We are working hard to help Ontario businesses manage their electricity costs.

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1 Ontario Minister of Energy Meets with Chamber Network, Addresses Key Concerns In August 2015, the Ontario Chamber of Commerce released Empowering Ontario, a comprehensive report that takes a look at the driving factors behind rising electricity costs in Ontario. The report finds that in order to keep Ontario competitive, the Government of Ontario must ensure that electricity prices are competitive. This is not a simple task and there are no easy fixes. To that end, in September 2015, dozens of representatives from the Ontario Chamber Network met with Ontario Minister of Energy Bob Chiarelli. The conversation covered a range of topics, including rising electricity rates, the prospect of importing power from Quebec, and the government s plan to incent Local Distribution Companies to consolidate. Below are the Minister s answers to questions posed to him by members of the Ontario Chamber Network. 1. Rising electricity rates are a growing concern. One in twenty businesses in the province expect to close their doors in the next five years due to rising electricity prices. In addition, 38 percent will see their bottom line shrink, with the cost of electricity delaying or canceling investment in the years to come. What assurances can you provide Ontario businesses that this government is doing all it can to bend the electricity cost curve? Over the past decade the government has made necessary investments in the electricity system in order to provide Ontarians with a clean, reliable and affordable supply of energy. We are working hard to help Ontario businesses manage their electricity costs. As we plan for Ontario s energy needs for the next 20 years, conservation will be the first resource considered. It is one of the cleanest and most cost-effective energy resources, offering consumers a way to reduce their energy bills and reduce the need to build new generation, transmission and distribution infrastructure. In addition, to help maintain the competitiveness of Ontario businesses, we have introduced programs to help industrial and business consumers to manage their costs. An increase of $300,000 to $498,000 represents a rise of more than 250%. Data from the Independent Electricity System Operator s (IESO) Monthly Market Summary indicates that total electricity charges for an average Class B consumer increased by 28% over approximately the same timeframe. Such an increase in total bill over that period of time is likely related to a corresponding increase in consumption. Ontario s 2013 Long-Term Energy Plan (2013 LTEP), contains projections of electricity prices in Ontario. The 2013 LTEP projects the price of electricity for a typical industrial consumer will increase by 2.6% per year on average until 2019, and by 1.7% per year on average from 2015 to Page 1 of 7

2 Industrial electricity prices in Ontario are competitive. The Industrial Conservation Initiative (ICI) encourages Ontario s largest electricity consumers to reduce consumption during peak periods to save on average 25% on their electricity bills. We expanded eligibility of the ICI this year to include smaller manufacturers with monthly peak demands between 3 and 5 megawatts. ICI is succeeding at reducing Ontario peak demand, something which benefits all electricity ratepayers. While comparing electricity prices is not a straightforward task, Ontario s industrial electricity prices are consistent with average industrial electricity prices in many U.S. states, including Minnesota, Pennsylvania, Michigan, New Jersey and California (i.e., according to data published by the U.S. Energy Information Administration). For further information on industrial electricity prices, please see Q2 of the 2015 Ontario Energy Report, which includes information on prices paid by large transmission and distribution connected industrial electricity consumers. Most transmission-connected electricity consumers in Ontario paid between $40/MWh and $80/MWh in 2014, in part owing to the savings connected to ICI. Likewise, the recent appreciation of the U.S. dollar has further narrowed the gap between Ontario s electricity prices and those in U.S. states. Over the past several years, Ontario has taken significant steps to make the province s business tax system more competitive and create the conditions for long-term economic growth. Some of these measures include: The move to the Harmonized Sales Tax (HST), a value-added tax. The HST will remove $4.7 billion a year in embedded sales taxes paid by businesses when fully implemented. Eliminating Capital Tax, which corporations paid whether or not they had a profit and was a significant disincentive to investment, providing $2.1 billion of tax relief per year; and Cutting Corporate Income Tax (CIT) rates for small and large businesses, providing $2.3 billion of tax relief per year. Ontario s business tax reforms have positioned Ontario as one of the most attractive locations in the industrialized world for new business investment. With a provincial general CIT rate of 11.5 % and a combined federal/provincial general CIT rate of 26.5 %, Ontario s general CIT rate is competitive within Canada and internationally. For example, Ontario s CIT rate is lower than its two neighboring provinces, as Quebec has a CIT rate of 11.9% and Manitoba has a CIT rate of 12%. We also recognize the importance of small and medium sized businesses to workers and families, communities and our province s economy as a whole. This is why we are providing a range of programs and services to help businesses succeed and thrive, and why we are Page 2 of 7

