Provincial Budget Caps Ontario Clean Energy Benefit for Large Users

April 2012

• The February 2012 Drummond Report recommended the Government eliminate the Ontario Clean Energy Benefit as quickly as possible. As part of the 2012 budget, the Government proposed a cap of 3,000 kWh per month for the OCEB rather than eliminating it completely.
• The Government has indicated the new cap will save $500 million over the period September 2012 to the end of 2015. However, the OCEB will continue to cost more than $1 billion per year.
• Typical residential customers will see no changes to their monthly OCEB. For most customers above the new cap, their OCEB will be capped at about $47 per month.

The Ontario Clean Energy Benefit was introduced in 2010 with an effective date of January 1, 2011, to address consumer concern about rising electricity costs. Under this program, the Ontario Government funds rebates to consumers of 10% of their electricity bill (including taxes). The program is funded out of tax revenues. In November 2010, Aegent examined the OCEB and highlighted some of the problems with it.

When the report by the Commission on the Reform of Ontario's Public Services ("The Drummond Report") was released in February 2012, it recommended that the Government "eliminate the Ontario Clean Energy Benefit as quickly as possible".

As part of the 2012 budget released by the Government on March 22, a cap was proposed for the OCEB at 3,000 kWh per month. In the announcement, the Government stated that the change would likely take effect September 1, 2012 and that it would save $500 million.

However, the concerns initially expressed about the OCEB still exist. Overall, the main problem is that the OCEB flies in the face of four electricity policy principles widely viewed as highly desirable:

1. Electricity consumers, not taxpayers, should pay for electricity
2. Consumers should pay the true cost of the electricity they use
3. A culture of conservation should be maintained
4. Electricity policy should be depoliticized

Execution Details

There was some initial confusion on how the new cap would be applied, for example, whether a consumer of say 4,000 kWh per month would receive no credit or some pro-rated credit. Aegent posed this question to the Ministry of Energy and was told that it's the latter. Details remain to be seen, but this would mean that under the new cap, such a consumer will receive about three-quarters (3,000 divided 4,000) of the OCEB they would have received previously, rather than nothing.

Customer Impacts

Typical residential consumers with monthly consumption of 800 to 1,000 kWh will remain well below the new cap and so based on a current all-in price of 15.5 cents/kWh, their monthly OCEB will remain unchanged at $12 to $16. Consumers with consumption above 3,000 kWh per month will see their monthly OCEB capped at about $47. The exception to this will be consumers with specified medical equipment that causes their consumption to be above 3,000 kWh; they will receive the full OCEB.

Larger electricity users consuming at the current average OCEB upper threshold of 20,800 kWh per month (250,000 kWh per year) and paying a slightly lower average price of 14.5 cents/kWh will see their monthly OCEB reduced by $258 (from $302 to $44).

Conservation

On the advent of the OCEB, Aegent estimated that the initial 10% drop in electricity costs seen by consumers would increase provincial consumption by 1.4% or 1.9 TWh, which is 32% of the 6 TWh annual conservation and demand management target allocated to local distribution companies by the Minister of Energy in April 2010.

In changing the OCEB, the Government notes that the new cap will "help to encourage conservation". However, the cap level of 3,000 kWh per month is three times that of the upper range the Government gives for typical residential consumption.

Cost to Provincial Taxpayers

At the time the OCEB was introduced, the Government estimated the first, full-year total cost to Ontario taxpayers at $1.1 billion. Sixteen months later, with electricity rates on the rise, Aegent estimates the current OCEB cost to be $1.2 billion per year. Based on the Government's estimate of $500 million in savings from the new cap (for the period September 2012 to the end of 2015), the average annual OCEB savings is $150 million, with near-term savings being slightly less than that. That means the OCEB will continue to cost more than $1 billion per year.

A lower cap, such as 1,000 kWh, would have produced a much more significant benefit to the provincial budget, while maintaining some electricity cost relief to average or smaller-than-average residential consumers.

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