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Socialist Project • E-Bulletin No. 1372
February 22, 2017

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Time to Fix Hydro ‘Mistake’

Paul Kahnert

Hydro in Ontario is a mess and rates are skyrocketing. The high number of people who have trouble paying or can't pay their Hydro bills is growing by the day. Businesses are leaving the province and/or refusing to locate here because of high Hydro rates. A group that is especially being ignored is small and medium business including farmers (that's from a former union activist!).

Reduce Hydro Rates

On 19 November 2016, Premier Kathleen Wynne said she made a “mistake on Hydro” and took “responsibility for it.” But it wasn't just an accident that Hydro rates skyrocketed. Rates shot through the roof because they were structured that way through Provincial Government legislation. In actual fact, all three Provincial parties bear responsibility for the Hydro “mistake.”

It's worth reviewing that history.

Shortly after the Mike Harris Conservatives took power in 1995, they commissioned an advisory committee to report on Hydro in Ontario. The report, A Framework for Competition: The Report of the Advisory Committee on Competition in Ontario's Electricity System to the Ontario Minister of Environment and Energy, recommended breaking up the public monopoly and opening Hydro up to competition from private companies. Lorne Richmond from the law firm Sack, Goldblatt and Mitchell's in-depth analysis of the Advisory report succinctly summarized it: “It looks like just a way to drag profit out of the public system.”

1998: End of Public, Non-Profit Hydro

The most significant piece of legislation affecting Hydro rates was Mike Harris's Bill 35 in 1998, The Electricity Competition Act. It ended 94 years of public, non-profit, at-cost power in Ontario, where profits were given back to businesses and rate payers in the form of low and stable rates. On April 1st, 1999, all Municipal Hydro's as well as Ontario Hydro were changed from non-profit, at-cost Commissions into for-profit corporations. Ontario Hydro was broken up into five Corporations, the two largest being OPG (Ontario Power Generation) and Hydro One. The Harris Tories conducted a massive advertising campaign on Hydro Deregulation promising that “A competitive deregulated electricity market, will lead to lower rates” [see “Harris certain Ontario power rates will drop”].

At public hearings then and all through the 2000s, as part of the campaign to maintain public hydro, the question repeatedly asked was “How do you get lower rates when you add in profits to generators, profits to distributors, profits to retailers, dividends to investors and commissions to commodities brokers?” When Tory Energy Minister Chris Stockwell was confronted with this question, he angrily left his own town hall meeting.

In 1998, the Conservatives set up a Market design committee. The main player on that committee came from ENRON, an American corporation that had recently committed one of the biggest corporate frauds in American history. It had designed electricity markets around the world including Alberta, California, and here in Ontario. Not surprisingly, Alberta had the same problems with high rates as we came to have here in Ontario. California subsequently had a major crisis with its electrical system after ENRON designed its electricity market and – in order to raise market rates – manipulated supply so low that it resulted in major blackouts. The deregulation that originated in the U.S. was the major cause of the 2003 blackout here in Ontario.

Ontario's electricity market opened in the spring of 2002 but in November of that year Premier Ernie Eves had to close the retail market because the market price had spiked up to 49 times the rate during the summer months. The ENRON designed wholesale market – called the IESO (The Independent Electricity System Operator) remains open to this day and is one of the major reasons for price spikes in Ontario.

In April of 2002, CEP, CUPE and the Ontario Electricity Coalition stopped the Harris/Eves sale of Hydro One in court. During the court case Judge Gans asked the governments lawyer “Why did you separate the debt from the Bruce nuclear deal?” The Government Lawyer answered. “To make it easier to sell” [the ruling can be found here].

In June of 2002, after losing the court case to sell Hydro One, the Tories under Ernie Eves passed Bill 56 giving them the legal authority to sell Hydro One. But they didn't dare do it. It is this legislation that Kathleen Wynne is using to sell Hydro One now. (In 2000, in a deal far worse than the sale of HWY 407, the Tories had privatized the Bruce nuclear station via a long term lease. The profits are privatized but the debt, the risks and decommissioning remain public). Tory leader Patrick Brown seems to have amnesia about the Tories’ actions and the Tory deregulation legislation that is the major part of skyrocketing hydro rates.

