A slightly revised version of this essay will appear in the National Post print edition November 1, 2012. A related report in the Post is here: Terence Corcoran: McGuinty’s dark secrets revealed
Over the course of his nine years as premier of Ontario, Dalton McGuinty’s electricity policies gradually transformed from a loose grab bag of good intentions into a zombie. Today, McGuinty’s zombie, green on the outside only, grows by the day, feeding on rivers of future ratepayer cash. The secret government documents published here reveal how the zombie smells up close and why Ontario consumers need a moratorium now on all of McGuinty’s electric infrastructure expansion.
Consider how dramatically McGuinty’s early electricity record contrasts with his changed priorities as his premiership wound down.
Once he was elected, McGuinty’s electoral demagoguery gave way to his issues-management style of government. His first electric flip-flop was driven by what he saw as pragmatism.
Cancelling the freeze allowed OPG’s finances to stabilize. Soon after its cancellation, electricity demand in Ontario peaked and has declined steadily since.
The widespread public acceptance of the rate increase that followed the lifting of the freeze signalled to policy entrepreneurs that more rate inflation was a workable target.
But getting rid of the rate freeze created a gap — what rate to charge for power? The approach that McGuinty and his then energy minister, Dwight Duncan, fastened onto was to use a combination of government-determined and regulated prices.
Before Eves had started to play politics in setting power rates, his predecessor, premier Mike Harris, had been trying to encourage private investment in the power system by way of a competitive market. McGuinty derided Harris as lacking a plan for the power system. McGuinty’s move to non-market prices for electricity drove the final nail in the coffin that was holding the remains of Harris’s competitive-market experiment.
Power Seizure Initially Pragmatic
In taking command of pricing, McGuinty didn’t set out to orchestrate a power grab. Following his issues-management style of government, he needed more power to perform the fix he thought he needed.
During the October 2003 election, McGuinty had played up the popular but fatuous claim that a blackout in August 2003 was directly caused by Harris. Harris’s ideological opponents coalesced around the claim that Harris had allowed underinvestment in new infrastructure in Ontario and that this had caused the blackout. Although there was some truth to the concern about too little investment, the root causes of the August 2003 blackout were related primarily to transmission maintenance, protection and control designs, and communication between grid control centres around the U.S. Midwest and connected systems.
With the competitive market dead, McGuinty needed some other method to get investment into the sector. The government pursued direct, ad-hoc administration of the power system for a while — ordering smart meters, gas plants, wind farms and transmission lines. The government also seized the steering wheel at Ontario Power Generation (OPG), calling it quits on the doomed effort to try to restart the Pickering 2 and 3 reactors, directing OPG to start closing coal generators, and ordering what now appear to be very inefficient hydroelectric projects.
The non-nuclear, non-OPG generation procurement in these early years was competitively bid and competently managed.
Like the decision to lift the rate freeze, many of the early decisions had reasoned justifications. Some of the policy choices were drastically expensive, like the coal phase-out, but the costs were skilfully hidden — forgoing OPG profits, extending the recovery of outstanding electricity debts, and back-end loaded financial instruments to pay for replacement gas-fired power plants.
Green Marketing Becomes Another Power Grab
When Donna Cansfield arrived in the energy portfolio, green lobby groups knew they had material they could work with. Energy Minister Cansfield personified the good intentions that animated McGuinty’s caucus. Soon Cansfield was giving speeches explaining that wind power was “peaking generation” and that wind would replace coal. Cansfield’s performance must have signalled to some insiders that the government was out of its depth in trying to come up with a workable power system armed only with good intentions and reactive decision-making.
In an effort to make the administration of the power system more orderly and professional, the government created the Ontario Power Authority (OPA). Now McGuinty was starting to arm himself with much more sweeping powers.
From the beginning, the OPA was a disposable agency with a mandate unconstrained by logical boundaries and empowered with a limitless capacity to burden future ratepayers. If the government felt like conservation this week, the OPA did conservation. The governance of the OPA was adapted to its weak constitution. The board of the OPA was larded with cronies like former Ontario Liberal Party leader Lynn McLeod and interest groups, like Aecon Construction. In contrast to its weak constitution and conflicted board, the OPA was able to attract a capable brain trust of power-system experts in commercial law, engineering, system planning, finance, public-utility regulation and a variety of other fields.
