The debate on electricity in Ontario has produced a lot of political fireworks – especially lately. It has, however, revealed some major problems in our energy system that should be concerning to consumers of all shapes and sizes. An energy system that doesn’t work the way it ought to hits people in two significant ways: It has a day-to-day impact on their household bills, and it affects the overall health of the economy.
It is a simple fact that energy is a fundamental building block of our economy. If we get it wrong our economy very literally does not run. More costly electricity makes it harder to grow and create jobs, and it makes those goods that are produced more expensive.
These are tough times for Ontario’s economy—particularly in the manufacturing sector. The sector has real and justified anxiety about the future. More than 300,000 manufacturing jobs have been lost since employment peaked six years ago. Ontario’s unemployment rate remains stubbornly stuck above the national average, and youth unemployment in Ontario is nearly double the provincial average at 15%.
While the government has devoted a lot of effort and political capital to reducing corporate taxation, they have largely ignored the burden of high electricity costs. These costs have, however, become impossible to ignore. A company with extensive energy needs that pays $6.4 million a month in Ontario would have an electricity bill of $2.8 million in Quebec and $2.3 million in Manitoba. That is an additional cost of $48 million annually. This is a serious disincentive for many segments of the manufacturing and resource industries. Cement, steel, pulp and paper and countless other energy-intensive companies are finding reasons to locate in places other than Ontario. So, while resource extraction is occurring in Ontario, ore and lumber are being shipped across borders for processing, leaving Ontarians without those value-added jobs.
For generations, reliable affordable electricity, delivered at cost, was one of the pillars of the Ontario economy. That is no longer the case. In the late 90s, Ontario’s Conservative government – with the support of the Ontario Liberals – decided to de-regulate and privatize Ontario’s hydro system. The experiment failed spectacularly. The idea of the market as the sole price determinant was shut down by a pro-market government a mere six months after the market opened.
Rather than tackling the challenges and fixing the problems caused by de-regulation, the Liberals’ approach has been largely to tack new agencies onto the hodge-podge of a system left by the previous government. The erratic planning and inconsistent decision-making that characterized the early stages of de-regulation has continued. The most glaring example is the $1 billion being paid by ratepayers because contracts were signed and then suddenly cancelled for new gas privately-owned gas plants in Mississauga and Oakville. It is an extreme example, but the reality of what happened with those two gas plants is symbolic of a system that simply doesn’t work. It’s clear that the proliferation of energy agencies hasn’t resulted in better or clearer planning and it hasn’t taken politics out of the system. Whether it is canceling plans to build new gas plants in Oakville, after insisting for years that it was absolutely necessary, or imposing a moratorium on off-shore wind, then reversing that decision, and then reversing it once again, or the fact that none of the government’s numerous long-term energy plans have lasted over the long-term, the results of electricity policy zig-zags has been confusing and often expensive.
It is not a coincidence that the cost of electricity drops dramatically when you cross the border into Manitoba or Quebec. Both of those provinces have built their electricity systems around strong, unified and publicly accountable electricity companies. Clearly, we can’t snap our fingers and replicate their success. I do think, however, we can start looking honestly at how we make decisions in the future.
For example, one of the lessons we have learned is that turning to private providers for supply sources, like peaking plants, doesn’t achieve our goal of affordable power. Ontario’s businesses and households are paying private companies fixed contracts for natural gas peaking plants to sit idle. And those costs are small next to the high cost of relocating plants – as the government did in Mississauga and Oakville. It is time to give Ontario’s publicly-owned generator the mandate to build and operate new natural gas plants in this province. Through OPG, the government of Ontario owns lands where the public is used to power plants, and those lands have the transmission infrastructure already in place. Coal plants that OPG already owns, operates and is in the process of winding down, can be converted to generate cleaner power. It is a simple step we can take today to ensure reliable, affordable power in the future.
That’s one example, and a simple first step, but there is more that can be done. At the moment, private energy trading is being subsidized by Ontario ratepayers. Experts have estimated that over $1 billion has been added to electricity bills since 2006. There is nothing illegal or improper about this. It is simply that within our confusing electricity system consumers pay the real price for electricity while traders pay much less. Ontario needs to purchase power, but a central trading agency, accountable to the public, can negotiate a price that best serves the needs of consumers here in Ontario, especially when those purchases can be anticipated. Both Manitoba and Quebec have central trading agencies and by trading power in the best interests of their shareholders—the ratepayers—they are able to generate revenues that subsidize the cost of electricity in those provinces. Again, it’s time to look at simple, obvious, measures that will protect the public interest and make electricity affordable.
We also have to deal with new challenges when it comes to electricity supply, and as we deal with these challenges we have to consider the impact our decisions will have on the cost to households and business. Nuclear power has had a role in Ontario’s electricity system for over half a century. That is not going to change at the drop of a hat, but decisions on nuclear expansion have to be made very carefully. A quick glance around the world shows us that the costs of nuclear power are significant, and often above projected price tags. The citizens of New Brunswick learned this recently when the Point Lepreau refurbishment came in 37 months behind schedule and $1 billion over budget.
The Liberal government has, belatedly and partially, acknowledged this in their latest long-term energy plan. That decision, however, comes after spending $180 million on now-cancelled plans to build new nuclear reactors. Moreover, the government is simultaneously touting the savings of not proceeding with this plan while arguing that the $180 million already spent has not been wasted because the government could reverse their decision again in the near future.
Despite new-found concerns about the cost of new reactors, the government’s LTEP insists that refurbishment plans will proceed. Whether we refurbish nuclear units or whether we take a pause to look at other options – such as importing hydro power from Quebec – is a decision we have to make very carefully. A solid business case has to be on the table before billions of precious public dollars are committed. At a time when we’re facing a surplus of supply, it may make far more financial sense to focus on aggressive conservation, smart demand management, co-generation and renewable energy. These options are not only affordable but are good for the environment. We can do far better in CDM and renewable power than we have in the past.
Ontario’s energy future must be focused on affordable, clean and reliable electricity. We know that change doesn’t happen overnight. We have articulated a set of clear first-steps that will help get rates under control. It is clear that new solutions and ideas are needed. Ontario families and businesses, who are paying some of the highest electricity rates in Canada, deserve as much.