How to fix Ontario’s sky-high hydro rates
Voters in the provincial election on June 7 are looking for a leader who will promise to enact provincial legislation to provide lower hydro rates. Billions and billions of dollars are involved for households and provincial industrial users to receive lower rates that are needed to be competitive.
Most Ontario voters remember when Ontario had the lowest rates in Canada. Governments have made changes that have resulted in billions of dollars being taken from Hydro and used to fund government programs. Hydro rates in Ontario are now the highest in Canada. How and why did this come about?
Ontario Hydro was the original Ontario government-controlled organization which did not pay taxes or dividends, and was administered by low-paid directors.
Three legislative changes were made that resulted in Hydro customers paying 400 per cent higher rates. The major changes are:
1. The Harris government’s Electricity Act, Oct. 31, 1998
2. The McGuinty government’s Green Energy Act
3. Arrangement of legislation allowed Hydro facilities to be sold or leased
In 1998, the Harris government decided that Ontario’s low debt rating was caused by Ontario Hydro. It enacted the Electricity Act 1998 that terminated Ontario Hydro, and established Hydro operations as a government shareholder-owned business corporation, operating under the Ontario Business Corporation Act. The new corporations paid taxes to the provincial government, and were allowed to pay dividends. All municipal utility systems became shareholder-owned by the municipalities, which were allowed to collect dividends from the utility and. if they wished, could sell off shares, or the entire utility, to private investors.
The McGuinty government, in 2003, passed the Green Energy Act (GEA). The Green Energy Act allowed new programs to be established and allowed municipalities to collect dividends from the utility, and to sell shares to private investors. Premier Dalton McGuinty introduced
other programs, and Premier Kathleen Wynne also followed with programs. Hydro One investors, with high-paid directors, appointed a president who is paid $6.2 million a year.
The Ontario Auditor General, Bonnie Lysyk, says that “electricity customers in Ontario have paid billions of dollars for the government’s decision to ignore its own planning process for new power generation projects. Instead of following the legislative process, the Ministry of Energy itself effectively assumed responsibility for electricity planning.” The ministry issued policy plans and 93 directives that did not consider the state of the electricity market, and did not take long-term effects fully into account. Ontario electricity ratepayers have had to pay billions for these decisions.
The Auditor General also found that the Green Energy Act was driving rates up. Hydro customers will pay a total of $9.2 billion more for wind and solar projects under the Liberals 20-year guaranteed price program for renewable energy than they would have paid under the old program. Ontario’s guaranteed prices for wind power generation are double the U.S. average, while the province’s solar power rates are 3.5 times higher.
In order to win the election, the leader must promise to introduce
major legislation that will tell the voters that they will pay less for hydro rates.
The promise of the new legislation must contain these key elements:
• All utilities will no longer pay taxes or dividends.
• All utilities will become independent public boards. Municipalities will no longer benefit from ownership.
• Programs that were established under the GEA will be renegotiated, to put to an end the high costs of solarand wind-power programs, as well as other special arrangements made in the GEA.
• Private investors who have become shareholders under the existing legislation will have a negotiated settlement with no payment for future expectations.
The promise to make these major changes will tell shareholders that they will no longer be paying for government programs by way of Hydro. They can expect savings. Industry will have lower costs, and become competitive, and household voters can expect much lower hydro bills.
Andy Frame is a consultant in the electrical power industry and was formerly a senior adviser at Ontario Ministry of Energy and a past municipal hydro chair and chair of the Utility Association.
Electrical power industry consultant Andy Frame has strong views on what the next government has to do to address the problem of high hydro rates.