The APPrO Political Issues Panel, always an opportunity for spirited exchange, revealed some sharp divisions amongst experts on how public debate is likely to unfold on provincial energy policy in the next few years. Speaking on November 20, 2013, panellists Rob Silver, Will Stewart, Adam Radwanski, Dave Butters and Paul McKay, representing 5 distinct perspectives on the power system, showed just how challenging and possibly contentious discussions on energy policy may become, while offering their own suggestions for addressing the various political challenges ahead.
Moderator Sean Conway, of Gowling Lafleur Henderson LLP and the Centre for Urban Energy at Ryerson University, opened the APPrO 2013 Political Issues Panel noting that all the speakers were given an opportunity to make opening remarks.
Paul McKay, a power sector analyst, developer and investigative journalist began with a quote from American Author, Henry James: “A lot of people out there believe they’re thinking when they are merely rearranging their prejudices.” McKay stated that this observation could apply very well to energy politics in Ontario.
“Our chief prejudice is that we fundamentally believe, despite the facts, that we are all entitled to power prices far below the actual cost of production and distribution,” said McKay. He proceeded to outline how unrealistically low electricity prices, losses in OPG’s coal division, subsidies, pension fund liabilities, and upcoming nuclear de-commissioning costs have brought OPG to a troubling if not perilous financial situation.
Numerous measures enacted over the years have emphasized reducing short term electricity prices over building long term financial health. Examples include price freezes, the accumulation of stranded debt, the Ontario Clean Energy Benefit, underfunding of the pension plan, and various rebates to industrial customers. With refurbishment of Darlington reactors in the near future, and falling demand, OPG risks what McKay calls a “serious debt spiral.”
McKay’s primary recommendation was that the legislature should reconvene a Select Committee on energy policy much like it did in the 1980s when the Committee examined Ontario Hydro uranium contracts. Using this technique there would be an all-party expert forum to examine the books of OPG and the relative merits of refurbishing reactors versus other types of investment options. It would help to facilitate meaningful public discussion on the best choices for Ontario given what he sees as a perilous financial situation.
Rob Silver of Crestview Strategy observed that while Mr. McKay’s financial figures appear to be factual, it’s possible to come to different policy conclusions. For example, OPG’s financial results have been constrained for several years by limits imposed by government on the company’s rate of return. He added that in today’s context it is unfair to hold OPG responsible for financial consequences of closing down the coal facilities, because the shut-down resulted from a public policy decision outside OPG’s control.
“On one hand, maybe given the cost pressures inherent in our current system that was a legitimate policy decision. On the other hand, a reasonable person would conclude that there is always going to be an inherent tension as long as the government is both policy maker as well as shareholder of the utility.” He pointed out an easy solution for solving OPGs financial health: “If your primary concern is OPG’s financial health, easy to solve that, it’s just ratepayers that have to pay the difference to solve that problem.”
Will Stewart, Navigator Limited, agreed about the inherent conflict, saying it was not OPG’s fault they were told to do an assessment for new build nuclear and then told by the same shareholder we’re not doing new build nuclear. “That costs money. It’s also not OPG’s fault they had their rates of return constrained.” Mr. Stewart proposed an easy fix. “Let the rates go up and pay for OPG’s problems and all the other problems, frankly: Hydro One’s, LDCs, etc. But the politicians, because of that inherent conflict, aren’t going to let that happen.” He cited this as the root of the problems in the Ontario energy sector for a couple of decades, noting that others may say it runs from Adam Beck to the present day.
Dave Butters, President of APPrO, agreed with both Mr. Stewart and Mr. Silver before pointing out that the main problem is that we inherently undervalue the electricity commodity, without which we could not live normally as a modern society. Yet governments continue to try to tell people that they can expect to have electricity at historically low prices. “We’re not providing them with the value equation,” he said. If he were a shareholder of OPG he would want it to be profitable and not a means of temporarily obscuring electricity costs in the province. “That’s one of the root causes of OPG’s problems – it has not been allowed to be a commercial entity. We’ll never get out of this cycle until we find ways to not use companies like OPG as ballast for other political decisions.” But let it be settled before the Ontario Energy Board, he said.
