Canada: Report Of The Commission On The Reform Of Ontario’s Public Services: Recommendations On The Reform Of Ontario’s Electricity Sector

Last Updated: March 5 2012
Article by Linda Bertoldi, Stephen Andrews and Mark J. Rodger

Most Read Contributor in Canada, September 2016


On February 15th, 2012 Donald Drummond, the Chair of the Commission on the Reform of Ontario's Public Services (the "Commission"), released the report entitled Public Services for Ontarians: A Path to Sustainability and Excellence ("Drummond Report"). The Drummond Report is divided into 20 chapters and contains 362 recommendations for making Ontario's public services economically sustainable over the long term and to balance the Ontario budget by 2017-2018. The recommendations argue for finding the most cost effective government services for money spent and reducing annual expenditures in key areas out to 2017-2018. For example, health care spending (the largest single expenditure at just over 40% of government revenues) should be reduced from about 5% annual growth to 2.5%. The Drummond Report recommendations are expected to influence the 2012-2013 Ontario Budget which will be presented this March.

The following summary outlines the recommendations made in the Drummond Report that impact Ontario's electricity sector particularly generators and Ontario's municipally-owned electrical distribution companies ("LDCs"). We start by giving a high level overview of the Drummond Report to put its electricity sector implications into context.


Drummond outlines the economic challenge in the following manner:

Ontario faces more severe economic and fiscal challenges than most Ontarians realize. We can no longer assume a resumption of Ontario's traditional strong economic growth and continued prosperity on which the province has built its public services. Nor can we count on steady, dependable revenue growth to finance government programs. Unless policy-makers act swiftly and boldly to prevent such an outcome, Ontario faces a series of deficits that would undermine the province's economic and social future.1

Ontario's $14 billion deficit in 2010-11 was equivalent to 2.3% of gross domestic product, the largest deficit relative to GDP of any province in Canada. With net debt of $214.5 billion or 35% of GDP, and a target date of 2017-18 for balancing the budget, significant spending reductions across all government services are required. The Drummond Report's overall recommendation is that expenditure growth will have to be limited to 0.8% annually or a decrease of 2.5% on a real per capita basis per year until 2017-18 to achieve that objective.

The mandate of the Commission contained five parts:

  1. Advise on how to balance the Ontario budget earlier than 2017-18 (a task the Commission rejected as "neither practical nor desirable");
  2. Once the budget is balanced, ensure a sustainable fiscal environment;
  3. Ensure that the government is getting value for money in all its activities;
  4. Do not recommend privatization of health care or education;
  5. Do not recommend tax increases.


Chapter 12 "Infrastructure, Real Estate and Electricity" positions the performance of the electricity sector as key for improving the fiscal and economic position of the province. This includes the performance of Ontario Power Generation and Hydro One as well as how energy pricing impacts the competitiveness of industries such as mining and forestry. The chapter is dividend into three sections with specific recommendations for each area.

  1. Direct Program and Tax Expenditures
  2. Electricity Stranded Debt
  3. Options to Reduce Long-Term Electricity Costs.

Additional recommendations related to Ontario Power Generation ("OPG") and Hydro One Inc. ("Hydro One") are contained in Chapter 17 "Government Business Enterprises".

Direct Program and Tax Expenditures

General tax revenues support a number of programs that subsidize energy prices.

These include the Ontario Clean Energy Benefit, Ontario Energy and Property Tax Credit, Ontario Emergency Energy Fund, Northern Ontario Energy Credit, and the Northern Industrial Electricity Rate Program.

The first recommendation (12.10) is to eliminate the Ontario Clean Energy Benefit ("OECB") program as quickly as possible. This would result in savings of about $1.1 billion annually. The OECB was introduced as of January 1, 2011 to mitigate the 46% increase in electricity prices over the next five years which the government forecast in its 2010 Long Term Energy Plan. The OECB provides a 10% rebate for five years for small business, farm and residential customers. In recommending the elimination of the OECB, the Commission stated that it "strongly believes there are more effective uses for the over $1 billion per year spent on this initiative".

