Down in the polls, embattled over hydro rates, and about to face the voters, two Ontario premiers in recent years opted for panic-inspired electricity sector interventions that resulted in long-term harm. Just before the 2003 election, Premier Eves imposed a rate freeze that destroyed the electricity market and rang up the deficit by about a billion dollars a year for several years. Just before the 2011 election, Premier McGuilty introduced a financial shell game called the Ontario Clean Energy Benefit that ended up adding over $5 billion to the province’s debt.
Ontario appears to be repeating that history now.
Ontario Premier Kathleen Wynne is right now trying to figure out what her government might do to appear to be freezing power rates. One modern twist on the old story is that now the Premier has her new slush fund — cap and trade — to play with.
Given the masterful communications capabilities of the Wynne government, her soon-to-be-announced electricity relief program is sure to have a catchy title to be emblazoned on bills. Folks are invited to suggest suitable marketing slogans in the comments below.
Here are three podcasts from recent radio interviews discussing the strategies she is probably considering and the implications for consumers and taxpayers.
The interviews are with John Oakley on AM 640 January 19 (summarized by timestamp below), Jane Brown hosting on Libby Znaimer’s show on Zoomer Radio January 24, and Scott Thompson on AM 900 CHML in Hamilton.
Themes of my comments included:
– Distribution rates are not the big problem for most consumers.
– It makes no sense to attempt some massive restructuring of distribution rates.
– Commodity costs generally and Global Adjustment specifically should be the main subject for cuts. GA is how ON customers help keep rates down in NY/MI, pay generators to not generate, and feed the conservation con.
– Except for Hydro One and Toronto Hydro, the distributors are keeping the noses clean by keeping their rate increases around inflation.
– Hydro One and Toronto Hydro’s distribution rates need to be cut but the solution is to attack their excessive costs through properly functioning, independent and professional public utility regulation that should be scrutinizing those cost line by line (but isn’t).
– Regional distribution rates, which we have today, are worth preserving. The regional structure of rates today is a step in the direction of keeping distributors accountable because their costs can be benchmarked.
– The provincial government would be foolish to base emergency electricity reforms on the grievances of cottagers who have to pay connection costs while their cottages are closed up for the season.
– A monthly fixed connection charge for distribution service is a legitimate rate design principle. The fixed charges should recover fixed costs (like metering, billing, emergency services, etc.).
– Panic-based electricity reforms sometimes don’t work out well — e.g. McGuinty’s Ontario Clean Energy Benefit of 2011 and the Eves commodity freeze of 2003.
– Ontario needs root and branch reforms to its power system but reform proposals need to be properly vetted, subject to expert input, and debated before being implemented.
Here is a summary of my discussion with John Oakley on January 19.
0:55 Ontario politics has a history of electricity rate relief moves in the run-up to elections. Eves in 2002 and McGuinty in 2010 both announced ill-considered rate relief initiatives that exacerbated electricity sector inefficiencies. Wynne is likely to shift money from cap and trade to subsidize electricity.
2:15 Wynne could also order OPG to run a deficit to fund rate relief.
3:30 Any claims of rate relief before the next election will be some kind of shell game.
3:50 The government has been reversing some of its careless green energy procurement programs, including LRP2 and FIT5, but the benefits of this new sobriety don’t affect rates until 2019 and beyond.
4:50 Rising power rates are a measure of how badly managed provincial affairs have drifted in the last 10 years.
5:45 Ontario has some options for getting out of high price contracts. Government should concentrate on getting out of contracts where it can be done at low cost, and using fully existing contract terms that can mitigate ratepayer harm, and seeking remedies for contracts that arose in suspicious circumstances. Samsung got very favourable green energy contract and special favours from the government but all that happened through sole-sourcing and without Samsung even appearing on the Lobbyist Registry during the time Samsung was getting fat deals that today are harming ratepayers.
6:50 People point to the gas scandal and claim that it proves that breaking contracts is too expensive. That argument misunderstands what actually caused the ratepayer harm in the gas scandal. Ratepayers were harmed not be the cancellation of contracts, but by the government’s decision to recontract with the developers to proceed with the gas plants at new locations.
7:20 No progress can be expected for fixing Ontario’s power problems without a carefully considered, and scrupulously implemented long term plan. The government’s current electoral panic has brought the government’s attention to electricity, but there is no reason to believe that Wynne is capable of addressing the root causes of the ratepayer’s misery before the next election.