August 28, 2003
Some Ontarians don’t understand why they should conserve electricity, as Ontario Premier Ernie Eves implores them to do. For these dunderheads, let me connect the dots.
1. Eves’s price freeze caused consumption to rise.
Last fall, following a period of high prices, Eves froze the rates that consumers paid for their power at 4.3¢ per kilowatt-hour, about half the rate for power that they had then been paying. Eves even maintained the price freeze during the recent blackout, when his government was buying electricity wholesale at prices well above the 4.3¢ at which it resold electricity. Because he artificially cheapened the cost of power, consumers naturally used too much of it.
Eves needed the price freeze as a short-term measure, to get him re-elected in what seemed an imminent election call. Unfortunately for him and his re-election team, the polls swung against Eves, forcing him to postpone the election. Unfortunately for Ontarians, the freeze also stayed in place.
To end the current power shortages, Eves needs only to let power prices rise and fall with demand. But ending the freeze would cause Eves to lose face and harm his re-election prospects. Since this is a non-starter, Ontarians only practical recourse – and one they should definitely take up if they want the lights to stay on – is voluntary conservation.
2. Without electricity shortages, power rates wouldn’t have soared, leading to the price freeze.
If Ontario had had plentiful supplies of power to draw on last fall, prices wouldn’t have soared. But Eves found himself with scant power supplies to call on because his nuclear plants weren’t working as planned – they rarely have. Eves was able to import some cheaper power from the United States – after deregulation south of the border, supplies there soared while prices plummeted – but not enough to make a big difference in Ontario. He and his predecessor, Mike Harris, had dithered in beefing up the needed interconnection with the U.S. grid, preventing plentiful supplies of U.S. power from coming to his rescue.
3. Had Eves not killed deregulation, generating plants would have been abundant, power would have been abundant, power prices would have behaved and Eves wouldn’t have needed his price freeze.
Mostly, Eves has had too few generating plants because the private sector abandoned Ontario. Just four years ago, while Eves was minister of finance, Ontario was teeming with independent private power entrepreneurs with plans for dozens of new, high-efficiency power plants. These plants – the same kind that led to a glut of power south of the border – can be built in as little as 12 to 18 months. Their construction awaited only the long-promised deregulation of the power sector. Yet Harris repeatedly gutted deregulation and then Eves effectively killed it. The independent power producers closed their offices and left Ontario. And Ontario was left without the entrepreneurs capable of quickly bringing reliable power to market.
4. Nuclear power, coupled with the expense of the rate freeze, will soon spur conservation.
Without private sector producers, Eves has fallen back on nuclear power, the technology of choice for many government-run monopolies. He is now spending billions in uneconomical repairs at the breakdown-prone Pickering A nuclear station. When or if that station will produce power again is unknown; that its power will be expensive, raising costs for all Ontarians, is not.
When Eves will rescind his rate freeze is also unknown, but it, too, is adding unnecessary costs to the power system. To date, those costs – about $800-million per year – are being hidden from view, in a new Crown corporation that Eves created to eliminate the legacy of the old Ontario Hydro’s public debt. When the nuclear and rate-freeze costs finally land on power customers, rates will soar and consumers will conserve.
In the end, Ontario didn’t privatize its power system and it didn’t deregulate prices. Instead, it created a chaotic make-up-the-rules-as-you-go government system far worse than any that Ontario had ever before seen.
All this Mr. Eves did in aid of remaining Premier. How well he succeeds in his re-election strategy will now depend on how well Ontarians connect the dots.