by Matt Faulknor Friday November 5, 2010

Hydro rates and Big Macs. How much are Ontarians really paying for hydro?

Lately at Queen’s Park it seems that opposition questions about hydro rates dominate question period. Whether it’s the Progressive Conservatives offering up Time-of-Use alternatives or whether it’s the NDP demanding the government remove the HST from hydro bills, both opposition parties claim that they’re fighting for Ontario rate payers who can’t afford to pay any more. I must admit, this seems to be the consensus amongst friends, relatives, people I come in contact with - that we Ontarians are simply paying TOO MUCH for hydro. But are we? How much are we paying compared to other countries?

Here is what eight randomly selected countries charge their households for electricity. FYI, electricity is measured in kilowatt hours as a kilowatt hour (kWh) is the common global billing unit for energy delivered to consumers. Also, all the currencies mentioned below have been converted into United States dollars (USD).

Average Electricity Prices for Households*

Denmark pays 36.5 US cents per kWh.
Luxembourg pays 23.7 US cents per kWh.
UK pays 20.6 US cents per kWh.
Sweden pays 19.4 US cents per kWh.
Czech Republic pays 19.2 US cents per kWh.
USA pays 11.5 US cents per kWh.
Chinese Tapei pays 8.8 US cents per kWh.
Mexico pays 7.8 US cents per kWh.

* based on annual 2009 Prices (Source: International Energy Agency)

And Ontario pays… 7.7 US cents per kWh.

To find the Ontario number I averaged Ontario’s three different Time-of-Use price rates for households, which are: on-peak 9.9 cents per kWh, mid-peak 8.1 cents per kWh, and off-peak 5.1 cents per kWh. I added those numbers up, divided by three, and, finally, converted the Canadian price into USD (which, at the time of writing this is almost indistinguishable).

As you can see, Ontario households pay substantially less for electricity than a lot of other countries. Of course, our comparison is incomplete. Here’s why. At first glance, Denmark pays almost five times what Ontario pays for electricity, however, what if everything in Denmark costs almost five times more than it does here? If that were the case it would be fair to say that Denmark doesn’t really pay any more for electricity than Ontario does. Everything is, as they say (including the price of commodities), relative. That’s why I took the logical next step of adjusting the price of electricity in the aforementioned countries with a Big Mac from McDonalds.

In 1986 The Economist came out with The Big Mac Index as an informal and clever way of measuring the purchasing power parity (PPP) between currencies. Very clever. Think about it. The Big Mac is a comparatively stable commodity. That is to say that Big Macs are pretty much the same in various countries around the world; a Big Mac in Toronto is the same as a Big Mac in Paris and so on. It is also incredibly international and just so happens to be offered in all the countries whose electricity prices we are interested in. Therefore, for the purposes of our electricity price comparison, it works nicely. Also, The Economist has saved me the hassle of phoning McDonald’s employees around the world asking how much they charge for a Big Mac. 

Without further ado…

Price of a Big Mac*

Sweden pays USD $6.56.
Denmark pays USD $4.90.
Luxembourg pays USD $4.37.^
USA pays USD $3.73.
Czech Republic pays USD $3.43.
UK pays USD $3.23.^
Mexico pays USD $2.50.
Chinese Tapei pays USD $2.34.

* based on the 2010 “Big Mac Index” (Source: The Economist)

^ based on information from (Source: Robert Walters Luxembourg Banking and Financial Services)

And in Ontario we pay… USD $4.00 for a Big Mac.

This is how our comparison works. First, we figure out how much more or less than Ontario the above countries are paying for a Big Mac, percentage-wise. Then we calculate how much more or less each country is paying for electricity, percentage-wise, and we compare the two. For example, Sweden pays 64% more than people in Ontario do for a Big Mac. So it would stand to reason that in Sweden they pay 64% more than Ontario does for electricity. But 64% more expensive than 7.7 US cents per kWh is still only 12.62 US cents per kWh. In Sweden they’re paying 19.4 US cents per kWh, which is 150% more. 

Here are the rest of the results...

Percentage Comparison of Electricity per kWh and Big Macs

Denmark pays 22.5% more for a Big Mac but 374% for electricity.

Luxembourg pays 9.25% more for a Big Mac but 207% more for electricity.

United Kingdom pays 19.25% less for a Big Mac but 167% more for electricity.

Sweden pays 64% more for a Big Mac but pays 151% more for electricity.

Czech Republic pays 14.24% less for a Big Mac but 149% more for electricity.

USA pays 6.75% less for a Big Mac but 49 % more for electricity.

Chinese Tapei pays 58.5% less for a Big Mac but 14% more for electricity.

Mexico pays 37.5% less for a Big Mac but 1.29% more for electricity.

By applying the Big Mac Index to the price of electricity we get a more accurate picture of that country’s real electricity cost for its residential consumers. Looking at the above results we can see that households in other countries are still paying A LOT more for electricity than Ontario does even when we take the price of Big Macs into account. People all over the world are paying more to turn on their lights, run their dishwasher, run their air-conditioner, turn on the home computer, etc. So, maybe now Ontarians will feel a little bit better about their electricity bills? Or maybe not.

Why do so many other countries pay so much more for electricity than Ontario? What are the pros and cons of higher electricity prices? Sounds like the start of a really interesting conversation. If you have an opinion or an idea on the matter, let us know by commenting below.

Also, this week at Queen’s Park. The Ontario PCs say they’ve uncovered evidence that the Liberal government plans to put a new tax on natural gas just in time for the cold winter months. Energy Minister Brad Duguid says it just isn’t so.

Ontario's NDP Leader Andrea Horwath devoted a lot of her question time this week to the issue of publicly owned utility companies making donations to the Liberal party. So, is the NDP leader right? Is this a case of public money buying government access? Or are the allegations just “fallacy and phoniness” as Finance Minister Dwight Duncan called them. In fact, during Tuesday’s question period, Duncan went as far as to read a line from Shakespeare’s King Henry the Sixth to the NDP Leader, “Forbear to judge, for we are sinners all.”

November 3rd, 2010, marks the second anniversary of Ontario becoming a “Have Not” province. Opposition Leader Tim Hudak wants to know what the Liberal government is doing to get us off the “welfare roll of confederation”, as he put it during Wednesday’s question period. Finance Minister Dwight Duncan argues that the formula is “out-of-whack” and that Ontario is simply getting back money it is owed.

What is the role of parent councils? To give parents a voice in the Ontario public school system or to raise money? NDP MPP Rosario Marchese wants to know.

And finally, November is Adoption Awareness Month in Canada. Laurel Broten, Minister of Children and Youth Services, gives us an update on what the government of Ontario is doing to find permanent loving families for kids who are looking for permanent stable homes.

Watch the show, this Sunday at 4:30 PM. You can also watch it online at tvo.org/civics101. Feel free to leave a comment or suggestion.
 
Queen’s Park This Week, is a half hour summary of Question Period that is assembled using clips from the Queen's Park legislative assembly proceedings. The program summarizes the primary issues and discussions that have occupied the provincial legislature over the course of the week, and allow Ontarians to obtain a kind of "executive summary" of the proceedings every week that the house is in session.
 

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