The ENRON designed IESO electricity market however remains open and hidden. The IESO submits a bill to the OEB (Ontario Energy Board), twice a year and the OEB “trues up” rates. That's why for the last ten years, your Hydro bill has gone up every May 1st and November 1st. There is not an ENRON designed electricity market anywhere in the world where prices have not skyrocketed.

In the spring of 2002, part of the NDP's energy plan was that “All new generation will be private.” (As well, during the early 1990s, Bob Rae's appointee to head Ontario Hydro, Maurice Strong, was instrumental in laying the groundwork for the restructuring of Ontario Hydro for the Harris Tories). At the convention that year, leader Howard Hampton deleted that part of the NDP's plan and he campaigned on Public Power in the 2003 provincial election.

On September 5, 2003, with Dalton McGuinty Liberals low in the polls, he took the main campaign plank of the NDP and promised Public Power. In an exclusive interview with the Toronto Sun's editorial board on that date, he declared: “Deregulation and privatization hasn't worked and we can't go back there. I've drawn a lesson from that. Number one, we've got to keep Hydro Public.” McGuinty is also on the record as saying, when Eves closed the retail electricity market, that “We don't have any choice. I didn't create this mess; My job is to clean it up. The market is dead, deregulation is dead, privatization is dead.”

The Liberals went on to win the election, broke their promise for Public Power, and continued to enact legislation which expanded Hydro deregulation and privatization. They passed Bill 100 in 2004 which changed regulations in favour of more deregulation. That year the Liberals introduced “time of use” pricing and Smart Meters with the promise that “Smart Meters will save you money.” McGuinty also said that Smart Meters were the primary tool for conservation. The Ontario Electricity Coalition said at the time that Smart Meters would not do anything for conservation. All “time of use” pricing and Smart Meters would do is funnel massive profits into the electricity market – a claim confirmed by the Auditor General's 2014 report on Smart Meters.

The Liberals also won the 2007 Provincial election. Despite Public Power being the main campaign plank of the NDP in the 2003 election, the NDP never mentioned a word about Public Power during the entire 2007 election. The Liberals quickly went on to bring in the billion-dollar Integrated Power Supply plan promising more competition and increased efficiencies, and the Green Energy act in which the Liberal Government signed 20 and 30 year contracts with private green energy producers (wind turbines and solar farms) as high as 80 cents a Kwh, which forms the major part of that Global Adjustment Fee. In stark contrast, the price of power in 1998 was 4.3 cents a Kwh.

Since then, rates have soared as the Ontario Energy Board basically rubber stamps all applications for delivery (distribution) rate increases. Despite being touted as an independent watchdog, there is a revolving door for employment between the OEB and Hydro companies in Ontario.

In Toronto, since 2006, the OEB has approved $6-billion in rate increases with no effective oversight. How is it possible, in this day and age, for the CEO of Toronto Hydro to lie on his résumé (getting paid $1.2-million a year based on credentials he doesn't have), lie under oath at regulatory hearings, raise rates by $6-billion, put a company $2-billion into debt with no scrutiny, and allow the Institutional knowledge required to run the utility to just walk out the door with no succession plan? When the OEB was presented with iron clad proof of the situation at Toronto Hydro, it did nothing.

Meanwhile small and medium businesses and citizens in Toronto suffered. Under deregulation, delivery or distribution charges went from about $6/month to as high as $120 in some rural areas, hitting farmers hard. There is much more to the story especially on the current sale of Hydro One. When the Liberals passed Bill 91 they removed all public oversight of Hydro One in order to make it easier to sell.

Rate Freezes

Once consistent, government response to rates going haywire because of deregulation has been to come in with a rate freeze to “protect” us – without in fact making any substantive change to deal with the underlying problem. Eves did it, McGuinty did it and now Wynne has done it. This latest round of rates freezes does nothing more than protect deregulation and the profits made by private energy producers.

Wynne is also financing the Global Adjustment fee which has greatly profited private green energy producers. Refinancing Global Adjustment fees just piles up more debt. Nor did Wynne close the IESO Electricity market. Market debt is also piling up; debt that must be paid by ratepayers... after the election.