The second recommendation (12.11) is to review the other subsidy programs against value for money and what policy goals they have achieved.

Electricity Stranded Debt

The Electricity Act, 1998 provides dedicated revenue streams to retire the former Ontario Hydro's stranded debt through payments in lieu of taxes ("PILs") to the Ontario Electricity Financial Corporation ("OEFC") from OPG, Hydro One and LDCs. The province has also committed to the OEFC annual profits of OPG and Hydro One above the government's financing costs for those entities. The fiscal impact of OEFC's revenue streams is consolidated onto the province's financial statements and so all of OEFC's revenues and expenses impact the province's deficit/surplus position. The Report recommends generally that OPG and Hydro One should be run as efficiently as possible to ensure the stranded debt is retired as quickly as possible.

Options to Reduce Long-Term Costs

The report makes nine recommendations as follows as a means to slow down electricity price increases. We provide our comments following certain of the recommendations.

1. (12.12) Produce an Integrated Power System Plan ("IPSP") built on the foundation of the LongTerm Energy Plan.

  • The Ontario Power Authority ("OPA") is currently at work on the revised IPSP which is expected to be filed with the Ontario Energy Board later this year.

2. (12.13) Consolidate Ontario's 80 LDCs along regional lines to create economies of scale.

3. (12.14) As part of the review of the feed-in Tariff ("FIT") Program, take steps to mitigate the impact on electricity prices by:

  • Lowering the initial prices offered in the FIT contract and introducing rates that reduce the tariff over time to encourage innovation and discourage reliance on public subsidies.
    • The Minister of Energy recently stated that the results of the current FIT Program review are expected to be announced by the end of March. It is widely anticipated that the pricing offered under the FIT Program will be reduced reflecting, in part, factors such as the decline in solar panel prices.
  • Make better use of "off ramps" built into existing contracts.
    • The use of off-ramps seems to imply that the Commission is recommending that the OPA consider using contractual provisions which entitle it to terminate existing contracts in its discretion. This concept will raise questions for those parties who are proceeding with development activities and incurring expenses on the basis that they have valid binding contracts. This recommendation is potentially of concern if used to terminate contracts without valid cause and without providing full compensation.

4. (12.15) Procure larger generation facilities through a request for proposal process.

  • This recommendation would appear to reduce the FIT Program to smaller projects, possibly similar to the Renewable Energy Standard Offer Program ("RESOP") which had a 10MW limit on project size. RESOP was terminated prior to development of the FIT Program.

5. (12.16) Review the roles of various electricity sector agencies to identify areas for economies in administration.

  • No specific proposals for agency consolidation or mandate reform were made; however, it is widely assumed that reviews of the roles of the IESO, OPA, Hydro One and the OEB are being undertaken.

6. (12.17) Make wholesale electricity prices inclusive of transmission costs such as capacity limitations and congestion as part of a comprehensive restructuring of the of the wholesale electricity market.

7. (12.18) Make regulated prices more reflective of wholesale prices by increasing the on-peak to off peak price ratio of time-of-use pricing and by making critical off peak pricing available on an opt-in basis.

8. (12.19) Co-ordinate a comprehensive, proactive electricity education strategy across sector participants that at a minimum covers: Ontario's electricity resources, the role and value of imports and exports, roles and responsibilities of various entities in the sector, the changing role of the ratepayer in the smart grid paradigm, and electricity prices – what drives them, how they are communicated and how they are best responded to.

9. (12.20) Strategically promote Ontario's strengths in the energy sector, capitalizing on export opportunities for domestic goods and services.


A critical recommendation relates to LDC consolidation along regional lines which, by lowering electricity costs, will help improve the competitiveness of Ontario businesses. The Drummond Report believes achieving economies of scale through consolidation will reduce the estimated $1.35 billion spent on operations, maintenance and administration by LDCs and would thus result in direct savings on the distribution component of the electricity bill.2 Drummond also favours some form of "privatization" of LDCs. As the Report states "flexibility regarding LDC sector reform could be greatly enhanced through a co-operative federal-provincial tax arrangement that returns to the province any federal corporate taxes paid by the newly privatized electricity utilities."3 The Report clearly favours large, regional LDCs that could also integrate water services into their operations and have greater involvement in the planning and design of conservation programs.

