Non-Solution for Ontario’s Electricity Rate Crisis

Energy Minister Bob Chiarelli has presented what he thinks is a solution for the rate impact of his government’s “Smart Meter” program.

Yesterday’s National Post quotes Minister Chiarelli saying, “It remains likely that some significant charges will not be passed on to ratepayers after the Ontario Energy Board has an opportunity to review the appropriate regulatory submissions.”

This strategy for responding to public concerns about power costs is exactly what the government has done repeatedly with Ontario Power Generation — pull the puppet strings it holds on non-independent public agencies to deny recovery of expenses the government has previously permitted, and even directed, government-owned or municipality-owned electricity companies to incur.

Denial of cost recovery is not a sustainable control strategy for general cost pressures. Rather regulatory cost disallowance is an accountability mechanism that can only be effective if used sparingly. Cost recovery denial can be used effectively only in very narrow cases by regulators to ensure discipline by utility management in making capital spending decisions. Where costs are being considered for disallowance, responsible regulators ensure that the potentially affected utility is provided with due process.

Punitive cost disallowance, such as was applied by the Manitoba PUB against Centra Gas Manitoba in 1998 related to gas cost hedging losses, are documented hazards to the public interest.

Disallowance of government-supervised or government-ordered costs is a form of confiscation that undermines the financial viability of the power system. Politically-driven cost disallowance drives up the cost of commercial borrowing for utilities. Rising costs for commercial borrowing create further incentive for government to use loan guarantees to allow utilities to access the capital they require. Government loan guarantees, in turn, conceal the cost of risk in utility investment decisions.

Minister Chiarelli’s strategy of using cost disallowance to respond to public concerns about power rates is another means this government relies on to defer realization of the real costs of its careless decisions into the future. Minister Chiarelli is creating a temporary stopper for building cost pressure as a way of avoiding responsibility for the decisions he and his government have taken and are taking.

Notwithstanding its continual shouting at the top of its lungs that its electricity decisions are all about protecting future generations, Minister Chiarelli’s government never misses an opportunity to shift more cost into the future.

Sweeping cost disallowance of Smart Metering costs would have ramifying impacts on distribution utility borrowing costs but these costs would be nearly impossible to quantify.

In his effort to avoid responsibility, Minister Chiarelli would be providing no sustainable solution, only making Ontario’s power system even more complex.

2 Comments

  1. Tom,

    Besides ignoring who dictated the disastrous path, disallowing cost recover — for a municipally-owned utility — effectively results in one of your key energy policy ideas being violated, namely electricity costs would be transferred to taxpayers.

    • I think it is too late to close the barn door. The Liberal government directs crown corporations to make imprudent expenditures, and whether they are recovered from ratepayers (now or later) or taxpayers (much, much later), is fought over by lawyers from each publicly-owned agency and adjudicated by the OEB in a further waste of citizens’ money. It’s like a drunk with 8 pockets deciding which one has enough money to pay his bar tab.

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