by Andy Frame, Hamilton Spectator
The announcement earlier this year by the Ontario Energy Board that municipal electricity distribution utilities would be allowed to increase their rate of return to 9.85 per cent is another sign of the out-of-control hydro rates for Ontario. The plan to give seniors a tax credit to offset higher hydro rates is in effect a creation of a special customer rate for the same service. Both the increase in profit level and tax credit for seniors are in stark contrast to the original principles of Ontario Hydro.
Adam Beck, the founder of the electric power system in Ontario, had a vision in 1906. “Power at Cost” was his cry: We will sell electricity at an affordable cost to everyone in the province, and if there is a surplus of revenue, it will be used to improve the system or reduce the rates. Nothing else.
In 1998, Jim Wilson, minister of energy in the Mike Harris government, declared that the Adam Beck vision was over, and a new vision for Hydro has arrived. The electric power system in Ontario would be operated like a private business, and it would have lower cost and lower rates.
Twelve years later, we now know that the cost of electricity in Ontario for residential, commercial and industrial customers is more than twice the 1998 rate, and that jobs have been lost because of high electricity rates.
The words of minister Wilson were part of his introduction to Bill 35, the Energy Competition Act 1998, an Act to create jobs and protect consumers by promoting low cost energy through competition. That act came into effect on Oct. 31, 1998, and was supported by the opposition Liberal party but was opposed by the provincial NDP.
The act ended the operation of Ontario Hydro as a Crown-controlled corporation and split it into two parts, Ontario Power Generation (OPG) and Hydro One, both to operate under the Ontario Business Corporations Act. Municipal Hydro utilities were put under the ownership of the municipality as their shareholder under the Business Corporations Act.
The former Power Corporation Act gave Ontario Hydro authority, and there were no corporation taxes or dividends paid by Ontario Hydro or municipal utilities. The Ontario government issued Ontario Hydro Bonds and collected a guaranteed fee from Hydro. They also charged Ontario Hydro and private power companies a water-use fee for the power generated on Ontario rivers. Ontario Hydro also paid a fee to support the Niagara Parks Commission.
In 1998, these three costs totalled about $180 million.
Under the new legislation, there were 10 new charges costing hydro users at least $1.5 billion on their hydro rates.
The new taxes and charges paid by hydro rates:
• Business taxes paid by OPG and Hydro One
• Dividends paid by OPG and Hydro One, to their shareholder, the provincial government
• Business taxes paid by local distributors
• Dividends paid by local distributors to their shareholders
• Cost of operations of the Ontario Energy Board (previously a provincial expense)
• Cost of operating the Ontario Power Authority (new agency)
• Cost of subsidizing wind power and solar power generation. The Global Investment fund, now about 4 cents per kWh, hidden in your hydro rate
• The GST
• Tax on lands held by OPG and Hydro One, formerly on buildings only (This does not include land used for transmission or distribution lines.)
• Decommissioning fund and used fuel fund, for nuclear plants
Now, 12 years later, Premier Dalton McGuinty has added a new set of costs and charges to Hydro customers’ bills:
• Special service charge to pay for conservation and renewable energy programs effective May 1, 2010
• Increase of 9 per cent on energy generation rates to replace lost industrial revenue
• The harmonized sales tax (HST) at 13 per cent replacing GST at 5 per cent
• Increase in the Global Investment Fund charge to pay for new windmill and solar power programs operated by the Ontario Power Authority
• Smart meter program. Some customers may save under this program if they can manage their load. Estimates are a 10 per cent increase for most customers
There is no accurate summary of the total extra costs on the hydro bill. The best estimate is about $2 billion. In 2008, OPG alone paid $670 million business-tax dollars, $128 million in dividends and $151 million in land tax. Total: $949 million on our hydro bills. Hydro One, local distribution utilities and other charges make up the remainder.
The changes in rates are being driven by the policies of the McGuinty government and its decision to shut down coal plants, and replace power supplies with green energy sources. There is a need to put revenue into the provincial tax pot to support the economy and the massive provincial deficit is a major factor.
Adam Beck would be appalled.
There are many critics of the actions being taken but none have said it better than Dr. Jan Carr, the former president of the Ontario Power Authority, when he spoke at the Waterloo Institute for Sustainable Energy on Sept. 29, 2009:
“Current policies reflect public concern about global warming at the expense of securing a stable and economic energy future. If such publicly popular but economically unsound policies continue, the province’s prosperity will be seriously jeopardized.”
The vision of Adam Beck has gone and it is clear that we cannot go back to the old system. The Ontario government has changed the electrical power system and it has resulted in much higher costs. Retail customers pay much higher rates.
The real damage is to the industrial sector that was built on a lower rate system that made Ontario the economic engine of Canada. Industry is hurting and jobs are being lost because of high power costs. Changes must be made.
Here are some changes that should be made to reduce costs:
• Eliminate all corporate-profit taxes and the HST on all electric power facilities, and municipal distributors.
• Control the level of dividend payouts that can be made to shareholders of electric power facilities. There should be a fixed rate and no share options to management
• Stop paying exorbitant prices for wind and solar power, and no more long-term contracts. Manufacturers of wind and solar equipment are making good profits on these programs.
• Cut back the regulatory and promotional programs financed by charges on the hydro rate.
To control the high demand and lower the energy use, the Government should actively promote effective programs for insulation and efficient appliances: For instance, the fluorescent light bulb, which both lowers demand and reduces energy use. More of this type of program, and no more windmills.
The province must make changes to the present system of hydro charges and taxes, and operate the system on a solid economic basis. If this does not happen, as Jan Carr told us, “the province’s prosperity will be seriously jeopardized.”
Andy Frame is a consultant in the electrical power industry and was formerly a senior adviser, Electric Utilities, Ontario Ministry of Energy, and a past municipal hydro chairman and chair of the Utility Association.