The Liberals’ performance on hydro is underwhelming, and the other parties offer voters little better. To avoid past errors, a long-term strategy is needed.
With the announcement in late April by Ontario Progressive Conservative Leader Doug Ford of his plan to reduce hydro rates, electricity costs have emerged as a central question in the upcoming Ontario election. However, Ford’s less-than-one-page solution has the potential to make the situation worse than ever. An effective long-term strategy for reducing electricity costs requires some deeper reflection, including the recognition of some unwelcome truths.
The first of these truths is that substantial increases in electricity costs, relative to where they stood a decade ago, were inevitable. Ontario’s electricity system went through a long period of minimal capital investment, with even basic maintenance neglected, under a succession of Progressive Conservative, Liberal and NDP governments. This approach kept rates low in the short term, but at the cost of a growing backlog of needed repairs. When Dalton McGuinty’s Liberals came to power in 2003, they were confronted with the news that 80 percent of the system needed to be reconstructed or replaced.
Since then, while the effective rates for the electricity portion of residential bills have approximately doubled, the reliability of the system has been dramatically improved; coal-fired electricity, which once provided 25 percent of the province’s power, has been phased out, with major public health and environmental benefits; and substantial investments have been made in renewable energy and energy conservation.
That said, there is no doubt that better decisions could have been made over the past 15 years. Did the province pay too much for renewable energy development under the Green Energy Act’s Feed-in Tariff program? Probably yes — this now abandoned program for renewables was designed around the needs of community-based proponents and paid rates for electricity far higher than those needed by larger commercial developers for their projects to be viable. But the role of renewables in the overall increases in electricity costs has been grossly overstated.
Crucially, the focus on the costs of renewables by critics of the Green Energy Act has obscured discussion of other major drivers of cost increases, particularly the first round of nuclear power plant refurbishments, which ran billions over budget and years behind schedule.
Key decisions about long-term investments were made in an atmosphere of near panic in the aftermath of the 2003 blackout and the collapse of the previous PC government’s experiment with liberalizing the Ontario electricity market. A meaningful long-term planning and public review process was never established. The one and only Ontario Energy Board hearing on the province’s electricity plans was terminated a few weeks after it started, and that was nearly a decade ago, in 2008. Legislation adopted in 2016 eliminated altogether the requirement for the board to review electricity plans.
Instead, the province has fallen into a pattern of making decisions around questions with enormous long-term economic and environmental consequences on the basis of short-term political considerations. Examples from the past seven years abound: the cancellation of unpopular plans to build gas-fired power plants in Mississauga and Oakville before the 2011 election; the partial sale of the utility Hydro One, whose primary rationale seemed to be to keep the financing of capital investments off the province’s books; the financially calamitous Fair Hydro Plan, designed to provide short-term rate reductions at the cost of tens of billions to future consumers; and the announcement of the second round of nuclear plant refurbishments, for the Bruce and Darlington facilities, along with a “life extension” of the even older Pickering plant in the midst of the 2016 by-election in the host Whitby-Oshawa riding. The Bruce and Darlington projects, for which the best-case scenarios indicate costs of at least $26 billion, have been subject to far less external scrutiny than even the economically disastrous Site C hydro project in British Columbia and the Muskrat Falls hydro project in Newfoundland and Labrador. The nuclear plant refurbishments will drive further rate increases and carry the greatest risk of increases beyond those contemplated in the province’s energy plans.
The Liberal government’s performance, even allowing for the depth of the challenges it inherited in 2003, does not inspire confidence, and in this election the party does not appear to be offering a more rational approach for the longer term.
The problem for Ontarians is that, thus far, the major opposition parties are offering little better. Ford proposes to retain the fiscally ruinous Fair Hydro Plan. Andrea Horwath’s New Democrats essentially commit to the same path. Ford would use the dividends from the province’s Hydro One shares to further reduce consumers’ bills, while the NDP wants to use the same funds to buy all of Hydro One back. Neither mentions which services and investments that are currently being paid for with the dividends will be cut instead.
Energy conservation is widely accepted as by far the least costly means of meeting consumers’ energy needs. It also delivers a range of other benefits, from improving housing quality to increasing the energy efficiency and therefore competitiveness of industrial and commercial power users. Yet Ford proposes to eliminate the small surcharge on electricity rates that currently funds conservation initiatives. That would leave only three options: terminate conservation programs altogether; increase taxes to cover the costs of conservation programs; or cut spending somewhere else to provide the required funding. Ford hasn’t indicated which option he has in mind.
Ford’s third proposal is to impose a moratorium on new electricity supply contracts and to reopen existing ones. A pause on new contracts (except for conservation and efficiency measures) is not necessarily a bad idea, as long as it applies across the board to all technologies, including the massively expensive and economically and environmentally risky refurbishments of Bruce and Darlington.
There are a number of steps Ontario’s political leaders could take from there if they are serious about controlling hydro costs in the future. Regulatory oversight of the semi-privatized Hydro One should be tightened to make sure the utility is not leveraging the money it collects from Ontario customers’ electricity bills to finance out-of-province ventures — effectively asking Ontarians to underwrite the risks of enterprises from which they will receive little or no benefit. A strengthened focus on conservation, with an emphasis on the needs of low-income consumers, offers the best option for keeping costs down in the long term.
Finally, the province needs to engage in a meaningful, independent, public review of its long-term electricity needs and options in terms of cost-effectiveness, resilience and sustainability. All options — nuclear plant refurbishments, hydro imports from Quebec, additional renewables and conservation, and distributed generation and storage — need to be on the table. Such a review offers the only option for building some sort of lasting consensus around the system’s future direction and putting an end to the practice of managing the system to meet short-term political goals.
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