Robert Benzie and Paul Vieira
National Post
February 15, 2003
The Ontario government’s decision to freeze hydro rates at artificially low levels has cost the province about $640-million since May 1, according to figures released yesterday by the Independent Electricity Market Operator (IMO), the provincial agency that monitors prices. 
The decision to freeze hydro rates has cost Ontario $640 million since May, 2002, a report shows. Photo credit: Kevin Frayer, The Canadian Press.
Last month alone, the move to freeze rates at 4.3¢ per kilowatt hour for consumers and small businesses cost $135-million, up from $110-million in December. That cost – the difference between the price consumers pay for power and the market rate – will be swallowed by the public treasury.
There were 14.5 millio megawatt hours of electricity consumed in Ontario in January – almost 500,000 megawatt hours more than the previous mark set in July.
“It was an all-time record,” said Terry Young, director of communications for the IMO. “It’s largely affected by the weather. You had a cold January and a hot July. We’ve seen new peaks for electricity set in the summer and the winter and these are largely attributed to the weather, so you’re seeing a lot of the impacts from that.”
Mr. Young said it is difficult to say whether the high demand was in any way related to the government’s subsidized price, which some environmentalists and economists have argued discourages conservation.
“I don’t know whether you can argue that or not. It is a fixed price they’re paying, but I would say that at the moment a bigger factor is the weather because it’s been so cold.”
Last Nov. 11, Ernie Eves, the Ontario Premier, announced hydro rates would be frozen at the 1995 level of 4.3¢ per KwH for four years, with retroactive rebates sent to homeowners stung by soaring bills after the retail market opened to competition on May 1, 2002.
While consumer rates are capped, generators are paid the market price for the wholesale power sold to manufacturers and other large corporate users.
Since May 1, that price has averaged 5.68¢ per KwH. Because local utilities have to purchase power on the open market, the government must pay the 1.38¢ per KwH difference.
Speaking to reporters in Bolton, Ont., Mr. Eves insisted he was not worried the gap between the fixed and actual costs was rapidly escalating, noting the contingency fund overseen by the Ontario Electricity Financial Corp. is also increasing. That fund now contains about $1.1-billion.
“I never said it would be done in a nine-month period of time. We said that we would look at this as a four-year project and we are confident that over those four years it will balance out,” the Premier said, blaming the weather for the spikes.
“Suffice it to say we could have been luckier. I mean, there won’t be the hottest summer on record . . . for last 55 years every year in a row. Over time, these things average themselves out.”
But Tom Adams, executive director of Energy Probe, an industry watchdog, said the numbers released by the IMO prove the government’s capped electricity price is not financially sustainable.
“It would never be revenue neutral. That was just trash talking from a bunch of loose-lipped politicians,” he said. “This is proof positive that the rate freeze was financially irresponsible.”
The IMO figures came out on the same day that Hydro One Inc., the Crown transmitter, reported profit for 2002 was $344-million, down by $30-million because of lower distribution rates. The Crown corporation said revenue from the distribution part of the business will be lower until at least 2006, when the 4.3¢ per KwH cap is scheduled to be scrapped.
The more money Hydro One makes, the more it pays to the province to help pay off the nearly $40-billion in debt accumulated by the old Ontario Hydro monopoly. About $21-billion of that debt is “stranded,” with taxpayers on the hook for its repayment.
Energy Probe 