Yes. Borrowing now ensures future capacity
Mention hydro rates and the most gentle of friends are tempted to raise the fist. Hydro rates have become such a lightning rod for public anger that any room for rational debate appears to be vanishingly small. If there is any time to pay close attention to context and relevant evidence, now is the time as we choose our next government.
Ontario electricity prices have increased steadily at rates above inflation over the last decade. An investment in the order of $50 billion for renewal of Ontario’s aging infrastructure is the direct cause. Recovery of the debt obligations of the investment through hydro rates is the primary mechanism.
After a prolonged period of underinvestment and “rate freezes” through the 1990s, Ontario’s electricity infrastructure was in need of repairs and refurbishment that culminated in a major supply crisis in 2005. A broad political consensus across all parties had also emerged — when Mike Harris was the premier — to shut down the coal stations. Coal power plants produced cheap energy but contributed heavily to air pollution in southwestern Ontario. The coal plants and numerous smog days are now all gone. Replacing old dirty generation with new has come at a cost, but we benefit from a cleaner environment and low overall health impacts.
Upgrades to the power grid for reliability and integration of new renewable generation capacity are part of these costs. We now have a clean generation supply mix and a robust delivery system not teetering on the brink of a crisis. Replacing an old “rust bucket’ of a car with a newer one will always come at a higher cost. So, why do people go apoplectic over hydro rates for costs incurred to modernize the system?
Some suggest that the headlong rush into “pricey” green energy contracts for wind and solar have contributed disproportionately to hydro rates. There is truth to this observation, although the benefits of low-carbon energy have yet to be realized. Early warning signals, circa 2009, were there and red flags had gone up to reduce the impacts of high “feed-in” tariffs for green generation. Subsequent actions have resulted in a measured approach to promoting efficiency and clean energy solutions, but the fact remains that the early “high” cost of contracts are part of the price we pay for electricity. Not a single party leader has raised the spectre of tearing up the contracts. This would be costly and disastrous policy for future investments in the sector.
In response to the public demand for relief, the government’s Fair Hydro Plan was implemented last year to deliver a 25-per-cent decrease in hydro rates. Ontario Progressive Conservative Leader Doug Ford dismisses this plan as a “scandal” and then, without missing a beat, accepts the 25-per-cent reduction and goes on to promise an additional 12-per-cent decrease in rates. This combines shame and scandal into one punch: disingenuous at best and not helpful at all as a policy prescription for the future.
The Fair Hydro Plan provides relief now but increases the total cost over a longer period, equivalent to stretching a mortgage. Is this an undue burden on future generations? Not exactly. We all benefit — children, adults and businesses from the investments made to ensure reliability of service well into future.
The burden of high hydro rates is particularly painful for low-income groups and seniors on fixed incomes. It is reasonable to allocate the cost of support through lower rates to these groups in the tax base as social assistance.
For rural and remote communities, the high cost of delivery is a simple feature of Ontario’s vast geography. A subsidy program for these customers has been in place for over five decades and has remained unchallenged by governments of all stripes.
If we accept the principle that the cost of debt obligations of the electricity system must be paid for by users of electricity service, then hydro rates will increase in step with required investments. Policy choices that governments make for job creation, economic development and other goals must be “ring-fenced” out of hydro rates. This much is relatively simple.
Yet the public narrative on hydro rates has become so corrosive with assertions of malfeasance and bad faith, it simply breeds cynicism. Time has come to immerse our collective heads in a bucket of cold water and allow the possibility of rational political discourse to flourish.