Ontario—how not to centrally plan the power system

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Appeared in the Toronto Sun, Aug 6, 2017

After years of governments mismanaging energy markets in Ontario, new research shows that Ontarians now pay some of the highest electric bills in Canada.

The average residential monthly bill for Torontonians last year was $201 (including tax). In Ottawa, it was $183 per month. Compare that with Montreal ($83 per month) or Calgary ($109 per month) and it’s not hard to see that Ontarians are taking it on the chin for electricity.

And it’s not only an issue in absolute terms, the trend is also telling. In Ontario, from 2008 to 2015, electricity prices grew two-and-a-half times faster than disposable income, nearly four times faster than inflation, and four-and-a-half times faster than the rate of economic growth. It also outpaced growth rates in British Columbia, Quebec and Alberta.

What’s behind the rise? No doubt some of it is past mismanagement of the power system’s infrastructure and poor decisions regarding conventional power production. But as we show in a recent Fraser Institute study, payments for wind, solar and biomass power constitute almost 30 per cent of the “Global Adjustment,” the part of an Ontarian’s monthly hydro bill that covers the costs of electricity production beyond the revenue generated by the wholesale market price.

In fact, the renewable component of the Global Adjustment fee is also expected to grow in 2017 and 2018, with Ontario’s energy board forecasting it will rise to 42 per cent in that time. And what does that buy Ontarians? In 2016, only 6.8 per cent of electricity generation came from wind, solar and biomass power generation.

In response to study, Energy Minister Glenn Thibeault suggested we didn’t recognize the “value of the investments (the current government) made to eliminate coal and clean up the dirty, unreliable system (they) inherited from the previous Conservative government.”

Let’s talk about that.

A recent analysis of government air quality data by Fraser Institute senior fellow Ross McKitrick and Elmira Aliakbari shows that shuttering the province’s coal plants produced a small reduction in particulate matter in Ontario—but not to a statistically significant level in the two biggest population centers of Toronto and Hamilton. It produced a statistically insignificant reduction in nitrogen oxide emissions, and while it produced a reduction in peak ozone levels, much of that was offset by increased natural gas generation needed to replace the coal power output.

But what about greenhouse gases? According to Environment and Climate Change Canada, Ontario’s greenhouse gas emissions were down by 24 megatonnes from 1990, most of that attributed to Ontario’s coal phase-outs (both pre- and post-Green Energy Act), and that’s arguably a good thing—but it came at a terrific cost. Ontario’s auditor general concluded that ratepayers shelled out $37 billion for the Global Adjustment component of energy prices from 2006-2014, and predicts that Ontarians will shell out another $133 billion in the Global Adjustment between 2015 and 2032.

It’s an absolute travesty that people living in the largest city in Canada, a wealthy country with some of the world’s largest reserves of energy of all sorts, face such high power prices that some families must choose between heating and eating. Ontario’s government has pulled the plug on the next planned round of renewable expansions but that’s not enough to fix the problem it largely created.

The government of Ontario should admit they have a problem of high-cost energy thanks to years of mismanagement of the power sector, and it should produce a plan that would actually drive down prices (rather than shifting them into the future) and give the people of Ontario affordable, reliable power that won’t break the bank.

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