Randall Denley: Doug Ford is making the Ontario Liberals' green-power disaster worse
Ontario electricity prices are going up two per cent, the Ontario Energy Board announced this week. Clearly this is both an outrage and a broken election promise by Premier Doug Ford, who said he’d cut prices by 12 per cent.
The power increase will place a burden of $2.24 a month on the average household during the middle of a pandemic, a move decried by the NDP, who say they would “overhaul the system” to bring bills down, in some unspecified way.
Instead of talking about a trivial increase of a couple of dollars, Ontarians should be paying attention to the $4.7 billion the provincial government is borrowing this year to keep power bills artificially low. Ontarians are getting a rebate of 33 per cent off their real power costs. Pretending that power rates are far lower than they really are is a trifecta of political stupidity that the Liberals started, the PCs continued, and the NDP promises to make worse.
So, why are power bills going up? Not for the reason you’d think.
Ford defended the increase this week by saying that’s it’s rising at the rate of inflation. It is, but the increase has little to do with inflation. Instead, as the OEB pointed out, prices are going up because of declining demand.
But wait, wouldn’t decreasing demand in a market that already has a large supply surplus tend to lower prices, not increase them? Unfortunately, not in Ontario.
During the 15-year Liberal reign, the supply of wind, solar and natural gas generation increased to well beyond what the province required. For example, gas-fired generation makes up 25 per cent of provincial capacity but produces only six per cent of power output. In a free market, that kind of surplus would have driven prices down and pushed inefficient competitors out, but the Liberals had a solution for that. They guaranteed to pay for that new power, even if it was not needed or generated.
That’s the root cause of this week’s power increase. Guaranteed contracts have left Ontario with huge fixed power costs. As the volume of power used declined steadily for more than a decade, fixed costs rose to 18 times what they were back in 2008. Just over one-quarter of fixed costs now are attributed to wind and solar power.
As power use declines, each unit of power has to bear a higher amount of those fixed costs, driving up the unit price. Use less, pay more, seems counterintuitive, but in Ontario’s complex web of power policies little is as it seems and even less is what logic would dictate.
The Ontario Energy Association, an industry organization, has suggested a solution that is just as counterintuitive. Their plan is to encourage more power use, to keep prices down. The mechanism is simply the reverse of what is driving prices up. The more power that is used, the lower each user’s share of the fixed costs becomes. The OEA plan makes sense because it suggests giving bargain rates on power to encourage new or expanding uses in the province. That’s better than dumping surplus power off for little or nothing to competing jurisdictions.
Instead, the government has gone in the opposite direction. It is continuing to spend on energy conservation programs, which will exacerbate the problem of too much power and too little volume to share the cost.
Ford says he “hates” the two per cent power increase but it’s his government’s policy to allow it. What was little noticed is that the government increased the percentage of its power-rate subsidy to offset the majority of the price increase. Without that, Ontarians would have been facing a much more attention-getting 4.5 per cent power-price rise.
It’s worth noting that part of the power increase was made higher by Ford’s unnecessary decision to reduce power prices over the summer because of the pandemic. Rather than rely on programs that already target those least able to pay their power bills, Ford cut the price of electricity for everyone, thus uselessly subsidizing people who were still working and quite able to pay their bills. That didn’t make sense, but then, very little does when it comes to power pricing in Ontario.
Ford inherited a difficult and perhaps politically insoluble problem from the Liberals, but he made it worse by raising hopes of even lower prices. There was never a real plan for a 12-per-cent cut, nor should there have been. Ontario’s high real power prices are the outcome of years of bad political decisions, regularly endorsed by voters. Pretending that it’s otherwise won’t make it go away.
Randall Denley is an Ottawa political commentator. Contact him at randalldenley1@gmail.com