Tuesday, September 7, 2010

Why Ontario electricity costs are going up and up!


Ontario residents may have noticed that their electricity provider has increased the per kilowatt-hour rates for use. One cause of the increases can be traced to a report published by the Ontario Clean Air Alliance (OCAA) in March 2008 (Eliminating Subsidies and Moving to Full Cost Electricity Pricing by Jack Gibbons) suggesting that subsidies to the production of electricity of almost $8-billion annually should be eliminated over a ten year period (at 3.5% per year) to bring Ontario more in line with other jurisdictions in North America. Subsidies became policy because it gave Ontario a “competitive advantage”.  As in any economic situation that only looks at one side of an issue, that “competitive advantage” is coming back to bite Ontarians. The genius that created the subsidies neglected to consider that they might discourage energy conservation and investment in small-scale generation, and they have. The article from OCAA also points to a resulting “productivity gap” between Ontario and neighbouring competitors such as New York State, which uses just half the electricity compared to Ontario to produce one dollar’s worth of GDP. While the subsidies were a bad idea to begin with, the story behind the additional increases gets much worse.

The local utilities appear to be the villain in this story but they simply distribute electricity for their municipal shareholders to the consumers. The real villains were previous governments who created the subsidies.  Now the McGuinty government is compounding those increases in its rush to be green at all costs – mostly yours.

Over 100 years ago competitive cheap hydroelectric power became widely available to businesses and residents of Ontario and it became the industrial dynamo of Canada. We still benefit from that very good start, but today, rather than encourage a competitive market in the production of cheap electricity the McGuinty Liberals are doing the opposite. They have made long-term deals with various companies (like Samsung Corp.) to purchase electric power at rates far in excess of the current market price of 4.5-cent per kilowatt-hour market rate (a 100 watt light bulb could run for 10 hours for 4.5 cents).

As a result Ontario will be forced to buy electricity at between 13.5 and 44.3-cents per kilowatt-hour (kWh) for the next twenty years from various solar and wind power companies. Recently (Aug. 13, 2010) McGuinty renegotiated a deal with 16,000 solar power project applicants to pay them 64 cents per kWh (down from an initial 80 cents) when they come on-line in the near future. Remember, these are intermittent power sources (no sun/wind no power), so “back-up” fossil fuel sources will be standing by (at additional expense because McGuinty is closing the cheap coal burning plants).

These massive subsidies to green energy are a result of policy brought about by the Ontario Green Energy Act (2009) which was shepherded through Queen’s Park by the powerful lobby group the Ontario Sustainable Energy Association (OSEA). Under the new Green Energy Act, former Energy Minister (now Toronto mayoral hopeful) George Smitherman (also of e-Health infamy), directed Hydro One to connect to the new heavily subsidized solar and wind power generators at a cost of $2.3-billion (the ones that will get 64-cents/kWh for their power). The OSEA claims to speak for Ontario ratepayers and it has exerted its influence through another group: the Green Energy Act Alliance (GEAA). How do these groups get funded? Well, it’s almost incestuous.

A recent article in the Financial Post (Aug. 17, 2010) by Parker Gallant points to a list of sponsors including: the Ontario Trillium Foundation (it distributes lottery revenue), the City of Toronto Atmospheric Fund, Ontario Power Authority, the Ministries of Energy, Natural Resources, Environment, Aboriginal Affairs, Hydro One and on and on. Its largely tax money that is influencing government policy, not public input.

In November 2009 OSEA held its 1st Annual Community Power Conference. The sponsors above plus a few other branches of government and a very few private-sector sponsors that directly benefited (law firms, equipment importers, unions) paid for the conference whose Honorary Chair was David Suzuki (his foundation also gets money from Trillium above). The keynote speaker was then Energy Minister George Smitherman who is slated for this year’s conference, too. Somehow in all this the word “cozy” seems inadequate to describe how Ontario’s electricity policymaking works.

Is it possible to find a more expensive way to produce electricity than the McGuinty Liberals have? I doubt it. Imagine what kind of competitive position this creates for Ontario businesses for the next 100 years. Of course the new HST adds an additional 8% to your electric bill, as it will continue to go up and up.

This article was excerpted from the Fall Issue of Libertarian Bulletin the Newsletter of the Ontario Libertarian Party

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