Regulation - LGIC
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 Decision:
Effective April 5, 2022, Ontario Regulation 198/17 - Distribution Rate-Protected Residential Customers was amended to tie the Distribution Rate Protection (DRP) cap to an inflation factor set by the Ontario Energy Board (OEB), to limit the frequency with which the OEB must determine the distribution cap to once per year (which more accurately reflect the OEB's current practice), and to add a French version of the DRP Regulation. The OEB issued the order establishing the new DRP cap on June 16, 2022, which will apply to affected customer's bills starting July 1, 2022.
The Distribution Rate Protection program was implemented in 2017 to assist consumers who live in areas of the province with among the highest distribution rates. The program caps the amount of base distribution charges for specified residential consumers who are served by eight Local Distribution Companies (LDCs), each prescribed in regulation. The monthly cap, currently set at $36.86, is set by the Ontario Energy Board based on parameters outlined in O. Reg. 198/17 - Distribution Rate-Protected Residential Consumers, under the Ontario Energy Board Act, 1998 (the DRP Regulation).
The regulatory amendments 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 regulatory amendment will ensure that the DRP continues to protect eligible electricity customers from comparatively high distribution costs while responding to year-over-year price changes.
The Ministry received three comments on this proposal from stakeholders. Stakeholder submissions were largely supportive of the implementation of this regulatory amendment.
The Distribution Rate Protection program was implemented in 2017 to assist consumers who live in areas of the province with among the highest distribution rates. The program caps the amount of base distribution charges for specified residential consumers who are served by eight Local Distribution Companies (LDCs), each prescribed in regulation. The monthly cap, currently set at $36.86, is set by the Ontario Energy Board based on parameters outlined in O. Reg. 198/17 - Distribution Rate-Protected Residential Consumers, under the Ontario Energy Board Act, 1998 (the DRP Regulation).
The regulatory amendments 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 regulatory amendment will ensure that the DRP continues to protect eligible electricity customers from comparatively high distribution costs while responding to year-over-year price changes.
The Ministry received three comments on this proposal from stakeholders. Stakeholder submissions were largely supportive of the implementation of this regulatory amendment.
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, 1998
Ontario Regulation 198/17: Distribution Rate-Protected Residential Consumers
OEB’s Generic proceeding to consider the inflation factor to be used to set rates
Proposal Number:
22-ENDM001
Posting Date:
January 7, 2022
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.
Contact Address:
77 Grenville St., 6th Floor Toronto, ON M7A 2C1
Effective Date:
April 5, 2022
Decision:
Approved