Adam Radwanski, the Queens Park columnist for the Globe and Mail, agreed with the idea that there’s a tension between the desire for high quality electricity supply and the willingness to pay for it. However he compared the situation more to a pendulum than a straight line. For example, when the McGuinty government first took office in 2003, it accepted significant price increases, due in part to the serious supply concerns after the blackout. “There was a willingness to ensure safe supply by allowing prices to go up somewhat, though a couple of decades later we perhaps saw too much willingness to drive up costs to fulfill policy goals.” Post Green Energy Act and post gas plant cancellations, Radwanski sees one of the imperatives of the Long Term Energy Plan to be cost containment. Ontarians are worried about whether they can afford their bills or to run their businesses and feel rates have gone up too fast. So while a correction may be needed, he cautioned that an overcorrection creates the danger that we won’t invest in what we need to invest in for the next 5-10 years. He sees the pendulum swings as an ongoing struggle to find a healthy balance.
Referring to the evolution of the gas plant cancellation scandal since last year, Mr. Conway put two questions to the panellists. “Since this will most certainly be an election year, provincially, within the next 12 months what do you think is the primary lesson to have been learned by the political class from the gas plant experience? And weren’t these democratic politicians, of all stripes, doing what they are supposed to do, which is to listen to the people?”
Will Stewart: “The lesson for the political class is the same that should be learned by the energy sector. An agreement for a contract for a power plant and a demonstrated need for a power plant do not equal a power plant,” said Stewart, listing citizen activism, shareholder problems, and regulatory challenges as additional factors that can derail such a plan. He noted that we also need to address whether OPG is an agent of social change or a financial instrument for the provincial government and whether electricity policy is something that politicians should be continually meddling in. “If we deconstruct the cancellation of the gas plants, there was no obligation to pay TransCanada and Oakville anything until a few cabinet ministers signed an order saying they would enter into negotiations. The approach was right with the RFP etc. but then you get the politicians involved, saying no we’re not going to do that.”
The right steps need to be taken up front, not after the plant has begun construction as was the case in Mississauga.
Paul McKay said that the last stage of the gas plant cancellation was uncharacteristic albeit egregious political interference by the McGuinty government. He agreed with Mr. Stewart that it was a billion dollars wasted by paying off a hedge fund in New York for the better part of the bill. But the real problem was that those gas plants were going to be sited there in the first place by the OPA when the equivalent power could have been generated by CHP plants in existing industries around the province. He then outlined the benefits of CHP.
Dave Butters started by saying that, considering the overall context of electricity costs, the gas plants are not a massive amount of money, and the issue is whether a lot of thought went into it. One thing he sees as having come out of the cancellations is primarily a political management issue. He referred to Peter Hunt’s presentation from the previous day, noting that we need to do a better job of understanding what local concerns are at the beginning of the process.
Adam Radwanski is surprised that we are still talking about the gas plants, and sees that mainly as a failure on the part of the government from a political issues management position to anticipate the fallout and to understand how the public would view it. “There was no real levelling with public of what the cost would be from the get go. And I think that caught up to them,” he said, noting the current economic times and rising electricity costs as contributing factors. In terms of lessons, he recommended that politicians should manage politically better.
For Radwanski, the second lesson comes back to the pendulum issue. He noted an effort by the McGuinty government in the 2003-2005 period to de-politicize energy infrastructure decisions. However it perhaps went too far and the Mississauga site in particular might not have gone ahead if the siting process had incorporated a little more in the way of political preparations. In the 2011 election the government started out saying they weren’t going to touch the [gas plant issue] and then did a 180 because the political pressure was too strong. “So suddenly it went from a de-politicized decision to an incredibly politicized decision. There has to be some middle ground there.” He remarked on the inevitability of there being pressure on governments to be accountable even when they try to remove themselves from the process and that there needs to be an effort made to find a healthy balance so the political calculus doesn’t become all-encompassing too late in the game.
Rob Silver’s biggest take-away from the gas plants is the old cliché: “Good Policy is good politics” and its converse that bad Policy equals bad Politics. He offered the 2004, pre-OPA, Ministry-run RFP as an example, where the critical flaw was that anybody could bid on the RFP whether qualified or not. That was an arm’s length process and the political folks weren’t involved. In the case of Mississauga, realistically, the project was never going to get built, and the proper approach to the developer should have been to invite them to sue.