In short, deregulation and privatization did not deliver on its promises of “lower rates,” or create “greater efficiencies.” Smart Meters did not save you any money. In fact, Hydro deregulation has been a complete disaster for Ontario's businesses, citizens and its economy. Deregulated electricity markets have not worked anywhere and never forget, the vested interests who profit greatly from the ENRON designed, IESO electricity market here in Ontario with do anything and everything to keep that market open.

How to Fix the ‘Mistake’

What needs to be done to fix Ontario's electricity system and economy – it won't be easy:

  1. All privatization, mergers and the sale of Hydro One must immediately stop. (European countries like Germany are buying back their utilities. We must make a plan to buy back our Public utilities).
  2. Deregulation didn't work. Period. The IESO electricity market must be closed and deregulation legislation must be repealed.
  3. Rates must be regulated. “Time of use” rates must be scrapped and replaced with a single rate. (Smart Meters can still be used for a single rate).
  4. The entire Ontario Energy Board must be replaced and restructured to be a real public and democratic watchdog with real teeth so that it acts in the public interest not for the private few. A review should be conducted on the OEB's decisions on delivery and distribution charges and some of the more glaring conflicts of interest.
  5. We need green power. But in order for green power to be effective, conservation must be first. The planet is in trouble. Deregulation and private, for-profit power is never going to do what needs to be done. It is ten times cheaper to use less power than build new generation of any kind. Private electricity producers, green or conventional, are however not in the business of selling less power. There have been no real conservation measures under deregulation.
  6. In order for Green power such as wind and solar to be successful, it must be owned locally, cooperatively and benefit the local community, not profit driven multinational corporations. The private sector does its job of making and manufacturing all the things we need for a Hydro system, wire, transformers, switches, poles connectors, relays etc. But – driven by their commitment to maximize profits for their shareholders – they do a terrible job of acting in the public interest. That's the dividing line between public and private in the hydro industry.
  7. Those long term agreements for private wind and solar power will have to be dealt with. This will be one of the most difficult issues. They will sue under NAFTA (As some of us predicted in 2002).
  8. Make a plan and rebuild our public utilities. Ontario's businesses, jobs for youth, the environment and the economy depend on that to happen. Returning these levers of control to local and provincial governments is critical.

If these things are not done, then our problems with high Hydro rates will remain. Some people are tired of hearing about Sir Adam Beck and his vision of Public Power. But... it is a fact. We did have 94 years of Public, non-profit power in Ontario. Sir Adam Beck wasn't a socialist, he was a practical businessman backed by small and medium businesses and eighteen referendums in Ontario. His vision of Public Power made Ontario's economy great. It made Ontario a great place to do business. On his death bed, Sir Adam Beck said “I wished I could have lived long enough to build a band of Iron around Hydro, to keep it safe from the politicians.” He might have added “And keep it safe from the profiteers.”

Conclusion: The 2018 Provincial Election

The people of Ontario never wanted private, deregulated power. They have always wanted regulated, public power. They now understand that rate freezes just delay the inevitable rate hikes after the election. They are ready to press for a fundamental change in how we deal with energy.

Ontario Tory Leader Patrick Brown has amnesia about the history and cause of high Hydro rates and is blaming Kathleen Wynne. Andrea Horwath's NDP had the right campaign at the wrong time in 2003, but is now silent on Hydro deregulation and the ENRON designed IESO electricity market. Why is that? The NDP spent a ton of money on the Public Power campaign in 2003 and could claim that the NDP was right all along. Why isn't she doing that?

The longer the delay to dump Hydro Deregulation, the worse our electricity problems will become. Whichever party has the courage to admit that Hydro Deregulation was a big mistake and deal with the electricity crisis with a plan to dump deregulation and regulate rates, will likely form the next Government in Ontario. •

Paul Kahnert was a Toronto Hydro worker and CUPE Local One member for 33 years. He was a spokesperson for the Ontario Electricity Coalition from 2001 to 2010. The Ontario Electricity Coalition and its members CEP and CUPE stopped the sale of Hydro One in a Province wide campaign and court case in the Spring of 2002.

