February 19, 2008

Shifting from subsidies to rebates would reduce residential electricity bills

Time to put some reality into hydro pricing

February 19, 2008 - Putting some reality into Ontario electricity pricing would be good for public health, the environment and the province’s economic productivity, says a new report from the Ontario Clean Air Alliance (OCAA). And by combining a move to full cost electricity pricing with a Hydro Rebate Tax Credit, residential consumers will actually see their hydro bills fall.

Tax Shift: Eliminating Subsidies and Moving to Full Cost Electricity Pricing examines how a low electricity price leads to over consumption and results in increased greenhouse gas and smog-causing emissions from the electricity sector. The report outlines ten major subsidies that artificially suppress electricity prices in Ontario, including below market value water royalty rates, a below market return on equity for Ontario Power Generation, the PST exemption for electricity and the use of electricity sector corporate income tax revenues to subsidize the nuclear debt.

Eliminating these subsidies would significantly raise electricity rates and provide strong motivation to improve energy efficiency, but this rate increase does not have to lead to higher hydro bills for Ontario residents. The report recommends the creation of a Hydro Rebate Tax Credit that would shift the government dollars currently used for subsidies to a direct hydro rebate to residential and farm customers. “Ontario residents would be big winners under such a system,” notes Jack Gibbons, Chair of the OCAA. “The rebate would more than offset any bill increases, while preserving the upfront cost incentive to use electricity more efficiently - which will reduce bills even more.”

For commercial, institutional and industrial customers, the report points out that a 10-year phase out of subsidies could allow these electricity users time to increase the energy efficiency of their operations in order to offset the rate increase.

“Ontario currently lags behind many of its North American peers when it comes to our electricity productivity - the amount of electricity we use to produce a dollar’s worth of goods and services,” points out Gibbons. “This is a big competitive disadvantage, especially if we want to compete in high-value knowledge-intensive industries. By investing in energy efficiency and distributed generation options, like combined heat and power, Ontario companies can help to close our electricity productivity gap and lower their electricity bills.

“Right now, Ontario’s electricity productivity is 60% less than that of New York State,” Gibbons points out. “A major reason for our low electricity productivity is our long history of subsidizing electricity prices in this province. But we are paying a big price in terms of public health and the environment, as well as our economy, for the over consumption these subsidies encourage. The public health and environmental impacts of our coal plant emissions alone add up to $3.1 billion a year. We cannot afford to stick with the status quo.”

The full report is available at www.cleanairalliance.org.

For more information:

Jack Gibbons 416-926-1907 ext. 240 Chair, Ontario Clean Air Alliance