Different issues were at play in the case of Oakville, where the perfect site existed for the gas plant, namely the parking lot at the Lakeview coal plant, but a political decision was made to do an RFP instead. “Every single project that wasn’t in that parking lot was going to have the same problems if not way worse than TransCanada had with Oakville,” said Silver. “You have to make the right policy decision up front because as soon as you get past that there are going to be real political costs to be paid.”
Sean Conway observed that if you look at the political landscape around continental North America, a lot of infrastructure is having a real struggle to gain social license. What are we going to do about the polarization that appears to be developing around renewing, upgrading or replacing critical energy infrastructure without which a modern, post-industrial, increasingly urbanized society cannot function?
Adam Radwanski suggested that the problem is getting people to think beyond immediate need, to their long-term interests. Habitual pandering to the short-term makes it ever more difficult to get anything done for the long term. This includes not just infrastructure but also long term spending restraints or revenue collection. People need to be convinced that there is something in it for the long term when talking about an infrastructure project that is going to tear up their community for ten years. For politicians who have to worry about what’s happening a couple months or years away there’s an inclination to let the long term be someone else’s problem, which becomes a bit of a vicious circle.
Rob Silver drew a distinction between local opposition based on the location of a particular project (NIMBYism), versus opposition, frequently ideological, against an entire category of projects, like the tar sands. Proponents can deal with the first kind, but not the second.
Will Stewart said it is much more difficult to get social license for large infrastructure projects. One reason is the rise of the individual and the proliferation of social media, and the ease with which opponents can broadcast their ideas and swell their ranks with opposition recruited from anywhere. Second, there has been a massive decline of faith in public institutions. That, plus the pervasiveness of social media, means anyone challenging a public institution has a ready-made worldwide audience already questioning the ability of government to govern effectively.
Dave Butters commented that one person’s garbage is another’s treasure, and there will always be some who benefit from and approve of a project. He agreed that there is less trust for public institutions, while more people believe they are empowered to have a say. At the same time, people don’t necessarily trust the facts as given. “It’s about emotions. That’s just a fact of life.” While there are technical considerations to locating a project that can’t be ignored, he said we have to leave the top-down, what’s-good-for-you model and instead do a lot more bottom-up work to gain the social license. He referred to Peter Hunt’s presentation again. “Such an approach calls for deep pockets and the ability to play it out over time,” he said, “but it can be done.” As for Mississauga and Oakville, they were purely political decisions and he wasn’t sure they accurately reflected the abilities of the proponents to actually get the job done.
Paul McKay noted that Ontario uses 34 per cent more electricity per unit of GDP than New York State. He suggested that the main reason is Ontario’s low-balling of electricity prices over the last three decades. A proper signal for electricity prices will result in efficiency improvements, and would go a long way to reducing conflicts over generation and siting.
Adam Radwanski said that the current discussion demonstrates how certain political issues have become extremely localized. At the same time civic engagement is quite low, unless something is happening right in your back yard. Hence a project with wide benefit to the province may lose to a local, opposed minority who are engaged. Governments and others who want to build new things have to do a better job of explaining the benefits beyond that narrow swath of the population who are opposed.
Sean Conway asked the panellists: If you were Minister of Energy how would you write the essentials of the about-to-be-announced Long Term Energy Plan for Ontario?
Will Stewart said the first task is to define ‘long.’ Is there an assumption that the economy and therefore electricity demand is going to grow or stay stagnant, or is Ontario poising itself for economic growth, and the return of the manufacturing sector? Are we cancelling nuclear plants because we believe we’re never going to have the manufacturing sector back in Ontario? That will guide everything else. If we’re going to go back to being the economic engine of confederation we’re going to need some modern generation capacity.
Sean Conway asked him to provide two or three specific components of the energy plan.
Will Stewart: “Identify what you need, issue an RFP, conduct community consultation, sign a contract, build the plant.”
Dave Butters agreed with Stewart’s choice of the time horizon. He recommended a balanced approach with a lot of flexibility for an uncertain future. Distribute the eggs around a number of baskets in order not to commit too much in one area. Enlist commercial forces. Make results measurable and know who is accountable for those results at the end of the day.
Rob Silver: As Minister of Energy he would refuse to create an LTEP until we abolish the massive directive power of the Minister of Energy. He said he would essentially go back to where we were under Bill 100 in 2005: “Not perfect and lots of flaws but I would see how that flowed and what the OEB thought.”
