Politi­ciz­ing hy­dro rates cre­ates cost smoke­screen

Simcoe Reformer - - OPINION - Brady Yauch is an econ­o­mist and ex­ec­u­tive direc­tor of the Con­sumer Pol­icy In­sti­tute, a di­vi­sion of En­ergy Probe Re­search Foun­da­tion. BRADY YAUCH

The price con­sumers pay for power in on­tario is now a po­lit­i­cal de­ci­sion, rather than an eco­nomic one. That’s the re­sult of new mea­sures in­tro­duced in the Fair Hy­dro act, which will al­low the min­is­ter of en­ergy to ar­bi­trar­ily set elec­tric­ity rates.

much of the pub­lic de­bate around the Fair Hy­dro act has ne­glected this as­pect of the leg­is­la­tion, al­though it amounts to elim­i­nat­ing one of the last ar­eas of in­de­pen­dence at the on­tario en­ergy board (oeb). it also caps off a decade-long march by the prov­ince to wrest de­ci­sion-mak­ing away from the oeb.

Prior to the Fair Hy­dro act, the method for setting elec­tric­ity rates by oeb was in line with stan­dard reg­u­la­tory prin­ci­ples that have been in place in on­tario for decades. The oeb would fore­cast the cost of gen­er­at­ing elec­tric­ity, then set elec­tric­ity rates ac­cord­ingly, en­sur­ing those rates fully re­cov­ered all costs. Un­der that method, con­sumers paid the “real” cost of gen­er­at­ing power.

cost-based prices en­sure de­ci­sions made by elec­tric­ity con­sumers are ap­pro­pri­ate to the cost of gen­er­a­tion. if the prov­ince needs higher-cost sources of gen­er­a­tion to meet new de­mand, it makes sense for cus­tomers to pay higher prices, pro­vid­ing them with the right in­cen­tives to avoid wast­ing elec­tric­ity.

cost-based prices also en­sure the pub­lic is fully aware of the prov­ince’s de­ci­sion to sign above-mar­ket con­tracts with gen­er­a­tors, par­tic­u­larly those re­lated to clean en­ergy, which it says is the main rea­son for its 25-per-cent re­bate. as the prov­ince signed more con­tracts with clean en­ergy gen­er­a­tors — as well as nat­u­ral gas gen­er­a­tors, needed to main­tain re­li­a­bil­ity — the oeb re­peat­edly raised rates to en­sure those gen­er­a­tors were fully com­pen­sated for their out­put.

The gov­ern­ment, then, was held to ac­count for its de­ci­sion to sign lu­cra­tive con­tracts with new gen­er­a­tors, as those costs were vis­i­ble to con­sumers. The oeb’s job sim­ply was to en­sure all gen­er­at­ing costs — whether in­curred through the pur­chas­ing of power in com­pet­i­tive whole­sale mar­kets (as was ini­tially in­tended) or through provin­cially de­ter­mined con­tract­ing (the cur­rent re­al­ity) — were fully ac­counted for in the prices con­sumers pay.

The Fair Hy­dro Plan breaks the re­la­tion­ship be­tween the cost of gen­er­at­ing power and the price con­sumers pay for it and makes the oeb largely ir­rel­e­vant in the process. it al­lows the en­ergy min­is­ter to ap­ply any range of “method­olo­gies” and “dif­fer­ent pe­ri­ods of time” when setting elec­tric­ity rates. mak­ing those rates fully re­cover costs is no longer a nec­es­sary pre­con­di­tion.

by grant­ing the min­is­ter of en­ergy the power to set rates, the Fair Hy­dro act turns the price of power paid by con­sumers each month into a smoke­screen, where the price only re­flects what Queen’s Park de­ter­mines is a de­sir­able amount, lack­ing any con­crete re­la­tion­ship to the ac­tual cost of gen­er­at­ing power.

Worse still, not only does the min­is­ter de­ter­mine how long to­day’s costs are kicked to the fu­ture, but he or she also de­cides who will be left hold­ing the can when the day of reck­on­ing comes. While the min­is­ter may de­cide that all cus­tomers should equally bear the costs of pay­ing back to­day’s re­bate, he may just as eas­ily em­bark on an­other round of pick-thewin­ner, po­lit­i­cally mo­ti­vated poli­cies and ex­empt cer­tain cus­tomers from those costs.

Sud­denly, the ac­tual cost of gen­er­at­ing power has lit­tle im­pact on prices com­pared to the min­is­ter of en­ergy’s power to de­cide who pays how much and for how long. The prov­ince’s en­ergy reg­u­la­tor, which by law is tasked to “pro­mote eco­nomic ef­fi­ciency” and main­tain a “fi­nan­cially vi­able” elec­tric­ity in­dus­try, has been stripped of those du­ties. elec­tric­ity cus­tomers will be the worse for it.

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