Ontario Election Short Circuit

For over 100 years, Ontario citizens have collectively entrusted our political leadership with more sweeping responsibilities in managing our electricity supply than most other jurisdictions in the developed world.

In recent history, Premier Ernie Eves implemented a rate reduction and freeze just before the 2003 election. Even in the context of Ontario’s politicized power history, this initiative was a groundbreaking expansion of political influence over our electricity future. The measure increased the Eves deficit by a total of $918 million but did not save him at the polls.

In the first couple of years of the McGuinty government, the thrust of policy was toward less government involvement. Then energy minister, Dwight Duncan, now Ontario’s Finance Minister, told the legislature in 2004: “It would be irresponsible for the province and taxpayers to continue to subsidize electricity consumption, because it jeopardizes our ability to invest in health care and education. This is simply not sustainable, nor is it acceptable. The people of this province deserve better.” He committed to “take the politics and politicians out of electricity pricing.”

After experimenting with moving more decision making responsibility into arms length agencies and competitive bidding processes, McGuinty swung the pendulum back toward political control. Today government is directly responsible for many of the detail of running the power system. Cabinet directs where transmission lines will be built and what their capacity will be. Cabinet decides what types of power generating stations will be constructed and how much they are paid. Cabinet recently shifted hundreds of millions of dollars of annual costs away from large industrial users onto small consumers.

None of the major parties are proposing to depoliticize the sector. On the contrary. The NDP would emphasize government conservation programs and are highlighting a plan to subsidize home energy retrofits. The Tories are promising to build new nuclear power generators, which if they proceed will probably be the first such commitments in the developed world initiated after Japan’s Fukushima disaster. The Liberals are proposing to continue down the path scoped out in their Green Energy and Green Economy Act, passed in 2009, which reoriented the main purpose of the power system toward boosting short term employment.

Over the next four years, our power system will face many tough challenges.

The McGuinty government endorsed OPG’s plan to refurbish the Darlington Candu nuclear station in February 2010. Every Candu refurbishment to date has cost much more and taken much longer than forecast. The only contractor to have taken on this type of work, AECL, has recently been privatized by the federal government after losing vast sums on refurbishment work. How will the work on Darlington proceed?

Unrecognized by many urban media outlets, all rural regions of Ontario hosting large wind power developments are now riven by new and often traumatic social tensions between beneficiaries of wind development and those opposed. How can this tension be mollified?

With our power system now highly dependent on natural gas, particularly during peak gas demand periods, how will we respond the next time natural gas prices spike, like they did in late 2005 and mid 2008 when, fortunately, Ontario’s power consumers were far less exposed?

Steve Paikin hosted the most thorough election debate so far on energy on the TVO show “The Agenda” on Wednesday September 7th when he brought together the energy experts of the respective parties to debate their platforms and promises.

Reflecting the rest of the election debate so far, the debate on TVO focused primarily not on the challenges we face but instead on how much of the household electricity bill should be transferred to taxpayers.

The Liberals kicked off the cost shifting game just before the election campaign with their Ontario Clean Energy Benefit. Repeating the Premier Eves approach of shifting electricity costs from households, farms and small businesses to taxpayers, the “benefit” will jack up the Ontario deficit by billions before the program expires in 2014.

The NDP have promised to extend the “benefit” past 2014 and have also added a promise to shift the provincial portion of the HST from home energy users to the taxpayer. (Post script: please see the correction in the comments below)

The Tories would hit taxpayers hardest with electricity costs. Mr. Hudak’s team is promising to keep the Liberal “benefit”, would follow the NDP’s lead on the HST and have also a promise to shift the Debt Reduction Charge — a tax that helps pay down the old Hydro’s debts — from households to taxpayers.

Entrusting electricity to our politicians seemed like a good idea to many people, especially while Ontario’s rates were below key benchmarks, particularly the U.S. average. However, Ontario’s rates overtook the U.S. average in 2009. While the U.S. government’s Energy Information Administration forecasts that U.S. residential rates will decline over the next ten years, the official Ontario government forecast sees rates up almost 40% by 2014 over 2009 in inflation-adjusted terms.

Politicized power is turning out to be a risky strategy. The current dim election debate focused on how hard to hit taxpayers suggests that we are in for terrible shocks in future.