Hydro Rates in Ontario

Comments

#8 Dick Pullman 2017-03-11 16:08 EST
cancellation its not about costs - is about kick backs
The contracts are a red-herring - the only thing preventing cancellation is kick backs - and keeping the rich cronies happy.
Governments can and do cancel contracts by rewriting the law which is entirely within their purview.

https://ep.probeinternational.org/2016/09/20/lawrence-solomon-yes-ontarios-liberals-can-cancel-their-terrible-renewable-power-contracts-and-they-should-do-it-now/

It is time for the corruption to stop and for our elected officials to look out for the welfare of their constituents instead of their m/billionaire cronies.



#7 Eric 2017-03-03 23:04 EST

Ontario is phasing out nuclear power? That would be news to Kathleen Wynne, who has pledged billions of dollar to refurbish aging reactors.

According to the Clean Air Alliance, the official price of nuclear power is almost 7¢/kwh, while Ontario is buying hydro power from Quebec at 5¢. As the costs of solar and wind energy are going down, OPG says it wants to increase prices 11% per year for 10 years.

http://www.cleanairalliance.org/will-nuclear-power-bankrupt-ontario-hydroopg-once-again
http://www.cleanairalliance.org/wp-content/uploads/2017/02/prices.pdf




#6 Richard Mann 2017-03-03 05:56 EST
Wind and Solar are not reducing C02
The problem is Wind and Solar are not reducing C02 and our government will not admit this costly failure. Ontario’s professional Engineers, those tasked with generation, transmission and billing, have reported the problem. our government continues to build more wind and solar.

Reference: “Ontario’s Electricity Dilemma – Achieving Low Emissions at Reasonable Electricity Rates”. Ontario Society of Professional Engineers (OSPE). April 2015.
(Archived at: http://c.ymcdn.com/sites/www.ospe.on.ca/resource/resmgr/DOC_advocacy/2015_Presentation_Elec_Dilem.pdf)

Page 15 of 23. “Why Will Emissions Double as We Add Wind and Solar Plants?”

– Wind and Solar require flexible backup generation.
– Nuclear is too inflexible to backup renewables without expensive engineering changes to the reactors.
– Flexible electric storage is too expensive at the moment.
– Consequently natural gas provides the backup for wind and solar in North America.
– When you add wind and solar you are actually forced to reduce nuclear generation to make room for more natural gas generation to provide flexible backup.
– Ontario currently produces electricity at less than 40 grams of CO2 emissions/kWh.
– Wind and solar with natural gas backup produces electricity at about 200 grams of CO2 emissions/kWh. Therefore adding wind and solar to Ontario’s grid drives CO2 emissions higher. From 2016 to 2032 as Ontario phases out nuclear capacity to make room for wind and solar, CO2 emissions will double (2013 LTEP data).

– In Ontario, with limited economic hydro and expensive storage, it is mathematically impossible to achieve low CO2 emissions at reasonable electricity prices without nuclear generation.



#5 Tim 2017-02-28 22:08 EST
green power
The green power that we need is from nuclear and hydro generators not wind. Wind is backed up with gas-fired (emitting) generation. Using more wind power while cutting back on nuclear and hydro is increasing emissions in Ontario. The Ontario Society of Professional Engineers has pointed out that emissions in Ontario will double between 2016 and 2032 because of wind turbines. This is shown on the Ontario Ministry of Energy website. The Ontario Energy Board has also reported that the cost per kwh for wind energy is more than double the cost for nuclear or hydro energy. As more wind power is brought into service, emissions increase and cost increases. Another factor that is often overlooked is that nuclear and hydro are available 24/7 while wind provides power 25 to 30% of the time. Industrial wind turbines consume large amounts of power from the grid for start up and jacking the shaft etc.; no one talks about that.



#4 Edgardo 2017-02-26 04:07 EST
Regulation, long-term contracts and other matters
Paul, excellent article and analysis.

I particularly liked your emphasis on the need for rate regulation and the strengthening of the OEB. I discussed these and other matters in my piece last month which focussed on deregulation and privatization as the main culprits of higher prices and the resulting inequality – see "Ontario’s Electricity Sector: Privatization and deregulation."

