Andrew Coyne
National Post
November 20, 2002

The McGuinty Clean Air Plan, as it is described on the Ontario Liberals’ Web site, was designed to address a serious problem, indeed the most serious problem imaginable – simply, that "the air we breathe is killing us." Boldly confronting the crisis, the Liberals proposed what can only be called emergency measures: among them, a 5% reduction in the province’s electricity consumption by 2007, to be accomplished in part by shutting down all of its coal-fired generators.

But that was until last week, and the Conservative government’s abrupt decision to put the Ontario electricity market, barely six months after it was deregulated, under the equivalent of martial law, rolling back rates to 1995 levels and freezing them there until 2006. At the time, the Liberal leader, the eponymous Dalton McGuinty, denounced the Tories for their opportunism, suggesting that the cost of maintaining rates below market levels – by rebating the difference to consumers – would prove unsupportable. It was, he said, a "quick fix, a transparent attempt to buy votes, to buy our favour with our own money."

As I say, that was last week. This week, Mr. McGuinty announced that the quick fix he had denounced not seven days before is now Liberal party policy. A Liberal government, he declared, would freeze rates at the same 4.3 cents per kilowatt-hour as the Tories, and for the same time frame. As long as votes were being bought, he was not about to be outbid. And how would he pay for this? "Likely through higher debt at Ontario Hydro." So there’s one difference. He would not buy our favour with our own money. He’d buy it with our children’s.

Welcome to the new, revised McGuinty Clean Air Plan: The government will borrow billions of dollars to subsidize energy consumption. It will, in effect, pay people to pollute the air. So kiss goodbye to any hope of reducing consumption, and with it any notion of getting out of coal. The province is going to need every watt of supply it can find just to keep pace with the demand it is furiously stoking. And what was that about Kyoto? "Ontario Liberals," the party Web site claims, "have been behind the Kyoto protocol all along." Not any more, it seems.

So we will have subsidies for energy consumption: Both parties now favour that. But that might mean shortages, especially since private supplies of power have dried up, investors being unwilling to enter a market in which their assets could be confiscated at any moment by sudden shifts in policy. So we will also have subsidies for production. The government’s "plan" talks of spraying funds on new and alternative energy sources. But by far the biggest subsidies will go to patching up the province’s existing nuclear plants, the same ones that were responsible for most of the $38-billion in debt run up under the province’s previous experience with a state-run energy monopoly.

Oh, I almost forgot: There will also be subsidies for conservation. The same government that pays you to consume will also pay you not to consume. But since it is in fact you that is paying either way, the government’s plan amounts to taxing you twice (three times, if you count the subsidies to producers) to no net effect. Is it possible, do you think, that this policy could be improved upon?

Yes it is. Rather than subsidizing everybody, we could stop subsidizing anybody: charging consumers the full cost of energy, while forcing producers whose costs exceed competitive market rates to go out of business. It will not be easy for the government to extricate itself from the mess it has made of electricity deregulation, whose collapse was all but preordained by flaws built into the very foundation. Having frozen rates, moreover, it will be politically difficult to unfreeze them. But it can be done.

The first necessity is to get private suppliers back into the market. It isn’t only mistrust of the government that has deterred them. It was the prospect of competing with a government-owned supplier, Ontario Power Generation (successor to Ontario Hydro), with 70% of the market and most of its assets already paid for – the government having thoughtfully lifted the debts incurred in their acquisition off of its balance sheet. Breaking up OPG and selling its non-nuclear assets, as the government was originally advised to do, would make it possible for private suppliers to compete, while sending a signal of the government’s commitment to a market solution. Over time, the nuclear plants could be retired, as lower-cost private power, mostly from natural gas, filled the gap.

A well-functioning private market could in all likelihood deliver power for less than the regulated rate. To give private suppliers a further incentive, the government should announce that, once wholesale rates have stabilized at less than 4.3 cents a kilowatt-hour for some sustained period – six months, maybe 12 – it will decontrol retail rates. Producers would be assured of a free market, consumers would benefit from lower rates, and – best of all, from the government’s point of view – it would all happen after the next election.