3 implementing a five-point small business energy savings plan to help businesses become more energy efficient, manage costs and save money. These five points of the small business energy saving plan are: Promoting the use of energy managers; Marketing business conservation programs; Enhancing business conservation programs through increased rebates, more contractor engagement and training and a simplified application processes; Working to make on-bill financing available to help small businesses finance the upfront costs of energy conservation projects; and Ensuring long term stable funding for small business conservation initiatives continues to be available. Many rebates, incentives, and services are available to Ontario businesses through saveonenergy, delivered by electric utilities, and conservation programs delivered by natural gas distributors. For example, capital incentives, funding for energy managers and engineering studies, up to $1,500 for new energy efficient lighting, up to 50% in funding to undertake energy audits, completing energy efficiency upgrades, upgrading old or inefficient equipment and adding new control systems, as well as initiatives that help businesses access and pay for the most up-to-date training to save money and become more energyefficient. With respect to electricity exports, and electricity trade more generally, significant benefit is provided to Ontario s electricity system by trading with our neighbours. Exports provide a cost-effective and reliable means of balancing supply and demand while providing operational flexibility to the IESO that would not exist if Ontario was an electrical island. If not for the interconnections with neighbouring jurisdictions, more domestic generation and transmission resources would be required to maintain minute-to-minute reliability in the system, adding costs to Ontario s electricity system that would need to be recovered from Ontario ratepayers. As well, electricity exports provide opportunities to better utilize Ontario facilities, yielding economic benefits. Significant investments have been made on behalf of Ontario consumers to add generation capacity to meet the province s needs. At times of lower demand, when that generation is not required to meet provincial needs, it can be used to generate electricity for export, which brings in revenue to help cover fixed costs that otherwise would have to be paid for by Ontario consumers. The Independent Electricity System Operator estimates that the benefit to Ontario from exporting electricity in 2014 was $320 million. 2. In the recent provincial budget, the Minister of Finance created strong incentives for Local Distribution Company consolidation, most importantly the freezing of transfer tax and capital gains portions. However, municipal councillors are still uncertain about the prospect for consolidation in their communities. How is the Ministry conducting outreach to these communities to encourage consolidation and how can chambers work with the government to this end? Page 3 of 7

4 The Province intends to provide time-limited relief on taxes pertaining to transfers of electricity assets for all municipal electricity utilities (MEUs), including transfers to the private sector. As announced in the 2015 Ontario Budget, the Province is moving forward with the Premier s Advisory Council on Government Assets recommendations to merge Hydro One Brampton with three other large utilities PowerStream, Enersource and Horizon. This will create the second largest LDC in Ontario by customers. Public interest benefits of such a merger are many, including the potential to improve efficiency, to strengthen service and reliability, to open the door to new capital investment from the private sector, to encourage modernization of the distribution system and to help to catalyze further consolidation in the sector by demonstrating the merits of such an approach. LDCs interested in consolidation may interact with their respective municipal council. For example, PowerStream, Enersource and Horizon have met with their city council shareholders (City of Barrie, City of Markham, City of Vaughan, City of Mississauga, City of Hamilton, City of St. Catharines) to discuss their merger opportunity. 3. Your government recently signed an agreement with Quebec that could lay the foundation for greater electricity imports from Quebec. We urge you to be prudent. Ontario s existing transmission infrastructure cannot support much additional capacity and so a new interconnection with Québec would be required something that would come at a very high cost. A cost that would be absorbed by consumers for years to come. Further, if Ontario were to sign an agreement with Quebec, we d inevitably become dependent on Quebec produced electricity and become vulnerable to the price increases that Hydro Quebec would inevitably push on to Ontario businesses. Minister, can you please provide the business community with assurances that the government will not move forward with any plan to import more electricity from Quebec without first consulting with rate payer? In September 2014, Ontario and Quebec established an energy working group to explore energy collaboration issues, including opportunities to enhance mutually beneficial electricity trade between the two provinces. Since the group s inception, the two provinces have engaged in discussions regarding electricity trade opportunities. In May 2015, the two provinces finalized a Seasonal Capacity Sharing Agreement. Under the Seasonal Capacity Sharing Agreement, Ontario will make up to 500 MW of capacity available to Quebec over four years starting in winter 2015/16, and in return Quebec will make available an equivalent amount of capacity to Ontario in future years during the summer with some flexibility to reflect Ontario s need for capacity. This 10-year agreement takes advantage of the complementary seasonal peaks of electricity resources and needs in both provinces. Page 4 of 7

