Explaining Your Ontario Electricity Rate

While some companies charge very simple and easy-to-understand electricity rates, many offer plans with pricing structures that seem confusing, random or even intentionally opaque. To help clear up some of the confusion, here is a breakdown of some of the more common electricity rate plans used by retailers and electricity utilities.

Hourly Ontario Energy Price (HOEP)

Consumers often think of electricity as a given. It’s just there. However, electricity is a commodity. Its prices rise and fall due to supply, demand, and economic factors, just as the prices of stocks and other investments rise and fall.

The price of electricity changes constantly, on a second-by-second basis. In Ontario, the electricity market is overseen by the Independent Electricity System Operator (IESO). The IESO essentially keeps the market organized, making sure that sales of electricity are properly sorted according to cost so that buyers can easily purchase the cheapest available electricity.

The point at which buyers and sellers agree on a price is referred to as the Market Clearing Price (MCP), which is updated every five minutes. Every hour, the previous 12 MCPs are averaged together to calculate the Hourly Ontario Energy Price (HOEP).

Businesses that use large amounts of electricity purchase it wholesale according to the HOEP. Homeowners and small business owners usually pay Time-Of-Use prices, which are regulated rates based on HOEP, but add in other costs, such as transmission costs, the Global Adjustment, and other fees. To clarify, all consumers pay these additional costs. Smaller consumers just don’t see the breakdown of these fees.

Regulated Price Plan (RPP) Rates

If you see two different prices on your energy bill—one for consumption up to a certain threshold, and then a higher rate for consumption beyond that point—that means that you are on a Regulated Price Plan (RPP). Also known as a Tiered Regulated Price Plan or Tiered Pricing Plan, RPP rates are mandated by the Ontario Energy Board to give residents of Ontario access to electricity services at a predictable, stable price.

These prices are fixed, rather than reacting to economic influences as retail rates do. As a consequence, RPP rates are likely to be somewhat higher than retail rates, due to the need to ensure that utility companies can make up for periods when energy production costs are especially high. RPP prices are reviewed once a year and are rest as need to cover the cost of electricity supply.

Regulated Price Plan Seasonal Thresholds and Prices for Hydro One

• Tier 1: 10.3 ¢/kWh
  • below a total of 600 kWh per month for the summer period (May 1 to October 31)
  • below a total of 1000 kWh per month for the winter period (November 1 to April 30)
• Tier 2: 12.5 ¢/kWh
  • above a total of 600 kWh per month for the summer period (May 1 to October 31)
  • above a total of 1000 kWh per month for the winter period (November 1 to April 30)

The Advantages of RPP Rates

RPP is highly desirable for consumers who value predictability above all else. In addition, the cost breakdown on an RPP bill can be easier to follow than bills for retail energy or utilities that charge TOU rates.

Additionally, you have no obligation to stick with your RPP utility. Thus, you can come and go as you please.

The Disadvantages of RPP Rates

The stability of RPP comes at a cost—a literal cost. RPP rates are often higher than rates charged by energy retailers. This is in part because RPP rates have to be priced in order to hedge against unpredictable cost increases in the future.

But for those who use more than a couple of hundred kWh of electricity per month, many retailers offer competitive flat rate packages, in which you can use as much electricity as you want (below a pre-set cap), when you want, for a single monthly fee. In essence, the retailer pays for the risk, instead of the consumer.

In addition, many retailers offer variable rates that change according to current economic conditions, and these rates are often lower than RPP rates.

So, for consumers who really want to minimize their electricity costs, there are many reasons to look at alternatives to RPP utilities.

RPP Settlement

Any consumer who chooses to leave the RPP will either pay or receive a final RPP variance settlement amount. The amount reflects the consumer’s share of any accumulated variance between the actual price paid to generators and the forecast price paid by RPP consumers. The final RPP variance settlement amount applies to RRP customers who:

• Cancel their account and move outside of Ontario
• Switch to a competitive retailer
• Elects the spot market pricing option
• No longer remains eligible for the RRP

For all but the largest consumers of electricity, this settlement will amount to a few dollars. The settlement is based upon the “Final RPP Variance Settlement Factor,” which is recalculated on a monthly basis. When this factor is positive, you will be charged a settlement. When the factor is negative, you will be credited for the settlement.

