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Will Your Dropping Hydro Rates Reduce Your Household Expenses?

22 June 2017

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If you are like most others living in Ontario, you have probably groaned to your neighbour or friend about your hydro bill on multiple occasions. If you live in even a modest-sized home, you may be facing hydro bills in the range of $150-$300 per month, amounting to thousands of dollars over the course of the year.

For many people, that amount equates to groceries for the month, or the phone, internet and cable bills combined. Because it is a necessary expense and, in some ways “invisible,” it is easy to overlook how seriously hydro cuts into your monthly budget.

A New Plan for Ontario

Premier Kathleen Wynne recently unveiled a new plan to reduce hydro bills in Ontario by an average of 17 per cent by summer 2017 for both residences and small businesses.

Wynne’s plan includes ensuring that moderate-sized businesses gain access to a lower “preferential business rate” enjoyed by large businesses. Further, the plan includes provisions to increase a rebate program for low-income households by 50 per cent. The rebate program is expected to save low-income households $35-60 per month on their hydro bills.

What Does the Plan Include?

The main promise made by the Ontario government is to ensure that electricity rates that are being cut do not increase again, other than by the amount of inflation, for the next four years. However, after the initial period, there is no guarantee as to what will happen to hydro rates. Depending on what policy decisions are made years from now, future hydro rates may escalate even higher than currently, given that the plan is for the government to pay more in interest as a result of seeking to pay off its expenses over a longer period of time.

Possible Future Repercussions of the Plan

Although lower rates have some appeal, the costs must be borne by someone. Wynne appears to have admitted the plan is a short-term relief plan for current hydro customers and that increase costs will be borne by future taxpayers and hydro customers. The current sky-high hydro rates will likely spread across generations.

Wynne’s plan will result in $28 billion being re-financed, with the government to pay off the costs of building new energy infrastructure and maintaining older plants over a longer period of time. This means that the government will incur over a billion dollars more in interest, in order to extend the time for payback. This too will be a repercussion for future hydro customers and taxpayers.

Further, lower hydro rates for businesses and enhanced rebate programs again mean increased overall cost and interest, even if these increased costs are “spread out” over future years or decades. The enhanced rebated program is expected to cost in the range of $2.5 billion.

The NDP and Conservative parties have not yet forwarded any concrete plan as to how they would make hydro more affordable, though the NDP has suggested reducing hydro bills by approximately 30 per cent by attempting to buy back shares from Hydro One.

What Does This Mean For Your Present and Future Budget?

Although a 17 per cent decrease in your hydro bill may alleviate some of your budget concerns, there is no guarantee with respect to future policies, and whether the increased overall government expenditure will result in future increased hydro rates.

Hydro rates are variable, as are the policies that attach to them. While it is easy to brush off hydro bills as a necessary expense and hydro certainly is necessary, it is not a minor expense.

When budgeting, be aware that your hydro bills may increase in the future. Leave some wiggle room in your monthly budget to deal with variable rates and bills. If you can, reduce the use and shorten the time running of your dishwasher, washing machine, and showers. While we do not always have control over government policies, we have some control over how we use our hydro.

If You Are Struggling With Bills, Speak to Harris & Partners About Bankruptcy in Ontario

If you are already on a tight budget, the variability of hydro bills can become a legitimate source of stress. If you are struggling with bills and other debts and you are unsure how to meet all of your payment obligations, speak to us at Harris & Partners Inc. for sound debt solutions at one of our ten locations in Ontario, including Toronto, Brantford, Brampton, Hamilton & Pickering.