Ontario's energy regulator has quietly shifted responsibility for building costly new electricity systems from investors to consumers, a move that partly accounts for a sharp spike in hydro bills, critics say.
Seven months ago, the Ontario Energy Board gave industry players the go-ahead to crank up their profits substantially. But information about the change was not widely reported until the New Democratic Party raised it in the legislature on Thursday.
Industry critics say the regulator has abandoned more than 100 years of tradition, in which an electricity utility borrowed money to build an asset and then recovered its costs from consumers once the new power was delivered to their homes.
The board's ruling says that Ontario Power Generation, Hydro One, Toronto Hydro and other utilities can bill consumers upfront to help recover their construction costs.
"The board will allow utilities to apply to include up to 100 per cent of prudently incurred [construction]costs in rate base," the ruling says.
It also says the utilities can earn a return on equity of 9.85 per cent for this year, up from a previous rate of 8.4 per cent. NDP Leader Andrea Horwath said on Thursday that the higher rate pads the bottom line of utilities at the expense of consumers, who will be hit with another $240-million a year in hydro costs, an average of $60 for each family in Ontario.
The board has adopted the customer-based funding model at a time when the McGuinty government is making a big push to modernize the province's electricity system and replace pollution-spewing coal-fired plants with greener sources of power.
Michael Janigan, executive director and general counsel of the Public Interest Advocacy Centre, represented seniors and low-income consumers at board hearings on the rate increase. He said the board set the return on equity based on what utilities earn in the United States, where the risks associated with building new systems are typically greater.
"We were somewhat alarmed by the fact that fairness to the utilities was considered first and foremost over fairness to Ontario ratepayers," Mr. Janigan said in an interview.
Alan Findlay, a spokesman for the board, said utilities need to attract investment to operate and pay for maintaining their systems. "In order to attract that investment," he said, "their ROE needs to be competitive with other jurisdictions."
Energy consultant Tom Adams blames the McGuinty government's Green Energy Act for the fact that the board will now allow utilities to charge consumers for the costs of assets under construction but not yet in service.
"The gold standard used to be rates that were just and reasonable," he says in a paper titled Electric Rate Shock: Ontario Energy Board. "The Green Energy Act is stuffing your power bill with hidden charges."
Energy Minister Brad Duguid has been under siege in recent days over rapidly rising hydro rates. He appeared to be caught off guard by the attack on Thursday, insisting - erroneously, it turns out - that the board's ruling applies just to private utilities and not to Crown-owned Hydro One and Ontario Power Generation.
However, Mr. Findlay at the Energy Board confirmed that the new return-on-equity rate applies to the two Crown-owned utilities.
Mr. Duguid said he has asked both Hydro One and Ontario Power Generation to scale back their requests for rate increases for 2011-12. He said hydro bills are climbing because the McGuinty government is modernizing the province's electricity systems.
"These aren't arbitrary investments," he told reporters. "These are investments to make sure we can keep the lights on and have a reliable source of energy."
Ms. Horwath said the higher rates approved by the board will just go straight to the utilities' bottom lines.
"It's making Ontarians pay through the nose just to pad these profits," she told reporters.
Karen Howlett