost of the Ontario Electricity Support Program (OESP) and Rural or Remote Rate Protection Program (RRPP) to be funded from taxpayer dollars and rebating the provincial portion of the HST. Importantly, in addition to the immediate adjustments to electricity rates, the new legislation allows the government to prescribe the level of future changes to electricity rates and it also allows for an additional charge in future years to recover costs related to extending the payback period for some current costs recorded in the GA.

A review of the new legislation reveals that the provisions of Bill 132 are quite technical, and that some significant details will not be known until the related regulations are released. With that being said, there are a number of interesting items to highlight now:

• The Ontario Energy Board (OEB) is to set new electricity rates, effective July 1, 2017, that will be 25% less than the electricity rates that would have been in place on May 1, 2017 without any impacts from the Fair Hydro Plan (as we wrote earlier, the impacts of the Fair Hydro Plan have already been partly implemented in the RPP rates that became effective on May 1^st). It is important to note that the new legislation does not define what is included within the electricity rates that are subject to the 25% reduction – that is to be defined in pending regulations. It can be expected, though, that "electricity rates" in this context will include both commodity and distribution costs, given the government's promise that electricity bills will be reduced by 25%.
• The initial adjustments to electricity rates must be determined by the OEB within 15 days after Bill 132 receives Royal Assent. The effective date will be July 1, 2017. There will be requirements (to be prescribed in regulations) for specific information to be included on or with invoices describing the new rates and other matters. A Regulatory Registry Notice published on May 12, 2017 sets out the wording that the government proposes must be included on or with customer invoices once the new legislation is passed.
• For subsequent years after 2017, the government may issue regulations that would prescribe the methodology to be applied by the OEB to determine electricity rates for regulated rate customers. According to the Backgrounder describing the Fair Hydro Act, 2017, this "would allow future increases to hydro bills to be set by regulation. This enables the government's commitment to hold increases, for four years, to the rate of inflation. By including this measure in regulation, it offers the province flexibility to respond to potential fluctuations in inflation rates in any given year."
• In future years, there may be an additional charge on consumer bills titled Clean Energy Adjustment. This will represent costs associated with recovering some current GA costs over an extended term. The costs not recovered by current rates will be accumulated in an entity overseen by Ontario Power Generation and recovered in later years through the Clean Energy Adjustment. According to the Backgrounder describing the Fair Hydro Act, 2017, the total amount to be accumulated may be as much as $28 billion. The proposed legislation is not clear about when the Clean Energy Adjustment will first apply. However, according to the Backgrounder, the expectation is that the charges will commence "in the mid-to-late 2020s."

It can be expected that Bill 132 will proceed quickly through the Ontario Legislature (as of May 15^th, the legislation has had first and second reading). We will report further as more information about the approval and implementation of the Fair Hydro Act, 2017 becomes known.

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