Hydro Rate Cut a Missed Opportunity for Grown-Up Policy Discussion

Electricity pricing has become yet another wedge to drive between different parts of the province while the economic system that leaves so many people vulnerable to rising electricity prices in the first place persists mostly unchallenged.

By Ryan McGreal
Published March 02, 2017

The Ontario Government has just announced that it will cut electricity rates by 25 percent this year through a combination of three changes: moving the hydro subsidy out of the so-called Global Adjustment hydro surcharge and onto the provincial tax base; amortizing the capital costs of the power system over a longer period; and removing the 8 percent provincial portion of the HST from the total.

Hydro towers along Hamilton waterfront (RTH file photo)
Hydro towers along Hamilton waterfront (RTH file photo)

This dramatic course correction comes in response to an availability cascade - a chain reaction of heightened awareness and escalating outrage - over Ontario's electricity prices. This availability cascade is at least partially politically motivated, as the Liberal Party's political opponents claim (falsely, it turns out) that our hydro rates are "the worst in North America".

There are lots of reasons why many people are struggling financially these days, but electricity prices are currently top of mind in the public discourse so they have been getting the blame for everything, further feeding into and propagating the cascade of collective outrage.

Ontario's current electricity prices are somewhat higher than the North American average, and they have certainly gone up significantly over the past decade, but are by no means extreme outliers.

Global Adjustment

The underlying cause of the price increases in recent years is hotly debated among economists, industry analysts and political pundits. Making things more difficult is the fact that the increases are buried in the so-called Global Adjustment (GA), a surcharge above the spot price per kWh that covers maintenance, refurbishment and new investment in the system.

Of the GA, only a small proportion is for wind and solar. A portion is to cover tax credits for green investments and recycling fees for discarded appliances. The biggest proportion [PDF] is for natural gas and nuclear, mainly for the cost of refurbishing Ontario's nuclear reactors.

There's an important debate to be had over whether it makes sense to invest $12 billion to refurbish nuclear power generators that already have some of the highest electricity generation costs (if you include the lifecycle costs of the reactors). Could we instead buy surplus hydroelectric power from Quebec at a much lower price and pass those savings to consumers?

These are important political decisions, and the Ontario Liberals should be held to account for refusing to consider cheaper alternatives to propping up Darlington and Pickering at exorbitant cost.

Unfortunately, egged on by ideological and partisan opponents to clean energy, most of the outrage has been misdirected against the existing wind and solar contracts, which have a relatively high cost per kwh but represent a pretty tiny share of the power generation mix.

Amid the daily reality of global warming and with wind and solar generation prices tumbling worldwide, we should be investing more into renewables, not less.

Another feature of the GA system that outrages a lot of people is that when Ontario sells surplus power to other jurisdictions, it does so at the spot price per kWh, not at the full price with GA included.

This seems intuitively unfair to Ontario consumers, although it's simply a matter of securing additional revenue when the grid produces more power than the Ontario market needs.

Scapegoat for Neoliberalism

More generally, focusing on electricity prices is a fantastic distraction from the effects of three decades of neoliberal economic policy, which has produced stagnant median incomes, a steady erosion of unionization rates, labour market insecurity and so on.

It's also a distraction from the structure of a housing market that has produced extremely high home prices and high rents, with investment in affordable housing downloaded to municipal governments that don't have the tax base to meet that responsibility.

But electricity pricing has become yet another wedge to drive between different parts of the province while the economic system that leaves so many people vulnerable to rising electricity prices in the first place persists mostly unchallenged.

The new policy will reduce electricity prices by moving some of the cost of electricity off the hydro bill and onto the tax base, and by moving some of the cost off current ratepayers and onto future ratepayers. It will assist some low-income Ontarians who really need the help, while also giving nice discounts to other Ontarians who really don't need the help.

It will also dampen the price signals that should be incentivizing Ontarians to reduce our net energy consumption by investing in conservation and locally-generated renewable power. An imagined future of solar rooftops across the province has just moved a bit farther into the distance.

Grown-up Conversation

Ontarians as a whole seem to be incapable of having grown-up conversations about certain topics when it comes time to talk about what we want and how to pay for it. (See, for example, the feeding frenzy when Metrolinx dared to broach the subject of congestion pricing to help pay for regional transit expansion.)

Looking back over the past 30 years, it's clear that electricity pricing is one of those topics. We refuse to confront the truth about how much it actually costs to generate and distribute electricity, compared to how much we are willing to spend on it.

Like the narrator from the classic Jane's Addiction song, we want something and we don't want to pay for it. Instead, we demand to be pandered to, and any party that wants to remain in power must ultimately agree to pander.

The Liberals foolishly tried linking the price of electricity to the cost of electricity. The result was an avalanche of fury that swept all the promising news about the province - decent GDP growth, steadily falling deficits, significant new investment in regional transportation - right off the agenda.

So I don't particularly blame them for giving the people what we demand. This is a democracy, after all. It's just a shame that none of the parties - not even the NDP - could set aside the politicking long enough to open up a broader discussion about why nearly all the gains of the past ten years have accrued to the extremely wealthy while median incomes continue to stagnate.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan wrote a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. His articles have also been published in The Walrus, HuffPost and Behind the Numbers. He maintains a personal website, has been known to share passing thoughts on Twitter and Facebook, and posts the occasional cat photo on Instagram.