As of April 18, 2024, the final RPP variance settlement factor is:

To calculate your settlement, take your average monthly energy consumption in kWh, multiply it by 12 (if you were an RPP customer for less than 12 months, substitute the number of months you were an RPP customer), and then multiply by the variance to find your settlement.

For example, an RPP consumer using an average of 700 kWh/month would be charged $0.43 if they leave the RRP:

700 kWh/month x 12 months = 8,400 kWh x $0.0000509/kWh = $0.43

An RPP customer using an average of 1,000 kWh/month would be charged $0.61 if they leave the RPP:

1,000 kWh/month x 12 months = 12,000 kWh x $0.0000509/kWh $0.61

You would be charged a total of $4.27 on your final bill for your RPP settlement. For more information on the settlement, visit the Ontario Energy Board’s Final RPP Variance Settlement Amount page.

Time-Of-Use (TOU) Prices

The majority of Ontario electricity consumers pay Time-Of-Use (TOU) prices for their electricity. TOU prices are regulated by the Ontario Energy Board, which reviews current economic conditions and adjusts these regulated rates every six months.

While TOU prices can be a little difficult to understand, they’re built around a simple concept: when electricity demand is higher, it costs producers more to meet this demand, thus prices need to be accordingly high. When demand is low, the cost of production is low, and the prices are low.

TOU Periods and Prices

TOU prices are broken down into three categories:

• Off-Peak: This is the period when electricity consumption is lowest. During this period, prices are at their lowest.
• Mid-Peak: This is when demand for electricity is moderately high, but not at its peak. Prices during this period are a little higher than they are during Off-Peak hours.
• On-Peak: This is primetime, when electricity demand is at its absolute highest, and so prices are at their peak. During this period, the vast majority of people are at home and running their heating, air conditioning, TVs, computers, microwaves, etc.

As of November 1^st, 2023, these are the prices for each of these periods:

• Off-Peak: 8.7 cents/kWh
• Mid-Peak: 12.2 cents/kWh
• On-Peak: 18.2 cents/kWh

Thus, the price that TOU users pay for their electricity changes depending on when they use their electricity.

TOU Price Breakdown

The TOU rate schedule is built around the typical power consumption of Ontario residents. Because this behavior changes on weekdays versus weekends, and winter versus summer, the TOU schedule changes according to the season and the day of the week.

For weekends and holidays, regardless of the season, all hours of the day are off-peak. No matter when you use electricity on these days, you will pay the lowest TOU rate. But it’s the weekdays where things get tricky.

In the summer (May 1^st to October 31^st), the weekday schedule breaks down as follows:

• Off-Peak: 7 PM to 7 AM
• Mid-Peak: 7 AM to 11 AM and 5 PM to 7 PM
• On-Peak: 11 AM to 5 PM

In the winter (November 1^st to April 30^th), the weekday schedule is:

• Off-Peak: 7 PM to 7 AM
• Mid-Peak: 11 AM to 5 PM
• On-Peak: 7 AM to 11 AM and 5 PM to 7 PM

The Ontario Energy Board reviews and updates these prices every six months, so they are subject to change over time.

Ultra-Low Overnight (ULO)

As of May 1, 2023, Ontarians have a third option for electricity rates: the Ultra-Low Overnight (ULO) plan. At first, only a select number of utilities will offer the plan to consumers. Starting November 1, 2023, all utilities in the province are required to offer the ULO to customers. In short, the ULO plan provides a low rate for overnight electricity usage. Therefore, consumers primarily using electricity at night would likely see the most benefit from the ULO pricing.

Ultra-Low Overnight Price Breakdown

The Ultra-Low Overnight (ULO) plan operates similarly to the TOU plan. The following is the pricing schedule: