Tying the Distribution Rate Protection Cap to Inflation
Regulation Number(s):
198/17
Instrument Type:
Regulation - LGIC
Bill or Act:
Ontario Energy Board Act, 1998
Summary of Proposal:
The Ministry of Energy proposes to make a regulatory change to O. Reg. 198/17 (Distribution Rate-Protected Residential Consumers) under the Ontario Energy Board Act, 1998 (the DRP regulation).
Distribution Rate Protection ("DRP") provides rate protection for specified residential customers who are served by the following Local Distribution Companies (LDCs) with higher distribution costs:
Algoma Power Inc.
Atikokan Hydro Inc.
Chapleau Public Utilities Corporation
Hydro One Networks Inc. R1, R2 customers
InnPower Corporation
Lakeland Power Distribution Ltd (former Parry Sound Power service area)
Northern Ontario Wires Inc.
Sioux Lookout Hydro Inc.
The DRP program is funded through provincial revenues. Section 4 of the DRP regulation caps the amount of "base distribution charges" for eligible residential customers. The monthly cap is set by the Ontario Energy Board (OEB) at least once a year based on parameters outlined in the DRP regulation. The regulation specifies that the cap is the greater of:
a)The lowest of the monthly base distribution charges that were established in a rate order since the OEB's last determination of the DRP cap; and
b)The previously approved DRP cap.
The proposed amendments would address a structural limitation in the methodology that has resulted in the cap remaining unchanged for four years. Despite the original intention of the cap-setting methodology to allow the distribution cap to gradually increase year-over-year, in line with the rate of cost increases, the DRP cap has been set at $36.86 each year since 2018, one year after the program's implementation. This is the result of routine regulatory and LDC business decisions that have lowered distribution costs of some eligible customers below the previous year's cap.
The amendment would revise the DRP cap-setting methodology to include an inflationary measure that gradually and appropriately increases the DRP's cap annually.
Every year, the OEB determines an inflation factor that is applied to the rates of distributors. This inflation factor would be leveraged to increase the DRP's cap, and would be implemented through a regulatory amendment to O. Reg. 198/17 that revises the cap methodology to be the greater of:
a)The lowest of the monthly base distribution charges that were established in a rate order since the OEB's last determination of the DRP cap; and
b)The previously approved DRP cap times the OEB's annual inflation factor.
The proposed regulatory amendment would reduce pressures on program costs while helping to ensure that the DRP continues to protect eligible electricity customers from comparatively high distribution costs. It is anticipated that this amendment would be in place in time for the OEB's next cap-setting scheduled to come into effect on July 1, 2022.
Distribution Rate Protection ("DRP") provides rate protection for specified residential customers who are served by the following Local Distribution Companies (LDCs) with higher distribution costs:
Algoma Power Inc.
Atikokan Hydro Inc.
Chapleau Public Utilities Corporation
Hydro One Networks Inc. R1, R2 customers
InnPower Corporation
Lakeland Power Distribution Ltd (former Parry Sound Power service area)
Northern Ontario Wires Inc.
Sioux Lookout Hydro Inc.
The DRP program is funded through provincial revenues. Section 4 of the DRP regulation caps the amount of "base distribution charges" for eligible residential customers. The monthly cap is set by the Ontario Energy Board (OEB) at least once a year based on parameters outlined in the DRP regulation. The regulation specifies that the cap is the greater of:
a)The lowest of the monthly base distribution charges that were established in a rate order since the OEB's last determination of the DRP cap; and
b)The previously approved DRP cap.
The proposed amendments would address a structural limitation in the methodology that has resulted in the cap remaining unchanged for four years. Despite the original intention of the cap-setting methodology to allow the distribution cap to gradually increase year-over-year, in line with the rate of cost increases, the DRP cap has been set at $36.86 each year since 2018, one year after the program's implementation. This is the result of routine regulatory and LDC business decisions that have lowered distribution costs of some eligible customers below the previous year's cap.
The amendment would revise the DRP cap-setting methodology to include an inflationary measure that gradually and appropriately increases the DRP's cap annually.
Every year, the OEB determines an inflation factor that is applied to the rates of distributors. This inflation factor would be leveraged to increase the DRP's cap, and would be implemented through a regulatory amendment to O. Reg. 198/17 that revises the cap methodology to be the greater of:
a)The lowest of the monthly base distribution charges that were established in a rate order since the OEB's last determination of the DRP cap; and
b)The previously approved DRP cap times the OEB's annual inflation factor.
The proposed regulatory amendment would reduce pressures on program costs while helping to ensure that the DRP continues to protect eligible electricity customers from comparatively high distribution costs. It is anticipated that this amendment would be in place in time for the OEB's next cap-setting scheduled to come into effect on July 1, 2022.
Analysis of Regulatory Impact:
Annually increasing the DRP cap by the OEB's inflationary factor will result in a slight increase to distribution rates that eligible residential customers pay. From 2017-2021, the OEB's inflation factor ranged between 1.2% to 2.2%.
Further Information:
Ontario Energy Board Act, 1998Ontario Regulation 198/17: Distribution Rate-Protected Residential ConsumersOEBs Generic proceeding to consider the inflation factor to be used to set ratesProposal Number:
22-ENDM001
Posting Date:
January 7, 2022
Comments Due Date:
February 21, 2022
Contact Address:
77 Grenville St., 6th Floor Toronto, ON M7A 2C1
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