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By matthewsweet (registered) | Posted March 02, 2017 at 13:04:57

The 3 R's have been amputated in recent years, so that only reuse and recycle are permitted in polite conversation. Reduce no long gets an airing, if it ever truly got one at all.

As usual, we resort politically to kicking the can down the road. Reference to the fact that nuclear generation produces waste that will come due many generations from now (if we're all lucky), at a subsidy cost far exceeding anything needed to increase wind and solar capacity. But hey, it occupies a small geographic footprint away from most folks and doesn't "negatively impact my pastoral country views" like those damned wind turbines sprouting up all over the place.

It's more than the Jane's Addiction narration; not only do we want something without paying for it, when it comes to energy, we want something without having to see or feel how it is generated. Like magic. Best of luck with that as we head down the road.

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By Borrelli (registered) | Posted March 03, 2017 at 09:30:02 in reply to Comment 120862

Great article. It is a very complex issue with no easy solutions, and as usual, the easiest-looking solution is to kick the can.

On kicking the nuclear waste can, though, you're technically already paying for it, if that makes anyone feel any better.

To Jim C--yeah QC has cheaper Hydro because for the most part it's hydro. Unless you're aware of run-of-the-river generation opportunities in ON that haven't been tapped yet, no amount of wishful thinking is going to actually lower the price of ON electricity. Expensive, guaranteed natural gas & renewable contracts are signed (for a generation), hydro production is maxed out, and delivery is expensive when the geographic area being served is as big as ON.

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By JPDanko (registered) - website | Posted March 02, 2017 at 20:24:01

Completely agree - the PC & NDP are totally shameless on hydro - they smell blood in the water and offer lots of easy criticism to stoke the frenzy - but no actual action. I can't stand complaining without offering a solution.

As for the actual cost of electricity - yes it's more expensive than I'd like. My most recent bill was $621 for Nov 16 to Jan 16 (3852 kWh) - so $300 per month.

Of course I have a giant swim spa that accounts for around 3000 of those kWh - so I accept that as the price of having six thousand liters of water permanently heated to 100 degrees in my backyard.

Its really not that hard to conserve and take advantage of time of day pricing (the spa only heats and filters at night) if you really want to - but its easier to complain than take action yourself.

As an example - here is a story about how I've wasted about $10,000 in hydro because my furnace fan was broken:

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By Deleted User (anonymous) | Posted March 02, 2017 at 22:17:38 in reply to Comment 120863

The reason you haven't heard the PC and NDP present a solution is because no one saw the need to spell it out. You make it sound like electricity is expensive across the board. It isn't. NY and Quebec both have cheaper hydro. We don't need to reinvent the wheel. And Ontario sells power cheaper to each of those jurisdictions then it sells to Ontarians. And when a man needs to pay over $80 for delivery of $1.30 of hydro then there's a serious problem. How does conservation help him? And don't forget: Ontario is privatizing the distribution grid. You're cool with that right? Selling public assets?

Comment edited by JimC on 2017-03-02 22:19:12

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By kevlahan (registered) | Posted March 03, 2017 at 10:05:44 in reply to Comment 120865

I'm not sure how you conclude that NY has cheaper electricity. From p 4 of the Hydro Québec report that Ryan cites, here are some residential prices as cents per kwh in various US and Canadian cities that are significantly higher than Toronto:

Toronto: 17.81

New York: 29.52 Boston: 27.69 Detroit: 20.24 San Francisco: 31.05

Others are lower, but Toronto is by no means the highest and is actually lower than nearby cities like Boston, New York and Detroit. There is quite a range in the US and Canada, but Quebec , as we know, is an outlier for low cost due to its abundant hydro.

I agree that the sell off is problematic, but given that the municipalities rejected all other suggestions for raising revenue for infrastructure investment (road tolls, parking taxes etc) it was one of the few remaining options.

Delivery charges reflect the cost of providing electricity infrastructure to rural customers: clearly it costs a lot more to run 10 km of electrical infrastructure for 5 houses in the country than for 5000 houses in the city. I suppose you could just average out the cost, but is this fair?

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By RustyNail (registered) | Posted March 06, 2017 at 13:55:15

Fair to say that the opposition parties are clueless on this file but Wynne has certainly bungled it. First off, when you are planning to pass on more of the real cost of electricity to the consumer you need to be cognizant of the complexity of the fee calculation and the economic impact of increasing costs on essential services in this economic climate. You also need to be aware of the optics of raising prices on a service you yourself have mishandled (i.e. the Oakville gas plant scandal and associated costs). The Libs have lost public trust on this file.

As for an adult conversation, I think the public can grasp the fairly easy concepts of finite, clean energy and conservation. We can understand the idea of pay what you use. What is needed is a way to manage costs so that I don't have to pay way more than I used to. The Libs could have introduced price changes in phases but instead they made several changes at once, right after they were outed for bungling - and trying to cover up - the Oakville plant cancellation.

They have a similarly dire reputation on the transit file after Glen Murray's rah-rahing of the new Scarborough subway line to win votes. The simple fact is that the public no longer trusts the Libs to lead this grown up conversation and this is the crux of the matter. If we are going to avoid knee jerk politicking - who is going to take the charge and guide the grown up discussions?

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