Ontario’s Fair Hydro Plan—a temporary Band-Aid with high costs

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Appeared in the Toronto Sun, October 22, 2017
Ontario’s Fair Hydro Plan—a temporary Band-Aid with high costs

A recent report from Ontario’s auditor general slammed the Wynne government’s “needlessly complex” plan to reduce electricity bills for Ontarians. According to the report, the government is keeping the true cost of its plan off the books.

The so-called Fair Hydro Plan, meant to respond to widespread angst about sky-high power bills in the province, reduces electricity bills for households and some small businesses and farms by 25 per cent.

However, as noted by the auditor general, the plan will increase provincial debt to reduce electricity bills in the short-term while future ratepayers pay the bills. As the AG report explains, “[f]rom 2028 on, ratepayers will be charged more than the actual cost of the electricity being produced to pay back the borrowings.” In other words, instead of pursuing meaningful policy reforms, the Wynne government is kicking the can down the road and shifting costs from one place to another.

To make matters worse, the government is concealing the real financial impact of the rate reduction by understating future annual deficits and net debt. According to the plan, entities such as Ontario Power Generation can borrow at higher interest rates, further increasing electricity costs for future ratepayers.

How much more will Ontarians pay? According to the auditor general, almost $40 billion. And up to $4 billion more than necessary due to additional interest costs over the next 30 years.

Ontarians are already reeling from high electricity costs. Recent studies show that Ontario has the fastest-growing electricity prices in the country and its cities have some of the highest average residential monthly bills in Canada. From 2008 to 2016, electricity prices in Ontario increased by 71 per cent—more than double the national average. Monthly electricity bills (including tax) for Torontonians are $60 more per month ($720 more per year) than the Canadian average. And ratepayers in Ottawa pay $41 more per month ($492 more per year) on electricity bills than Canadians in other provinces.

Crucially, Ontario’s skyrocketing electricity prices are also hurting industries and hampering their competitiveness. In fact, a recent study shows Ontario’s “electricity disaster” has cost the province more than 74,000 manufacturing jobs. In 2016, large industrial consumers (with a power demand of five megawatts and monthly consumption of 3,060 megawatt hours) in Toronto and Ottawa paid almost three times more than consumers in Montreal and Calgary and almost twice as much as consumers in Vancouver. Even some select large industrial consumers in Ontario, which were granted rate reductions (Class A), still paid higher rates compared to large electricity users in Quebec, Alberta and British Columbia.

Electricity is a major cost for the manufacturing sector, and rising costs are causing Ontario’s manufacturing sector to fall behind other jurisdictions. In fact, compared to multiple American and Canadian jurisdictions, Ontario has seen the most substantial decline in manufacturing over the past decade. Between 2005 and 2016, while some nearby U.S. states such as Michigan boosted their manufacturing sector’s share of GDP, Ontario’s declined by five percentage points.

Ontario needs real reform to lower electricity prices for residents and businesses. Unfortunately, the Wynne government is opting for improper accounting practices and temporary Band-Aids, sticking current and future Ontarians with the bill.