Thomas Adams
National Post
January 28, 2000

Ontario’s electricity restructuring, which could and should be delivering a cheaper, more accountable electricity system, is morphing into a nightmare attack on small ratepayers and taxpayers.

Last week, the provincial government’s Ontario Energy Board announced that municipal utilities such as Toronto Hydro will be allowed to raise distribution rates by about 50% after Ontario’s so-called electricity market opens this November. Because the rate hike doesn’t apply to the electricity that Ontario residences and businesses consume — only to charges for delivering power along the municipalities’ power lines — the power bills that ultimately arrive in the mail will show only a 6% rise on average. Big businesses will see relatively small hikes, about 3%, while homeowners and small businesses will take the biggest hit, at least 10% — which will often mean $100 per year or more.

The rate hike will give the cities, who own the utilities, a windfall worth as much as $10-billion — roughly $1,000 for every man, woman and child. Yet Ontario’s municipal politicians, instead of offering to return the windfall to citizens in the form of a dividend or property tax cuts, are instead claiming they are hard-pressed to hold the line on taxes, and are warning of possible tax hikes.

Ontario’s new electricity system — which Premier Mike Harris decided should stay monopolized for another four to 10 years — is saddled with $22-billion in net liabilities, most of it nuclear-related. Taxpayers will ultimately be forced to pick up much of this. In explaining why his government has decided to maintain a monopoly in power generation, Mr. Harris points to the need to pay down that debt.

If Mr. Harris wasn’t giving that $10-billion to the cities, he could have used it to clean up almost half the remaining Hydro liability. That would have permitted the government to create a fully competitive, fully accountable power system that would have lowered, instead of raised, power rates. Instead, Mr. Harris has made the power sector a cash cow for the municipalities. Using the new Tory rules, last week Mississauga mayor Hazel McCallion — while blaming coming rate hikes on the Tories — announced she had taken assets and $200-million in cash out of Hydro Mississauga. Earlier, Toronto mayor Mel Lastman took $130-million in cash and real estate from Toronto Hydro. Other municipalities across the province are lining up at the trough.

The electricity ratepayer, meanwhile, is left in the dark by a muddled regulatory system working to hide the effect of its actions through accounting tricks and bewildering rules. To obscure the extent of consumer gouging, the Energy Board has told utilities to transfer part of the 50% rate hike — with interest — to bills that will be borne by customers several years down the road. In effect, while the municipalities will average a 50% increase in the rates they begin collecting in November, consumers will first pay less than 50%, and later more, before rates level off at the regulator-approved 50% hike.

The distribution rate hike is only the beginning of the ordinary ratepayer’s woes. Thanks to an October Energy Board decision, passive residential customers and other small users will be scammed through the way they are billed for electricity. Under the Energy Board’s scheme, all small customers will be allowed to buy power either at a regulated average price or at a free-market price. In winter and summer, when heating and air-conditioning demands raise the free-market price of power, the regulated price will generally be cheaper. Motivated customers will buy power on the competitive market in spring, switch to the regulated power in summer, go back to the competitive market in fall and then switch back to regulated prices in winter. Residential customers jumping back and forth each season can save perhaps $100 per year, and perhaps twice as much if they are heavy users of electric heat and air conditioning. These savings will primarily be recovered by adding a hidden surcharge to the bills of the passive, non-jumping customers.

With power rates varying wildly from house to house; with power-supplying companies seeing large influxes and exoduses of customers each season; and with surcharges hitting customers each year, the electricity marketplace will be in chaos. Once it dawns on the public that these machinations have been brought to them courtesy of their government regulator — who is presumably there to protect them — the outcry will be loud and long, and heads may roll. Anticipating this outcome, many municipal utilities, as well as a lobby group called the Vulnerable Energy Consumers Coalition, want to force consumers to take their power from a monopoly provider assigned to them by the regulator. This is deregulation?

The degeneration of the electricity marketplace is caused partly by Mr. Harris’ failure to quickly break up the old Hydro monopoly, and partly by his transformation of the Energy Board — once an independent, quasi-judicial agency — into a servile branch of government. New legislation passed by his government removed the due process provisions that once protected the public and bound the regulator. As a result, the government bureaucrats at the Energy Board became free to force consumers to take a $10-billion hit, and free to transfer that $10-billion to the municipal governments, without calling sworn evidence, and without subjecting that evidence to cross-examination by parties that might have different ideas about the disposition of those funds. The Energy Board deliberated largely behind closed doors, using rules that were made up on the fly, before arriving at its decisions.

Presiding over this brave new era is Energy Board Chairman Floyd Laughren, Mr. Harris’ hand-picked-choice to protect consumers and taxpayers in implementing his restructuring of Ontario’s electricity system. Mr. Laughren — the former NDP finance minister — doubtless agrees with his board’s finding that this rate hit was “just and reasonable.” But he’s not necessarily proud.

To deflect responsibility for its decision, the board is already telling the municipalities that, although they may raise rates by 50%, they should exercise restraint. The municipalities, knowing the public will blame them for the inflated bills that will start being mailed in November, have already begun to blame the province, saying the rate hikes stem from privatization and deregulation. And the provincial government will return fire by blaming the mayors for not controlling their utilities.

While there’s more than enough blame to go around, the buck must ultimately stop with Mr. Harris, who — despite numerous examples of successful restructurings in other jurisdictions — is botching the all-important task of modernizing one of the continent’s largest power systems. Even before the Energy Board’s rate hit, he had piled billions in hidden taxes onto ratepayers, partly to pay down Ontario Hydro’s historic liabilities and partly to prop up the accounts of the government’s reincarnation of the old Ontario Hydro power-producing monopoly, Ontario Power Generation Inc.

Mr. Harris has clear choices. He can try to spin his way out of the problem by blaming the mayors. He can throw more money at the Hydro system — which still accounts for 30% of the province’s entire debt. Or he can do what he should have done all along: He can bring in true competition in the electricity generation business by immediately breaking up and privatizing the generating monopoly, and curb monopoly excesses in the electricity distribution business by giving back to the Energy Board the integrity and rigor required for honest regulation.

Tom Adams is executive director of Energy Probe, a Toronto-based watchdog organization.