Renege on Green Contracts? Irresponsible!

In a recent National Post column, Lawrence Solomon of Energy Probe advocates a range of policy responses to existing renewable power purchase contracts entered into by the Ontario government, contracts Solomon considers to be odiously costly. Robert Mugabe, president for life of Zimbabwe, would understand Solomon’s proposals ““ outright confiscation, targeted and punitive taxation, and populist-backed intimidation tactics.

To cut costs, Solomon advocates legislation that would undo existing contracts, a windfall profits tax, and forcing wind and solar power contract holders into concessions with threats of tearing up contracts.

Since it is a normal and beneficial practice for independent power generation contracts of all kinds to change ownership over time, Solomon’s proposed methods would unevenly administer punishment.

Solomon advocates aiming environmental levies directly at wind power operators to ruin them. Solomon endorses the use of the Syncrude bird fine of $1,875 per bird, settled in court in October, against the wind power industry.

I am a strong supporter of strict but fair and science-based environmental laws. I am also concerned about the impacts of wind development on flying creatures. As someone who has been directly involved in environmental law enforcement, I continue to support effective enforcement of environmental laws. However, the Syncrude fine was not reasonable by my standards. At the Syncrude bird fine rate, my dining room window would have cost me almost $8,000 this year alone.

Solomon also appears to endorse shutting down wind farms until their low frequency sounds can be proven safe, although his sarcasm obscures his intention.

Arbitrary judgment of value out of context ought to have no place in the management of Ontario’s power system, yet this is the foundation of Solomon’s position.

Solomon cherry picks the power prices he uses to compare against the current renewable energy contracts. Counter examples abound.

During the gas price spikes of 2005 and 2008, the cost of natural gas-fired power in Ontario was far higher than the prices the Ontario government is now agreeing to pay land-based wind generators. At the time, had Ontario not agreed to pay the gas costs, the gas suppliers would not have delivered and the lights would have gone out.

Today, the delivered cost of power to consumers from the Pickering A reactors far exceeds the prices paid to land-based wind producers under Ontario’s non-competitive feed-in tariffs, although the full cost is deeply buried in OPG’s accounts. Solomon’s logic would have us stop paying the bond holders who invested in Pickering A, the workers there today, and the suppliers of goods and services consumed there.

In building his argument that the Ontario government should abrogate renewable energy contracts, Solomon references the practices of Ontario Hydro, where Adam Beck’s apparent success at the outset was largely based on expropriation without compensation of private power companies, to the delight of the electorate. But, living by thievery can be habit forming. After cleaning out the private power merchants, Ontario Hydro’s appetite turned to aboriginal land, again taking without compensation to build dams and power lines.

The only cases where I suggest contracts ought to be reviewed by a future government are instances where developers did not comply with applicable laws as they existed at the time. Compliance with lobbyist registration requirements is a theme I have frequently discussed on this blog.

Ontario needs competitive procurement processes for any new power contracts, but we must live up to our current obligations.

Irresponsible policies of the kind Solomon is pushing are now developing in various jurisdictions, most prominently in the Czech Republic.

If Ontario is to establish a sustainable power system, the rules of taxation, environmental protection, and respect for contract ought to be applied evenhandedly.

9 Comments

  1. Here’s the REALITY that exists right now regardless of who is right or wrong with this discussion.

    If Ontario continues along McGuinty’s development plans on Renewable Energy then ONTARIO WILL GO BANKRUPT!

    If McGuinty Stops all Renewable development and his signed contracts are challenged by developers ONTARIO WILL GO BANKRUPT!

    Where is the downside to Solomon’s plan?

    • It is now beyond dispute that Ontario will be economically harmed overall by the Green Energy Act, but I don’t see a basis to assert than the contracts arising will bankrupt Ontario. There are many jurisdictions with high standards of living where consumers pay higher prices than consumers in Ontario now face. Solomon’s proposal to renege on the contracts would bring major legal liabilities and would cast our maturity as a responsible democracy in an ugly light.

  2. So how should we go about dealing with contracts that were signed that were clearly in bad faith.

    In every way these comtracts do not serve the interests of the citizens of Ontario.

    We don’t elect the political parties to serve their own interests, but to serve ours.

