John Spears and Caroline Mallan
Toronto Star
February 15, 2003

January’s cold weather helped drive electricity consumption in Ontario to a record high – and will cost the province $135 million in subsidies to consumers and small businesses.

Ontario businesses and residences gobbled 14.5 million megawatt hours of electricity in January. One megawatt hour is 1,000 kilowatt hours; a kilowatt hour is enough power to illuminate 10 light bulbs of 100 watts each for an hour.

While consumption soared, the province is on the hook for making sure that householders and small businesses pay no more than 4.3 cents a kilowatt hour for their electricity, retroactive to last May.

But on the electricity market, the price of power in January averaged 6.2 cents a kilowatt hour. That means the province must make up the difference of 1.9 cents a kilowatt hour for consumers and small businesses, about 47 per cent of Ontario’s electricity market. That came to $135 million, according to the Independent Electricity Market Operator (IMO).

Critics were quick to pounce on the new figures showing record consumption and soaring subsidies. "Taxpayers are now paying our electricity bill," said Tom Adams, executive director of Energy Probe. "This is a terrible practice. The rate freeze is encouraging people to use power carelessly."

January’s bill for $135 million in subsidies follows December’s bill for $110 million. And the province has already shelled out $335 million, in the form of $75 refund cheques, to compensate consumers for the May to November period.

But that won’t be enough to cover all the costs of reducing the price of power to 4.3 cents a kilowatt hour retroactive to May 1 when the province opened its electricity market.

Only one-third of the province’s local utilities have reported their final tallies for the retroactive price freeze; those invoices have swelled the cost of the price freeze by a further $60 million. So the total bill to date comes to $640 million, with more to come.

The province has argued that the cost of the refunds will be offset by lower prices over the long term, plus refunds collected from Ontario Power Generation Inc., which is owned by the province and produces 70 per cent of Ontario’s power.

Because of OPG’s market heft, it must refund revenue on part of its production whenever the price rises above 3.8 cents a kilowatt hour.

That fund now stands at nearly $1.1 billion. But less than half of it, or about $513 million, is available to consumers and small businesses. The remainder is earmarked for big businesses, which must pay the full market price for power.

Since the cost of subsidizing consumers already stands at $640 million and rising, there isn’t enough in the fund currently to cover the consumer subsidy. Deficits are financed by the Ontario Electricity Finance Corp. (OEFC), the provincial body set up to administer the debt left over by the former Ontario Hydro.

Consumers are billed for 4.3 cents a kilowatt hour, but the IMO, which runs the power market, must pay generators the full market price. The IMO submits a bill to the OEFC for the difference between 4.3 cents and the market price.

Energy Probe’s Adams said the provincial auditor should take a new look at the mounting liabilities on OEFC’s books.

But Premier Ernie Eves defended the rate freeze once again yesterday, saying he remains confident the price will balance out over the course of the four-year freeze.

Toronto’s January temperature averaged minus 8.3 degrees Celsius; January’s historical average is minus 6.3.

"Suffice it to say we could have been luckier," Eves told reporters during a transportation funding announcement in Bolton. "Over time, these things average themselves out and I’m confident that over a period of time, which is the way you should be looking at it, it will average itself out."

The Premier said he is also certain some nuclear generation will be back on line in the near future, but he did add that attracting new generating business is a challenge.

"We want the units at Pickering to be back up as soon as we can. I understand that one unit at least is fairly close to being on line at Pickering," he said. The project to restart the mothballed plant has consistently missed deadlines. It’s also more than $1 billion over budget.

"Beyond that, it’s fair to say that the biggest challenge will be to encourage new generation of power as we go forward," Eves said.

Michael Bryant, Liberal MPP and energy critic, said in an interview that private sector proposals to build generators have stalled since the province announced its price freeze in November.

"Because the industry has totally lost confidence in this government, I cannot imagine that we will ever get interest from independent power producers as long as Ernie Eves is at the helm," Bryant (St. Paul’s) said in an interview.

"The future could not be grimmer," he added. "The province of Ontario has become radioactive for potential electricity investment because of all the bungling and waffling by the current government."

"The problem is deregulation and privatization," said New Democratic Party leader Howard Hampton. "It’s time for the government to admit this is not working."