Fred Vallance-Jones
Hamilton Spectator
March 8, 2003

The Eves government’s decision to freeze electricity prices for consumers and small businesses has now cost close to $900 million, and the bill just keeps climbing.

Soaring demand during February’s frigid weather pushed prices in the wholesale power market to highs not seen since late summer. That forced the government to dig deeply into its pocketbook to keep its promise to hold rates at 4.3 cents a kilowatt hour.

The freeze cost the government as much as $3.4 million an hour last month, according to data available from the Independent Electricity Market Operator (IMO). The government covers the difference between the open market price and what consumers pay.

“It’s not pretty,” said Bruce Sharp, an analyst with Aegent Energy Advisors of Toronto. “Prices were just horrendous.”

He estimates the subsidy for February at about $240 million. In some ways, the price freeze is turning into a bit of a financial nightmare for the government, which hastily introduced it last November in the face of voter anger over sky-high bills.

Prices soared after the government created a free market in electricity just as the province was hit with its hottest summer on record.

As part of the consumer bailout, announced by Premier Ernie Eves in an elaborate news conference in a suburban kitchen, the government froze the price starting Dec. 1. It also promised to give back every cent consumers and small businesses paid over 4.3 cents since the market opened May 1.

Rebates have cost $395 million so far, and the numbers aren’t all in. Add that to the approximately $485 million in subsidies since December, and the bill is at $880 million and climbing.

Part of that will be covered by money set aside to cover rebates by Ontario Power Generation, but not all of it.

The shortfall was estimated by the IMO to be $90 million even before February’s financial bloodbath and not including rebate amounts yet to be reported by local hydro utilities. They could be tens of millions more.

One question now is whether the financial losses will result in any electoral damage to the Conservatives in the election widely expected this spring. Some doubt it.

The government is maintaining its position that by the time the price-freeze-plan ends in 2006, the rebate and freeze will have a net cost to taxpayers of zero.

“When the premier announced the plan on Nov. 11, it was a plan not for two months, or six months or 12 months, it was a plan for the long term,” said Dan Miles, press secretary to Energy Minister John Baird.

The government is counting on the much delayed return to service of mothballed nuclear reactors, and cooler summers, to bring prices down. It is also offering incentives for the construction of new generating plants.

But critics say breaking even is a dream.

Tom Adams of the lobby and watchdog group Energy Probe, says it’s mathematically possible the government is right, “but the track record so far and the outlook going forward is for drastic taxpayer impacts.”

That said, Adams believes the government’s freeze was successful in ending the voter revolt that threatened to unseat the Tories in the coming election.

“My understanding is that immediately after the (Nov. 11) announcement the Tory polling numbers, which had been just tanking, went up.”

Sharp agrees that the freeze halted the short-term pain for voters, and “from the public’s perspective, most of them are probably just happy with just getting the protection they have.”

That’s certainly true for Edward Partito. The Stoney Creek resident, who saw bills approaching $1,000 last summer, says he stopped paying much attention to hydro issues once the freeze was imposed. A Tory voter in 1999, he says Eves’ decision to freeze rates and offer rebates was enough to return him to the Conservative fold for the coming vote.

But the NDP opposition believes there’s still a great deal of hydro anger to be mined.

It is making a return to publicly controlled electricity a major part of its policy platform.

“The cap and the rebate was a short-term solution by this government to get them through the election,” said Nickel Belt MPP Shelley Martel.

The government, in the meantime, will shortly announce what rebates will be available for large volume and industrial users who make up about 53 per cent of electricity customers. Sharp expects the government will decide those users should get the original rebates established when the market was opened, which are less generous than those since given to consumers and small businesses.

Eves promised in November large users could have the 4.3 cent frozen price if they wanted it, but the government later backed off that and began a consultation process with industry that will culminate in the coming announcement.