No quick fix for electricity woes

Every so often a situation comes along in which a government is presented with an opportunity to think long term and offer solutions designed to solve underlying problems.

Given the attention electricity prices attracted in the recent campaign, the new government of Ontario, which, implemented one of its campaign promises last week when it replaced the board of Hydro One including its chief executive, and which held its first legislative session on Monday, has been given such an opportunity.

But clearly the solutions have to be more broadly based than the campaign promise of a 12 per cent cut in retail prices — which is slated to come on top of the 25 per cent cut already implemented — and the cutting of a few dollars from the overhead of the province’s largest transmission company.

“You can’t just nip at the edges. It’s a big problem,” said Tom Adams, a Toronto-based independent electricity consultant and researcher who has studied the electricity market for decades.

Adams believes the real issue is costs not prices and that price cuts and price caps “don’t work” because the gap between revenue and costs is made up by, for example cost sharing. In short somebody pays, now or in the future, even if it doesn’t show up on the electricity bill.

Adams offered three pieces of advice to the new government.

“The first step on the road to recovery is audit, audit and audit,” part of a plan to get all the facts on for example, existing contracts and existing governance at the various agencies in the $21 billion electricity business.

“All of the one-off pieces of analysis (that have been done by, for example, the Auditor General) need to be threaded together into a comprehensive (database.) We have to have a fact-based conversation,” Adams said. “We can’t get too far into opinion before we get the facts.”

Associated with that is an understanding, “a realistic view,” of future supply and demand, an analysis that will show where gaps will develop over the next five to 10 years.

And before the government (as it said it will) scraps the 10-year old Green Energy Act, Adams said the public needs to be told about the replacement. That act — that involved feed-in-tariffs and high-priced contracts with producers — left a large “footprint” on the system as well as changes to the “governance rules.” In other words Adams said the government needs time “but they need to do some homework.”

Finally Adams spoke of “managing expectations,” given that governments have, for years, promised “quick solutions,” to what is a multifaceted problem.

Given that those quick solutions haven’t solved the problem, Adams advised that governments need to acknowledge a degree of humility.

The other reality is that high prices aren’t just an Ontario issue. It’s set to become front and centre in Newfoundland because of the massive cost overrun at Muskrat Falls.

A few years back Alberta’s Utilities Commission approved a settlement agreement, between Transalta and the Market Surveillance Administrator over contraventions in the Alberta electricity market, that resulted in an economic benefit to TransAlta. In Europe it’s also an issue as some countries shut down their nuclear facilities.

Recently the Australian Competition and Consumer Commission issued a 400-page report on retail electricity pricing. That country has a mix of government and private sector suppliers. The ACCC issued 56 recommendations after concluding, “the current situation is unacceptable and unsustainable.”

Those recommendations, which “span the supply chain,” were framed around the objective of bringing “down prices and restor(ing) consumer confidence and Australia’s competitive advantage. “One such recommendation was introducing changes designed to boost competition among electricity wholesalers and retailers. Another was to target “market manipulation,” and a revamping of the national energy market to reduce “unnecessary costs,” including network changes.