  1. Tom, I double-checked what Peter Tabuns said on the OCEB/HST on The Agenda with Steve Paikin on Wednesday, and I interpret what he said as the NDP would keep the OCEB until replacing it with the HST exemption.
    Not both

    On the other hand, Yakabuski threw in everything — keep the OCEB, dump the DRC (which I thought, when introduced, was only to stay on until the DRC came off!), and exempting the provincial portion of the HST.

    • Scott, thanks for the correction about the NDP’s position on the OCEB/HST. The NDP’s platform document is consistent with your note.

      Regarding the Debt Reduction Charge (DRC), when the DRC was originally introduced, the justification was to recover what the government at the time called the “residual stranded debt”. However, the distinction between “stranded debt” and “residual stranded debt” was always artificial and the “residual stranded debt” balance has never been updated in the public accounts of the province since the first year or two of the creation of Ontario Electricity Financial Corporation, the Crown agency responsible for overseeing the old Ontario Hydro debt. The PCs are claiming that the “residual stranded debt” is paid off, but there is nothing in the public accounts of the province that substantiates the PC’s claim. What we do know is that the audited figures indicate that the current balance owing on “stranded debt” is approximately $13.4 billion at the end of March 2011. Relieving some consumers of responsibility to pay DRC will transfer the cost to other consumers or the province’s deficit.

  2. Tom, I want to emphasize I completely agree that “Relieving some consumers of responsibility to pay DRC” shouldn’t change the overall amount of all electricity bills – I just think the charge should come off and rates go up 0.7 cents/kWh. I’d suggest we would be relieving all of one line on their bill.
    I did read sections of the original act, and it struck me that the residual stranded debt is whatever the Minister of Finance says it is. If the part of the debt that cannot be recovered through profits at OPG,the LDCs and Hydro One, and payments in lieu of taxes, has risen during the past 8 years, the Minister of Finance should find the words to say so plainly.
    Then we could talk about regulated hydro at 3.5 cents/kWh and new wind at 13.5, and how that just might be relevant in why the debt hasn’t been getting reduced.

  3. Spilled hydro, offline coal, depressed wholesale electricity prices (caused by wind) all contribute to lower revenue at OPG which shows up as; declining revenue and flat to negative earnings for the business that OPG is actually in. Without the earnings on the nuclear decommissioning funds OPG would have lost money for the last 7/8 years. So the foregone revenue/earnings may have gone a long way to pay out the “stranded debt”. Politics trumped standard business practice resulting in the ratepayer continuing to suffer the continuing ad nauesum payments of the DRC.

    As a political decision is it not the responsibility of the taxpayer? Just asking!

    • Parker,

      You and I agree that more responsible policies would have allowed OPG to earn more without rates rising. Higher earnings at OPG would have made a bigger dent in the stranded debt. By hobbling OPG, McGuinty has found a yet another way to saddle future consumers with inflated power costs, in this case by stretching out the repayment of the “Debt Reduction Charge”. I bet you and I also agree that the plan for paying off the stranded debt should be made public and kept updated so at least we can see the impacts of policy. The fact that the stranded debt management plan has been secret from the day the stranded debt was created is outrageous, but the original blame for that should be directed at Premier Harris and his then finance minister Ernie Eves.

      I recognize your argument that political decisions should be paid by taxpayers as logical. Another commentator has countered my complaint about what I allege is a shell game where all the major Ontario political parties are promising to hit taxpayers with electricity costs by commenting “Much of what rates are paying for should have been funded from taxes in the first place.”

      The reason I oppose the Ontario Clean Energy Benefit, the proposed debt reduction charge shift and the proposed HST (PST really) shift is out of concern that transferring power costs to taxpayers politicizes the electricity system. Until we get a clear delineation between politics and the power system, I believe that Ontario’s power system will never achieve a stable decision making environment. Notice that the actual and proposed cost shifts from ratepayers to taxpayers, including the Ernie Eves rate freeze of 2002, are directed primarily at relatively inelastic small volume consumers. I also note that the beneficiaries of McGuinty’s Northern Industrial Electricity Rate program seem to be located in key ridings for the Liberals. Maybe I’m wrong, but it looks like McGuinty’s Ontario Clean Energy Benefit is doing him a world of good in the polls.

  4. Your right that we are mainly in agreement and the OEB won’t be releasing the news on the RPP and the TOU price, effective November 1st until mid October which conviently (for the Liberals) is just a week or so after the election.

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