The OPA’s mandating legislation and its Ontario Energy Board (OEB) license decreed that the OPA would produce a series of long-term power plans for Ontario that would tie together generation, transmission, load forecasting and conservation — so-called integrated plans. The rules said that these long-term plans would be updated every two years. The first plan was published in 2007.
Reflecting government micromanagement and also the strength of the OPA bureaucracy, the first plan was a valuable starting point for a wider public debate over the underlying policy choices. Should Ontario be more or less reliant on nuclear power or natural gas in the long term? What was the most effective and efficient way to promote conservation? How would risks, like those inherent in load forecasting, power plant performance or fuel cost forecasting, be allocated? The first plan was to be the OPA’s last published plan.
Before the public review of the OPA’s plan could complete, then energy minister George Smitherman had decided to change the game. One of Smitherman’s tutors was Jose Etcheverry, an associate professor in York University’s Faculty of Environmental Studies. Etcheverry’s CV is light on peer-reviewed publications, but heavy with connections to outfits like the David Suzuki Foundation and the World Wind Energy Association. Etcheverry toured Smitherman around Europe and convinced him to rebuild Ontario’s electricity economy in the image of the subsidy programs in Spain, Germany and Denmark.
The fact that these countries at the time either had or were clearly on track to have some of the highest prices in the world did not interest Smitherman. He had a higher calling than mere consumer concerns — making Ontario an international green tech leader, creating green jobs and delivering sweeping social change. Besides, he promised his green plans wouldn’t make rates rise more than 1% per year.
In came the Green Energy Act, crafted by environmental groups, the Ontario Federation of Agriculture and green-policy entrepreneurs.
Throughout Ontario’s entire electricity history until McGuinty, there was an almost universally accepted consensus that the purpose of the power system was to deliver power at the lowest sustainable cost to consumers. Although there was sometimes lively debate over the implementation of this objective, only a fringe thought of higher prices as an a-priori societal good.
The Green Energy Act marked the end of this consensus. Consumers were bumped from their position as the purpose of the power system, replaced by an infinitely flexible set of “sustainability” objectives. Now, government had expanded directive powers to make the power system do its bidding. The act reflected McGuinty’s lack of interest in policy principles and his emphasis on an issues-management style of government.
Barriers to governmental fiat, like independent decision-making at the OEB and municipal zoning rules that might impede renewable-energy projects, were swept aside. Instead of competitive procurement of new generation, the Green Energy Act introduced a feed-in tariff program modelled on Spanish and German counterparts. One element of the feed-in tariff program is that the rate impact is back-end loaded — a stealthy way to slam consumers one decade and two into the future.
Green Zombie Emerges
McGuinty’s green zombie was now fully formed.
Around the world, green carpet baggers smelled the money the zombie exuded. They came running.
Ontario became a world leader overnight in wind and solar growth rates. Smitherman got the international recognition he craved. Ontario’s off-book stranded electricity liabilities grew cancerously but unseen.
In the run-up to the 2011 election, the McGuinty electricity chaos was starting to catch up with him. Rural Ontario was starting to organize, trying to block unwelcome wind-power industrialization. Power rates were picking up at 8% to 10% per year and starting to hit the top tier of prices in North America. Dwight Duncan — once so clear-headed about getting rid of the Eves rate freeze — reintroduced the Eves rate freeze, now rebranded as the Ontario Clean Energy Benefit.
McGuinty was also faced with powerful NIMBY opposition around gas plants being developed in Oakville and Mississauga. Some of what happened next is recorded in the documents released under order of the speaker of the Ontario legislature and posted here under the Gas Busters pull-down menu.
What It Means
The Ontario government has lost its ethical and managerial bearings in the oversight of the power system.
The proper course of action is a comprehensive moratorium on all electrical infrastructure spending and new commitments until all projects are thoroughly reviewed for their impact on consumers.