There are many reasons why electricity rates are rising faster in Ontario than virtually anywhere else in North America.
How much Hydro One chief executive Mayo Schmidt and the company’s directors get paid is not one of them.
The high cost of electricity has very little to do with Hydro One, Ontario’s partly privatized electricity transmission and distribution utility.
The main culprit is a long legacy of costly government decisions, including the shutdown of dirty but low-cost coal plants, the multibillion-dollar rebuilding of the province’s nuclear reactors, long-term commitments to expensive wind and solar purchases, the cancellation of new gas plants and a surplus of new generating capacity.
Shareholders approve Hydro One executive pay plan despite outcry
Hydro One CEO warns that political interference is hurting the utility
At a more basic level, Ontario’s dysfunctional electricity market is the product of serial meddling by politicians. Successive Liberal, Progressive Conservative and NDP governments are all to blame, going back decades.
Unfortunately for Ontario voters, all three parties are promising more of the same in the current election campaign – big rate subsidies and plenty of political micromanaging of the electricity market.
Take Progressive Conservative Leader Doug Ford. He has vowed to fire Mr. Schmidt and the entire board of Hydro One, which was privatized three years ago. And he’d cut hydro rates by 12 per cent, sticking taxpayers with the $800-million per year bill.
NDP Leader Andrea Horwath wants to renationalize Hydro One and magically reduce hydro bills by 30 per cent.
Both proposals would stick taxpayers with billions of dollars in costs.
Liberal Leader Kathleen Wynne is also taking shots at Hydro One, while touting her government’s Fair Hydro plan, under which the province is borrowing $26-billion to lower hydro rates by 25 per cent.
If the leaders were serious about reform, they wouldn’t be so preoccupied with Hydro One. Transmission and distribution are not the main cause of high rates in Ontario. And chopping the salaries of their executives and directors won’t make electricity any cheaper.
All three parties want to subsidize rate discounts – a proven economic and environmental loser. Just look at oil-rich Venezuela, which has bankrupted itself by massively subsidizing domestic gasoline prices. Subsidizing rates in Ontario encourages overconsumption, making it harder for the province to meet its carbon emission reduction targets.
From an economic perspective, it matters little whether taxpayers or consumers pay the price of high rates. At the end of the day, society bears the cost. If the government is concerned about the impact of high rates on the poor or on vital industries, it should provide targeted tax breaks to those groups.
There are other sensible things that could be done to fix Ontario’s troubled electricity market. But they aren’t getting much air time in a campaign of slogans.
For starters, forget about the past. It’s too late to reverse the decisions to stop burning coal and refurbish nuclear plants. And it’s not clear these moves were wrong in the first place. It would not be easy to find alternatives to the 60 per cent of Ontario’s electricity that comes from nuclear. And going back to coal is a non-starter.
Secondly, high rates are likely unavoidable. The province has committed to long-term power purchases through provincially owned Ontario Power Generation and private producers. Unwinding those contracts would drive rates even higher.
The province needs to get a grip on its oversupply problem. Ontario’s continued push to expand wind and solar means backing up these intermittent sources through private purchases from gas-fired plants. This has created duplication, inefficiency and oversupply. In recent years, Ontario has been selling surplus clean electricity at a loss to Manitoba, Quebec and several U.S. states. At other times, it must pay electricity suppliers not to produce. This perverse situation cost the province more than $1-billion in 2016 and 2017, according to an analysis by the Ontario Society of Professional Engineers.
Central government planning of the electricity market has become the norm in Ontario. And it’s not working.
Home hydro bills in Ontario rose 71 per cent between 2008 and 2016, or more than double the national average, according to a recent report by the Fraser Institute. Industry rates have also risen much faster in Ontario than elsewhere.
The province needs less government, and more free market in its electricity market. That may mean downloading responsibility for signing power purchase contracts to regional authorities.
Making future generations pay for today’s electricity is crass vote-buying. So is grandstanding about executive pay.
Neither is a substitute for good economic policy.