“Ontario’s Power Trip” –a review!

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Ontario’s Power Trip

: McGuinty’s legacy

| FP Comment | Financial Post

Billions spent but no new deliverable power (

Over the next few weeks Ontario will get a new Liberal premier to replace Dalton McGuinty, who abruptly announced his resignation last October. One of the biggest challenges facing the new Liberal premier, to be selected at a party convention next weekend, will be to set out a plan to extricate the province and the Liberals from the McGuinty government’s most costly and disruptive policy failure.

None of the contenders, as far as I can tell, have even mentioned the topic: electricity. Over the last decade of McGuinty rule, through seven energy ministers, the government of Canada’s industrial heartland virtually eliminated market forces from the electricity market and created a top-down regime that will cost the Ontario economy — consumers and industry — billions of dollars.

The costs to the economy have yet to be fully acknowledged, although it is worth noting that just this week Honda Canada’s executive vice-president, Jerry Chenkin, told The Windsor Star that the Japanese automaker sees rising transport, labour and rising electricity costs as competitive factors for auto plants in Ontario.

It began in 2004 with the creation of the Ontario Power Authority (OPA). Four years later, under a new energy minister, the Liberals brought in the Green Energy and Economy Act (GEEA). Using authority under the GEEA, North America’s first feed-in-tariff subsidy regime was launched and the OPA was assigned the task of signing juicy above-market-price contracts for wind and solar development. Over the period, various so-called long-term energy plans were created using expert advisors. But they were abandoned. Eventually, the government moved everything into the offices of the premier and whomever happened to be energy minister.

From about 2005 on, Ontario’s power sector was controlled and developed via ministerial directive, arbitrary instructions to the power authority instructing it to launch massive new capital spending programs and expensive and uneconomic new green energy projects. The directives also ordered closing coal plants.

These costs have only just begun to show up on consumer bills, but they will dramatically rise in years to come. How do the Liberal leadership candidates plan to deal with these major cost increases, on consumers and industry?

The capital expenditure costs that will have to be absorbed are significant. New hydro transmission lines will have to be built to accommodate the costly hydro, gas and bioenergy plants. See the table for the main items. Total capital costs on the list approach $18-billion. The annual cost for each ratepayer in Ontario (assuming 4.8 million ratepayers with costs amortized over 25 years) is about $150.

Despite the high capital spending, all decreed by the energy minister, no new electricity will be added to the grid. The hydro developments at Niagara Falls and Mattagami will add power during the spring, when additional electricity generation is not needed. These capital costs also do not include any capital costs for nuclear refurbishment at Darlington or the planned 2,000 megawatts in “new nuclear” plants proposed in government plans.

On an annual basis, the new capital costs seem small. And they are compared with the move to grant wind and solar generation “first to the grid” rights at above market prices. New wind and solar generation, to be paid subsidized rates, will alone add almost $4-billion to the annual bill of Ontario hydro consumers. Smart meters and a smart grid have been ordered up. The total cost of these government-decreed projects, along with few others, come to $7.35-billion per year. Spread over 4.8 million ratepayers, the annual cost is $1,530.

The third government-decreed price increase comes from taxes. In 2009 the government slapped an 8% HST on electricity. This increased tax revenue to the province by $1.2-billion on existing power costs. The tax will also be applied to all the new costs. The new wind and solar power costs, for example, will be hit by the new HST. Total cost per ratepayer: $375.

The total new cost to ratepayers of all these mandated projects and spending is $2,055 per ratepayer per year, probably sometime by the end of 2016, based on an average ratepayer with annual consumption of 2141 kilowatt hours (kWh) per month. That works out to 8¢ per kWh. The present rate (until April 30) is set to average 8.2¢ per kWh. What the foregoing means is that the cost of electricity in Ontario will almost double within the next four years. It is worth noting that delivery costs are not included in this estimate, but they normally represent about 25% of the average electricity bill.

There’s actually more to the McGuinty electric power bill than this. Not included are the direct costs to taxpayers such as the 10% Ontario Clean Energy Benefit (OCEB) of up to $1.5-billion a year, due to expire at the end of 2015. Also missing is the taxpayer-related costs of moving the Mississauga and Oakville gas plants ($230-million) and the costs of unfunded pensions at Hydro One and the OPG (in the billions). Grants are being handed out to GE, the MaRS Discovery District and others working on the development of the “smart grid.” The government also hands out grants and sponsorships to the numerous environmental non-government organizations (ENGOs) so they are able to attend “climate” conferences in Doha, Copenhagen and Rio. Also missing are the grant monies handed out to anyone who purchases an electric vehicle (EV grants of $5,000 to $8,500) or a charging station for that EV ($1,000).

Two other significant costs of energy are also laid at the doorstep of taxpayers through the Northern Ontario Energy Credit (up to $210 per family annually) and the Ontario Energy Property Tax Credit (up to $946 per property owner or renter and up to $1,078 for seniors annually). These two programs will collectively cost taxpayers in excess of $1-billion. If the above taxpayer costs and EV grants are continued, taxpayers will be picking up additional costs of about $10-billion for the “greening” of Ontario.

Some day somebody — the provincial auditor? — should do a full objective audit of Ontario’s electricity-policy regime and provide taxpayers and ratepayers with a clear tally of the costs.

A final note: All of the spending identified above has been principally aimed at shutting down Ontario’s “dirty” coal plants, originally slated for closure in 2007. Last week, in one of his last announcements as CEO of electricity, Premier McGuinty said they will finally be closed by the end of the current year. Despite the billions we have spent and are still spending to rid the province of those coal plants, it turns out they will remain available for high-demand days to back up intermittent wind and solar generation during the upcoming summer when wind generation often fails to produce any meaningful power.

The impact of the McGuinty decade of electricity management has been to set the province up for the annual removal of $10-billion in new ratepayer costs — or $2,055 per ratepayer per year — and another $2-billion or so annually from taxpayers’ pockets by 2016 and beyond. At that time, Ontario will have no more deliverable electricity generation than when Mr. McGuinty began his management of the system after gaining power in 2003, when Ontario had 30,006 megawatts.

Maybe the candidates to replace Mr. McGuinty as the next Liberal premier can explain how Ontario got into this mess and how they plan to get the province out of it.

Financial Post-Parker Gallant is a former Canadian banker who looked at his Ontario electricity bill and didn’t like what he saw. Ontario’s Power Trip: McGuinty’s legacy | FP Comment | Financial Post