Paul McKay: The LTEP has to start first with efficiency. “Minister Chiarelli has said that will be a feature of this government but hasn’t specified how that will be done and how it will be paid for.” Efficiency can create wealth across all sectors. There should be aggressive targets and a fiscal mechanism to ensure it happens. “After that we can figure out how much generation we need, and where.” He pointed to the benefits electric vehicles could provide.
Adam Radwanski said he would avoid gimmicks, like the Clean Energy Benefit. He criticized LTEPs as frequently just a delivery mechanism for some big flashy policy that’s the flavour of the day. He takes the cost pressures seriously, particularly for two groups, one being industrial and the increasingly uncompetitive rates particularly for manufacturers in the southwest, and the other being people on fixed or lower incomes. He recommended doing what the clean energy benefit didn’t do; provide relief to the people who actually need it. Make better use of the supply, efficiency and flexibility that is coming online. It’s surprising to see how little we’re getting out of our gas-fired plants, he noted.
Sean Conway said that the Green Energy Act (GEA) was intended to reduce costs in non-energy related areas like health care. Is it not reasonable to conclude that some of the costs associated with these policies be assigned not to the energy account but to the general account?
Rob Silver acknowledged the commitment in the 2003 campaign to shut down coal and replace it with cleaner energy, and the health benefits were a big driver. “But the GEA didn’t achieve the switch from coal, it achieved other things.” Had the province never introduced the GEA, the coal replacement policy and its implementation would still look like an enlightened, smart electricity policy.
Sean Conway reiterated his question: Energy policy of recent times has been advertised in part as a way of improving public health by producing energy that was environmentally cleaner. If there is a social/health benefit associated with producing a cleaner form of energy should not those costs be socialized and not all charged to the energy account?
Dave Butters was not sure you could socialize those costs into other accounts. He acknowledged we could have a more open and transparent discussion about what those costs are and why they are in electricity bills. Benefits include clean air, a lower carbon footprint, industrial benefits, etc. We don’t do a good job of explaining that electricity isn’t just commodity – in fact it never has been.
Sean Conway pursued his point: Fifteen years ago when the Ontario Medical Association was aggressively involved in the energy policy debate, the policy moved in large part because it wasn’t environmentalists leading the way, it was doctors. The policy moved on the basis of improving peoples’ health status. How do we pay for that?
Dave Butters: “I don’t know how you would ever disaggregate those costs and assign them to other accounts. That’s not going to happen.”
Will Stewart offered one approach: have the taxpayers as opposed to the ratepayers build a power plant and then contract out the management of it. He added that the doctors’ agenda was aided by the gas industry. A serious health agenda would have replaced coal with zero-emission nuclear, he said. “This is a gas industry play as much as it is a clean air play,” he said.
Dave Butters: Coal was not entirely replaced by gas. It was partly by refurbishing of the units at Bruce Power. It’s a little bit of both.
Paul McKay said good on the McGuinty government for phasing out coal plants, although one unintended consequence is Stephen Harper using the coal shutdown to allow for a larger cap for emissions in Alberta and tying it to approval of the Keystone pipeline.
Adam Radwanski said that socializing the cost of health related improvements was exactly the effect of the Ontario Clean Energy Benefit, at least in small measure. However, taking pressure off the entire rate base is not the way to promote conservation. There is some room to achieve conservation as a policy goal, while relieving rate pressure on people who need it, but there are misconceptions out there about where the energy money is going and why the rates have gone up. It has been badly managed by the government in the last six years and that makes it harder to justify what people might otherwise have been willing to pay for.
Will Stewart pointed out that the Harris government shut down the first coal plant in Ontario and gave a nod to the Stephen Harper government for tough emission regulations on the coal industry in Saskatchewan and Alberta.
Sean Conway asked, “How do we have, going into an election year, an adult conversation with the Ontario public on investment and pricing in the energy sector?”
Will Stewart: It’s too late for that conversation to inform the next election. Politicians interfere with the electricity sector because they don’t believe the energy sector knows how to play politics. Engineers and proponents need to make their own efforts at getting social consensus, and shouldn’t expect the politicians to take the bullets for them. The cancellation of the two gas plants had nothing to do with adult conversations on power policy, it was elementary politics aimed at getting candidates elected in those ridings.
Paul McKay recommended that the Legislature convene a Select Committee with all the parties, starting next week, inviting the press and with expert, impartial testimony to relieve some of the pressure on politicians.