Other recommendations clearly impact LDCs: the changes recommended related to on-peak and off peak time-of-use pricing, if adopted, would require further billing system changes to LDCs, various regulatory approvals from the Ontario Energy Board and additional communications to customers.

Recommendation 12.19 that outlines an education strategy may require LDCs to spend significant resources on various communications products and related support services such as call centre staff and digital media strategies. This too would have to be co-ordinated with other energy sector stakeholders to ensure the education program is effective.

If adopted, the recommendations that would eliminate energy price subsidies could result in LDC customer concerns. Any changes to the FIT Program may impact existing programs being untaken by LDCs to comply with the current FIT Program and the obligations placed on LDCs by the Green Energy Act.

Any change to the composition or operation of the regulatory and market oversight agencies will impact LDCs process and possibly the administration of various conservation and demand management programs with the OPA.


The Report notes that OPG and Hydro One produced combined net income of $1 billion to the province and have combined net assets of $14.8 billion. OPG and Hydro One (and two other GBEs, the Liquor Control Board of Ontario (LCBO) and the Ontario Lottery and Gaming Corporation (OLG)) provide a return on assets of at least 8%.

A divestiture of all or any of these entities where the proceeds would be applied to provincial debt would result in a 4% savings on provincial interest costs. The Commission notes that "any full divestiture would have to overcome this spread to provide a fiscal benefit to Ontario". The Report also discusses the various structural and policy objectives which would have to be met if the government only divested a partial interest (e.g. 10-20%) to private sector partners and allowed such partners a significant management role in order to increase the value of the interest retained by the province. The Commission considers that the government should be open to the prospect of sale and should seek "new approaches that generate better value" out of all of its owned business including OPG and Hydro One. Nonetheless the Report recommends against partial or full privatization of OPG and Hydro One and other GBEs unless the net, longterm benefit to Ontario is considerable and can be clearly demonstrated through comprehensive analysis (17.25).

The Report discusses the option of the government maintaining ownership of the GBEs but taking steps to improve their performance. Reflecting on recent history, the Report also recommends that the government should avoid intervening in OPG or Hydro One rate filings to delay short-term price increases which the Report notes often leads to greater costs ultimately (17.6).

The Report references with approval the recently formed partnership among Hydro One, a private partner and First Nations to compete for the right to build a new transmission line in Ontario. The Commission believes that Hydro One has immediate opportunities, such as the foregoing, to increase its revenue.

Operational efficiencies for OPG and Hydro One should be sought through strategic partnerships and other means (17.7).


The Report notes that the federal government provides $1.4 billion in annual subsidies to the oil and gas sectors but little support for Ontario's clean energy initiatives. Ontario is urged to advocate for federal greenhouse gas mitigation programs to provide equitable support for Ontario's clean energy initiatives (20.5).

In the section on Environment and Natural Resources the Commission refers with approval to the Renewable Energy Approval ("REA") process as an example of regulatory streamlining. The Report recommends movement towards full cost recovery and userpay models for environmental programs and services (13.1). This recommendation, if adopted, would impose greater costs to those seeking REA's.

The Commission notes that the FIT Program will drive demand for Ministry of Environment approvals and recommends a risk-based approach for environmental approvals that focuses on improving outcomes and prevention (13.3) and recommends reviewing opportunities to further streamline the environmental assessment process (13.4).


The Drummond Report is now being reviewed by the Ministry of Finance to determine what may be included in the provincial budget that will be released in late March. It is clear that some recommendations will not be adopted such as the recommendation to eliminate full day kindergarten. Outside the formal budget process, the recommendations on the reform of the electricity sector will provide sector stakeholders the opportunity to support or criticize the Report's policy analysis and recommendations.


1 Executive Summary, p. 1.

2 See page 331 Drummond Report.

3 Page 331.

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.