Why cheap hydro was too good to be true: CohnAre we paying too much for electricity now, or were we just paying too little before?
Blaming an electricity utility for price hikes is like showering praise on Enbridge or Union Gas for declining natural gas bills, writes Martin Regg Cohn. By: Martin Regg Cohn Provincial Politics, Published on Sat Jan 16 2016
Nothing gets a rise out of ratepayers like rising electricity bills.
But here’s an inconveniently powerful truth about power rates: We may be suffering from hydro hysteria — and electricity amnesia.
Yes, prices are going up faster than in recent memory. True, the price of power remains a lightning rod for the party in power.
But the inescapable reality is that waste and bungling alone cannot explain the recent increases in hydro prices.
The mere fact that we’re paying more doesn’t prove that we’re overpaying massively. And it doesn’t tell us
the real reasons for the increases.Blaming an electricity utility for price hikes is like showering praise on Enbridge or Union Gas for declining natural gas bills, or expressing gratitude to Shell for falling prices at the fuel pump — ignoring the shale gas revolution and the plunge in world oil prices.
True, Ontario’s green energy plan was rolled out recklessly, and relocating gas-fired plants wasted billions of dollars. But the truth is those costs will be spread over decades, and represent only a small fraction of hydro prices now (or in the near future) — so they are only a partial, and possibly fractional explanation.
Notice that politicians who criticize high prices carefully refrain from promising reduced prices, or implying they could ever restrain future increases. They know better than to promise the impossible — and that successive governments bear part of the blame for decades of meddling and mismanagement.
But here’s a question many don’t think to ask: Is today’s price for electricity all that high to begin with?
As the
accompanying article by my colleagues Robert Benzie and Rob Ferguson show, the daily price of electricity in Ontario is in the same ballpark as a cup of coffee at Starbucks, a burger, or a home bundle from Bell and Rogers. When critics say impoverished ratepayers must choose between heating and eating, it’s a stretch.
Another premise worth examining: Are we paying too much now, or were we just paying too little before?
One reason prices are rising so fast is that electricity costs were kept artificially low for decades, suppressed to give us a competitive advantage over neighbouring jurisdictions. Cheap power attracted investment, but also saddled us with the debt overhang that we’ve been paying off ever since.
Another distortion: The deliberate lack of investment in electricity infrastructure during the late 1990s artificially kept prices low, but forced subsequent governments to spend billions more to make up for those lost years.
So if prices seem unseasonably high now, that’s partly because they were unreasonably low before. You can pay now or you can be zapped later. But if you try to insulate yourself from the present-day price, you’ll face a future electricity shock.
That’s one reason why ratepayers have been stuck with the mysterious and malignant Debt Retirement Charge (DRC) on their monthly bills for so long. After the governing Progressive Conservatives dreamed it up in the late 1990s to offload Ontario Hydro’s “stranded (unrecoverable) debt,” the Tories piled on yet more debt by keeping electricity rates unsustainably low in the run-up to the 2003 election — saddling us with a burden of more than $20 billion.
All that bungling is a backdrop to the last 13 years of Liberal rule and misrule, when electricity was pushed and pulled in all directions:
The 2008 economic shock reduced power demand for years to come, throwing a spanner at planners. The Liberals responded with a combined green energy strategy and industrial strategy, gambling that price incentives for wind and solar power could spur job-creation and backstop a dwindling manufacturing sector. It proved to be an expensive bet, largely because then-premier Dalton McGuinty was so oblivious to both price and process.
A big factor in Ontario’s increased energy costs is also its least controversial: eliminating coal-fired generation. Coal is dirty, but dirt cheap. Replacing it required expensive gas-fired power plants. Neighbouring U.S. states offer lower rates because they still burn coal (though the spread in rates has dissipated as our once-inflated petro-dollar weakens). As carbon pricing comes in, that calculation will change further.
We aren’t blessed with the bounty of lakes and rivers that our hydro-happy neighbours in Manitoba and Quebec boast of. Topography can be tough on the pocketbook. Recent hydroelectric projects here have led to major cost overruns, proving that most of Ontario’s low hanging hydro has already been harvested. New builds — whether in hydro, nuclear, or natural gas — are always more expensive than legacy projects.
Energy experts can disagree on all these causes and effects, and their relative impacts on your electricity bill. But the point is that when you add them all up, we get the energy prices we more or less deserve — or voted for.
Ontarians gave a massive mandate to the Liberals in 2003 to get rid of coal, and are glad to be rid of smog days that cursed asthma sufferers. Most voters strongly supported renewable energy in 2007 and again in 2011, notwithstanding rural opposition to wind power. People were spooked by the prospect of brownouts and blackouts under PC rule, and would prefer a temporary surplus over a chronic shortfall (the oversupply will diminish as our nuclear reactors are refurbished). And people in Mississauga and Oakville pressured the government to cancel those gas-fired plants, oblivious to the costs.
Are we overpaying for power because of screw-ups by the party (or parties) in power? Assuredly yes, but far less than most people assume.
It’s not so much residential ratepayers who are being ripped off as industrial users that are being turned off — seduced by rival jurisdictions that can tap hydro or defiantly burn coal.
The history of electricity is a story of complexity. We can keep grumbling about the loss of cheap power, or we can grapple with our
electricity reality — a prerequisite to generating better outcomes.
Martin Regg Cohn’s Ontario politics column usually appears Tuesday, Thursday and Sunday. [email protected] , Twitter: @reggcohn 
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