How to fix On­tario’s sky-high hy­dro rates

The Hamilton Spectator - - Comment - ANDY FRAME

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.

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