Ontario is now in election season, a prospect that makes for jitters in the electricity sector. Recent history in energy policy has a background story that has a lot to do with alternating between hastily-made political promises and the slow process of rebalancing the system after trying to implement those promises. Elections, while an excellent opportunity to bring out the differences between potential leaders, are generally not the best context in which to compare proposals for immediate action, because they tend to get isolated from broader and longer-term policy questions. The difficulty with the electoral lens is particularly serious if the short term proposals have significant impact on other parts of the system, or long term cost and stability implications. This is a weakness of our democratic system that can be mitigated to a reasonable degree if the political players use the election to establish their positions on long-term issues before making short-term promises. Unfortunately, the temptation to offer instant goodies for the voter, with little regard for long term impact, is hard to resist.
While the political parties often paint long term visions that appear to be quite distinct from one another, in fact there is a great deal of common ground on public policy objectives for the energy sector. Pretty well everyone can agree that safety and reliability are the first objectives, and that encouraging efficient long-term investment that meets a high standard of environmental responsibility is the central challenge of electricity policy. It doesn’t matter what party you represent, these four expectations (safety, reliability, cost and environment) in more or less that order, are at the top of everyone’s list. The differences between the parties relate to subtle variations in the relative positions of these values, how to act on them, and the addition of one or two items to the list in some cases. If the political alternatives are presented as clear statements of how each party ranks the values that it believes should drive electricity policy, elections can provide a meaningful signal of the public’s expectations, and lead to reasonably stable results for the system. It makes little sense to campaign on a promise to take one immediate action or another, if ambiguity over principles creates serious risks that subsequent events will force compromises in another area that really wasn’t considered when the promise was made.
One does not need to support the substance of the McGuinty government’s long term energy plan, or to favour the Liberal party, in order to appreciate the value of tabling a long term plan ten months before an election. It gives all participants in the debate a reasonable opportunity to state their case in carefully considered terms and most important, to focus on the long term decisions, the most important issues in energy policy. In such a context, regulators and markets can make their decisions within a framework of principles established openly and transparently by governments. The alternative, i.e. government making short term decisions, not only risks the side effects of hasty action, but also confuses the governance relationships between the players in the sector, and thereby damages stability and the attractiveness of the industry as a destination for investment.
Many in the Ontario electricity sector are crossing their fingers that the province will get through the next ten months without any party or politician trying to gain the limelight temporarily by offering to do something that regulators or markets are better equipped to do. This is the time for political leaders to set out their directions, to articulate their values and to talk about how their sense of the relative importance of reliability, price and environmental protection would play out over time if their long term plan were to be chosen by the voters.
None of this is meant to suggest that we shouldn’t have a vigorous public debate on the politics of energy during the period before an election. Greater attention to the energy file can enrich the political process. The parties can go a long way talking about their differences, what their plans would look like, and how they would operate in government. The central concern is to caution against parties and candidates being too clever for their own good by making “quick-hit” offerings to the voters in the heat of the current electoral process, propositions that might not stand the test of time. This is true not just because hasty policy decisions are more likely to be dubious but because continual change in policy interferes with the efficiency of investment as well as with the effectiveness of policy itself.
The classic example of such a problematic offer is to freeze electricity rates before an election. Such tactics have been used so often it’s a wonder that voters continue to respond to them. But therein lies the key weakness of democracy: The public responds better to simple proposals with questionable long-term after-effects than, in many cases at least, to the kind of complex proposals necessary to achieve positive long-term benefits.
Columnist Adam Radwanski wrote in the Globe and Mail November 17 that “for the next year, at least, Ontario will plunge into pre-election fantasyland. The Liberals will join their opponents in pretending it’s possible to pay less and get more. And the next government, whatever its stripe, will either have to continue that charade, or further fracture the public trust by imposing a rate hike that nobody will dare acknowledge as a possibility during the campaign.”
It is an axiom of political life in Ontario that candidates for office will try to present themselves as the consumer’s friend, as someone who will control electricity prices. It is also a sad fact that governments have very little ability to control the overall cost of power in one electoral cycle. Those in government can manipulate prices artificially for a short while, as many have done, but the full costs eventually hit home. Price manipulation doesn’t benefit anyone in the long term. What does help, and there are signs that this is taking root, is to establish conditions that will encourage efficient investment, stability in direction and consistency over time. This produces durable long-term downward pressure on electricity prices – although not a lot of gain to anyone during an election campaign.
As outlined on page 19, Ontario’s latest Long Term Energy Plan contains relatively minor changes. Although this may be perceived as anticlimactic, there is good news in the subtlety of relative calm: The overall system design seems to be settling down. The functions of the agencies are stabilized, the role of planning is being clarified, the green energy program is being subjected to various tests of prudence as it works its way through the system. Although the content of the supply mix has only been tweaked around the edges, the main implication of the new LTEP is a recommitment to a normalized process of reform and system design. The upsets and wholesale revisions to the system should be unnecessary now that major objectives for both green power and predictability in the investment climate have been satisfied.
What premiers and governments should be judged on at election time is whether they set up the conditions for efficient investment in electricity system infrastructure, to meet a stable set of long term goals. What they tend to be judged on is the change in electricity bills in the previous few months. This circumstance is regrettable because it puts every responsible government at mortal risk for the short term impact of long term investments. McGuinty’s LTEP came with an open promise to rebate consumers in the short run to soften the blow of increasing prices. The rebate plan is a tacit recognition of the “last bill problem,” a way to keep the conditions for investment reasonably stable while ensuring that the latest rate fluctuations don’t overtake the discussion of more fundamental electricity issues. Whether it’s a reasonable way to accomplish this is essentially a political question, but it’s no more uneconomic than the rate freezes of Ernie Eves or Bob Rae and Maurice Strong. And it has the benefit of leaving most of the rest of the mechanics free to operate according to regulatory rules and market dynamics, without major disruption from external forces.
You can disagree with the substance of the LTEP, but still appreciate the fact that the province has such a plan. A remarkable range of stakeholder groups have offered moderate praise for the LTEP. Relatively few objections been voiced, other than from the political opposition. People may find reasons to debate the timing of the LTEP, and its murky relationship to other planning processes such as the less-than-clear procedures now at work for planning transmission and distribution investments. Overall however, the plan seems to be getting a passing grade in terms of process from most sources. A key function of such plans is process related: to bridge the gap that may occur when there is a change of government – to identify the enduring principles and arrangements that are likely to be needed even if a new administration with different priorities takes over. On this count as well there is some reason for satisfaction with the LTEP. As a result, observers of the energy sector may notice one very significant implication from all of this: debate on energy policy can now be reasonably well organized and focused on the substance of the plan. Compared to the previous circumstances without a comprehensive plan, in terms of consistency in energy policy and in terms of healthy democratic process, that is a much improved basis for public discussion, and for an election.
— Jake Brooks, Editor