Adam Radwanski liked McKay’s Select Committee idea in principle, though such committees in minority governments in practice are likely to get bogged down in theatrics. Just be more honest with people about what the real costs are, he argued. Don’t lowball costs you know are going to be higher. It’s too easy to do that when you know most people don’t follow these issues closely. Eventually they’re going to notice what you said wasn’t true and the next time you try to convince them of something they aren’t going to listen.
Dave Butters agreed with Will Stewart and referred to Kim Campbell saying that elections are no time to have a discussion of public policy. A rational all-party discussion on policy may have to wait for a less poisoned political atmosphere. At that point either a Select Committee or something like the MacDonald Committee or the Electricity Conservation Supply Task Force could be productive. However electricity has to stop being a political football. There has to be a way to find a consensus on the big things, if we can agree on the basics.
Rob Silver disagreed with the notion that much of what’s gone wrong in the energy sector lately was because of unsophisticated energy companies. Oakville happened for a lot of reasons and it’s not because TransCanada was caught off guard.
Second, he agreed with Dave Butters: “There is no conversation about the energy sector in Ontario that is going to happen between now and an election that is good for anybody involved at any level of the energy sector.” He believes there are very few MPPs who could actually contribute substantively to a serious conversation on the future of the electricity sector.
Sean Conway pointed to an unusual level of dysfunction, and not just in Ontario, in political discourse, and asked for recommendations to improve the literacy level around critical issues.
Dave Butters suggested some kind of energy editorial bureau, perhaps through the OPA or the OEB, not the government, designed to raise the issues and talk about the concerns, could be useful. Give it to a panel committee and have them go away and come back and then have a discussion. Make it part of their mandate to facilitate that broader conversation.
Adam Radwanski has heard the LTEP will have some kind of an awareness campaign to educate the public on how the system works. He went on to suggest that simplifying energy bills would be a good start so people have some idea of what they’re paying for. More broadly, he would say “Don’t play to people’s worst instincts.” It has a corrosive effect on civic engagement, creates cynicism about government, and drives away rational debate.
Paul McKay sees a decades-old transparency deficit in the power sector in Ontario. He disagrees with Will Stewart about it being too late for an adult conversation prior to the upcoming election. In a democracy we elect politicians to make the best decisions for us. OPG and Hydro One and the OPA have been the tail wagging the dog. They are in a good position to propose specific options, but they’re not the ones who should decide energy policy. Mr. McKay reinforced his suggestion for a legislative committee with expert staff and witnesses.
Sean Conway noted that in the last few years Ontario has undertaken significant tax reform at a time when it wasn’t particularly easy, i.e., the HST, and pulled it off. “Why can’t we undertake some modest efforts in the energy area where clearly we’re not going to get the social license for certain things if there’s not a better understanding of the public good and the public issues that are at play?”
Will Stewart reiterated that some communication with the public is needed, but there isn’t time before the next election. As to the HST and the comparative ease of its passage, the timelines involved were considerably shorter than what’s involved in massive infrastructure build. The ideological battles around oil sands, or emissions, or asthmas, or Kyoto don’t come into play on taxation. The government knew that the provincial Conservatives in opposition were handcuffed because the federal conservatives proposed it. There is more personal engagement over large infrastructure visible from one’s back yard, and a longer timeframe for intervention. “That good public policy is good politics is a larger conversation that has to happen from someone other than government.”
Rob Silver recounted the case of a politician who actually persuaded people that some local wind projects were necessary. Be straight up with people, Silver said. Local politics are what people still really care about and get engaged with. “There is all kinds of evidence in recent Ontario history that people will accept projects that are provincially important, particularly if politicians are being straight up with them.”
Second, he argued that people accept that the Governor of the Bank of Canada has legitimate reasons to do so when he raises interest rates. However there is no one in Ontario’s electricity sector who is seen as having the same level of legitimacy, in terms of the ability to make unpopular decisions. Without that kind of recognized legitimacy, we will never have the necessary adult conversations. As has often been the case in previous years, he suggested that it would be preferable from a number of perspectives if electricity policy does not become a major issue in the upcoming election. Although it would be difficult to foster a productive discussion in the current context, a number of electricity issues would lend themselves to discussion in a forum that takes a longer term view.
— By Colleen Winter, with editorial contributions from Jake Brooks and Steve Kishewitsch.