5 Ontario s need to procure additional capacity will be reduced over the life of the agreement. This will provide value and savings to Ontario ratepayers. As outlined in the 2013 Long-Term Energy Plan (2013 LTEP), Ontario will consider opportunities for electricity import agreements with other jurisdictions, including Quebec, where they provide system benefits and are cost-effective for Ontario ratepayers. On September 11, 2015, Ontario and Quebec signed a memorandum of understanding (MOU) for the two provinces to engage in continued discussions on an additional electricity trade agreement. Ontario s negotiations will be guided by the 2013 LTEP commitment of ensuring any agreement considered provides system benefits and value to ratepayers. In order to assure cost-effectiveness for Ontario ratepayers, any cost comparisons around electricity import arrangements would include the cost of electricity as well as any required transmission enhancements. 4. Many of our members worry that the partial sale of Hydro One will lead to higher electricity rates. What steps are you taking to ensure that the partial sale of Hydro One will have a neutral or positive impact on rates? As is currently the case, Hydro One will not set its electricity rates. Rates would continue to be set by the independent regulator, the Ontario Energy Board (OEB). The OEB is an independent regulator with a mandate to protect the interests of Ontario s electricity consumers. Applications from electricity companies like Hydro One are reviewed by the OEB and they make the final decision. OEB rate decisions have already been made for transmission, applying for the next two years and for distribution, applying for the next three years. That will remain unaffected. The government has also recently introduced legislation which, if passed, would strengthen the regulatory powers of the OEB to protect ratepayers and investigate complaints. 5. We support the government s decision to incentivize the consolidation of Local Distribution Companies. However, we believe that reduction in transfer tax could be extended to allow for continued consolidation. Is the government considering a longer tax exemption period? The tax recommendations provided by the Premier s Advisory Council are intended to accelerate the consolidation process, thereby supporting the goal of greater efficiencies in the overall system and lower costs for ratepayers than would have occurred without these changes. The government believes that time-limited relief strikes the right balance between offering incentives for LDC consolidation while balancing fiscal interests. Page 5 of 7

6 6. Currently, the IESO does not release average electricity prices nor does it conduct publicly available jurisdictional comparisons similar to those of Hydro-Québec. Minister, will your upcoming Ontario Energy Report include average electricity prices and comprehensive jurisdictional comparisons so that Ontario businesses can gain a full understanding of how their rates compare to those of their competitors elsewhere? The alternative is to rely on rate estimates published by third party organizations, who don t have access to the depth of information that you do. The Q2 of the 2015 Ontario Energy Report (2015 OER) includes information on prices paid by large transmission and distribution connected industrial electricity consumers and can be found here. In 2014, the majority of transmission-connected electricity consumers in Ontario paid between $40/MWh and $80/MWh, although some paid more and some paid less. For these energy-intensive consumers, electricity prices are competitive with nearby states including Pennsylvania, New York, Ohio, Minnesota and Michigan. The 2015 OER also shows that a typical large (5 megawatt) distribution-connected industrial consumer in Toronto paid about $98/MWh in The OER also notes that this price for power is comparable with cities such as Windsor at $93/MWh and Ottawa and Sudbury at $96/MWh. For the other Canadian provinces, Hydro Quebec s Electricity Rate Comparison report notes that there is a wide range of industrial rates across Canada. For example, as of April 1, 2015, the price in Manitoba was $46.70/MWh in Manitoba, whereas the price in Halifax was $100.20/MWh. 7. As of 2013, the Government of Ontario has invested extensively in smart grid technology. However, we do not believe this technology is being used to its full potential as there is no central platform for collection of data. We believe the government should create a single, province-wide data platform that collects, stores, and analyzes data points from across regions and distribution networks. That way, the province can better segment customers, improve asset and grid maintenance, and take advantage of quality data to make evidence-based forecasting and policymaking decisions. I welcome the Minister s thoughts. The time of use data from most residential and small business customers are currently being collected and processed by the province s Meter Data Management and Repository, or MDMR. This process ensures usage data is accurate and verified before customers are billed. However, on its own, this data has its limits. The Ministry is working with key partners, including local distribution companies, on a project to assess how to derive greater value from the MDMR data in areas like conservation and demand management, energy system planning, government policy, and innovation. Page 6 of 7

7 A data platform that integrates province-wide time of use information with other key sets of data would enable better analytics of energy use across Ontario. This could lead to more effective programs and more efficient systems at a lower cost. Page 7 of 7