    Although how often it works out that way is up for debate.

    If, while I am a child, my father signs a contract that on my behalf that does not serve my own interests, when I am adult, I think I would be able to dispute it.

    This is another reason that there should be more direct democracy in Canada and Ontario – the green energy act, and the contracts that resulted from it should have been up for a debate and referendum.

    As well, if the next government decides to repeal this piece of legislation(as it should) I don’t see why the contracts it were based on should not be up for renegotiation.

    A far better system would be the one where an individual could purchase power from “bullfrog” and pay a premium for it.

    If someone wants to pay 60cents/kwh for windmill power – go for it.

    Personally I will purchase the power from the coal fired power plant.

    • Mr. McGuinty has a solid majority. His coal and renewables opinions were well understood when he gained that majority. Our constitution says that he has the right to develop Ontario’s electricity system and to enter into binding contracts. The Green Energy Act was popular when it was passed.

  3. Apart from the fact that the “Green Energy Act” is based on bad science and a 20 year campaign against coal and CO2, the green energy act promised something it could not deliver, that being

    Cleaner air
    Reduction in CO2
    An industry that would provide sustainable jobs

    From the website. Almost every single one of these claims is false, and is a smokescreen for politically motivated payouts. Payouts that are coming out of our pockets to Corporations such as IKEA

    * Fighting Climate Change through reducing GHG emissions. Generation from community-scale renewable energy replaces fossil fuel sources and contributes to the province’s ability to close coal-fired plants.
    * Reducing environmental impacts (cleaner air, water and soil) benefits our health and our environment.
    * A diversified fuel supply strengthens our energy system. Diversity in technologies as well as geographies reduces our vulnerability to centralized failures.
    * Low or no cost energy sources (water, wind, sun, waste) reduce the cost uncertainty of relying on fossil fuels and nuclear material.
    * Distributed generation can promote transmission and distribution system reliability. Smaller community-based generation is located closer to where it is consumed. This reduces transmission line losses and lowers the system’s maintenance costs.
    * New project investment aids local economic development. Farmers, other rural landowners, community groups, co-operatives, First Nations, and rural businesses and industry are potential investors and owners in projects that directly benefit their local communities.
    * High-skill job creation – Unions, skilled and unskilled labour, and recent university graduates benefit from the introduction of an expanding renewable energy industrial sector.
    * Diversified tax base – Increased economic activity in rural areas would generate incremental tax revenues.

    Furthermore on the green energy website promoting the “Green Energy Success” of Germany, they neglect to mention that Germany is currently planning 20 new Coal Fired power plants.

    In Spain – every “Green Job” created cost $750 000 – that is hardly sustainable.

    And now the Government is bribing us with 1 billion dollars of our own tax money to “rebate” us.

    Add to that the fact that in order to RAM through the next to useless Windmills they had to exempt the act from many many environmental laws that were on the books.

    I’ll dig them up later.

    And don’t forget that the GEA was heavily promoted by Government funded lobbying groups…

    http://windconcernsontario.wordpress.com/2009/03/06/the-provinces-green-energy-plan-is-turning-ontario-into-a-green-police-state/

    The Tories need to repeal the GEA when they win, and let the chips fall where they may.

    Contracts can always be renegotiated.

    • Contracts can be renegotiated, but fair renegotiation cannot occur without good faith. Threats to reneg do not constitute good faith.

  4. Contracts shouldn’t have to be renegotiated. The Ontario government could apply a surtax onto all income generated from the FIT and RESOP programs.
    Only time will tell whether the political pressure will build to the point where the government will have to reverse course and take corrective action.
    Clearly the antipoverty and landlord associations are upset with rate increases forecast in the coming years. As these groups and other organizations make the connection between unaffordable hydro for low income earners and the high rates paid under the FIT program the support for high renewable energy tarrifs could collapse.

    • Dan’s approach is being applied in the Czech Republic. I disagree with that approach on the grounds that it is targeted discrimination, inconsistent with equality before the law. Mob rule is not the way to go. The next Ontario government should repeal the Green Energy Act, but respect historic contracts.

      Ontario has long tradition of regressive, low connection charge rate designs for both gas and electricity.
      http://ei.haas.berkeley.edu/abstract_wp213.html

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