What I mean by deregulation was that all new generation capacity from about 2002 has been private, subject to a bilateral contract with the OPA/EISO and has not been subject to rate regulation by the OEB. This Friday’s “mea culpa” by Thibeault confirms, among other things, that such private investment was directed by the Government, based on specific technologies and guaranteed long-term prices that were set administratively by the Ministry. The Liberal Government now admits that there was very little competition in the process. The “Enron” energy market is at this point just an after-thought and no longer serves most of the intended functions it was designed for.

There are a couple of issues I would not mind getting your thoughts on, either on this comment board or bilaterally.

1) What do you mean by your point 3 “rates must be regulated”? As you know, they already are by the OEB, which just passes on the costs from the OPG (which are regulated by the OEB) and the Independent Power Producers (IPPs) the gas, wind, solar generators (which are contracted). Do we always return to the long-term contracts?

2) And how about your point 7 “long term agreements”? How do you think we should “deal” with them? I have seen everything, from “tearing them up” to “there is nothing we can do about them”. My suggestion is that Government should direct the OEB to undertake a comprehensive review of existing OPA/IESO contracts and IPP financial performance, with the objective of recommending a course of action to ensure a fair and balanced sharing of risks/rewards between rate/tax-payers and IPPs, aimed at lowering the cost to the former. Such a review could include amending existing contracts and/or transitioning in the longer-term to a utility model subject to OEB oversight.




#3 Anonymous 2017-02-23 10:59 EST
Time of use
I don't know that I would agree that time of use rates is inherently bad. Ultimately, we need to pay the cost of the electricity - the people building and operating and maintaining our electrical plants don't work for nothing.

Currently, in Ontario, the idea behind time of use rates is to even out power usage. We have some infrastructure (hydro-electric and nuclear) that produces the cheapest electricity, but operates most effectively when it produces a consistent amount of electricity. You can't turn on and off a nuclear plant very easily. It makes sense to price electricity in order to encourage the load to be spread evenly around the clock so far as is possible.

The problem is that prices went up for using during peak time rather than prices going down for using power during off-peak times. Horizon utilities charges 10-12 cents for all usage for conventional meter users. For time of use users, usage is 18 cents at peak time, 13 cents at mid peak, and only if you use power at off-peak times is your power lower than conventional users, at 8.7 cents.



#2 Eric 2017-02-23 03:08 EST
the unspoken problem
This is a valuable history of the last few decades. And it very appropriately exposes privatization as a fraud. But opponents of privatized electricity and decriers of high prices, including the NDP, have:

1) tended to ignore the cost elephant in the room: nukes.

Longstanding propaganda claims that nuclear power is cheap, ignoring not only astronomic reactor construction costs (now called 'stranded debt') but eventual decommissioning costs -- and the billions of dollars the Liberals are dedicating (before inevitable cost over-runs) to refurbishing older Ontario reactors. That's before considering the cost of dealing with radioactive spent fuel, still not settled, and the inherent subsidy of capping liability in case of a nuclear accident at less than $1-billion (for decades it was capped laughably low at $75-million).

2) downplayed the green side of the argument.

Even with the subsidies of the Green Energy Act (which are declining), green energy contributes a small fraction of the retail cost of electricity. Many reports show solar and wind costs are at or lower than conventional power rate and declining, which would facilitate further reducing subsidies. But if we really believe global warming is a problem, it's foolhardy to think that renewable energy (and conservation, as the article rightly points out) doesn't need to be encouraged to displace nukes and fossil fuel production. (When uranium mining, transport, reactor construction and deconstruction, etc. are taken into account, nukes don't emerge as a greenhouse gas or cost saviour.) And if future energy production will be considerably decentralized to be green, a privatized Hydro One geared to megaproject sources will likely be an obstacle. Public control of the distribution network will be important.



#1 Ted 2017-02-22 07:53 EST
Privatization or not
Another good analysis by someone who has lived this struggle for years.

Last night (Feb 21) on TVO's The Agenda, five talking heads droned on about the electricity sector. Not once do I recall did anyone, including the host, mention the word "Privatization". It is not a concern for these "experts."

After the panel the host interviewed the CEO of the newly formed local utility, Alectra. He is enthusiastic about the new company which will be the second largest in North America. Who will pay for this?
Ratepayers and workers at the merged utilities.
tvo.org/video




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