Murray Campbell
Globe and Mail
January 11, 2003

It’s becoming clear how much money the Ontario government will have to spend to bribe voters by ending the province’s brief flirtation with an open electricity market and capping power rates.

The province’s 86 local electrical utilities reported this week that they lost $110-million in December because they had to buy electricity on the volatile wholesale market while selling it at the government’s mandated retail rate of 4.3 cents a kilowatt-hour.

The local utilities will be reimbursed for this cost next week by the Independent Electricity Market Operator, the organization that administers Ontario’s great energy experiment. The IMO, with no great resources of its own, will then go for repayment to the Ontario Electricity Financial Corp., which may have to pile it onto the debt that was built up by the old Ontario Hydro and is being serviced by the same taxpayers happy to receive low-cost power.

In the next few months, the utilities will report further about how much they are owed for the period from May 1 to Dec. 1.

They had been passing along higher wholesale prices, but last November a panic-stricken government ordered them to make the rollback to 4.3 cents effective from May.

The utilities’ total costs are difficult to predict, primarily because the government hasn’t yet decided who will be eligible for the rate freeze. But there’s little doubt they will add up to hundreds of millions of dollars.

The figure ought to temper the widespread sense of relief homeowners and small-business operators felt when Premier Ernie Eves pledged to freeze electricity rates until 2006. They had watched as prices, frozen for nearly a decade, suddenly soared. The $75 cheques that went out before Christmas, a down payment on what the industry calls "truing up," defused the anger and made the Premier look like a good guy.

Mr. Eves promised that his plan would be self-financing because Ontario Power Generation had earlier set up a $1-billion consumer-protection fund – in effect, a tax on electricity use. Beyond that, Mr. Eves said, taxpayers wouldn’t be on the hook for his rebate.

More and more, however, it looks like he was dead wrong.

"It’s absolutely incontrovertible that people are being bribed with their own money," said Tom Adams of the watchdog group Energy Probe.

Predictions about the electricity market are necessarily sketchy at this point. We can guess, however, because the average weighted price for electricity per kwh since May 1 has been 5.54 cents, more than 1.2 cents above the capped price.

The IMO says electricity supplies will be stretched thin again this summer if nuclear generation units at Pickering and Bruce are not returned to duty at high efficiency – and that’s by no means certain. Add in some hot weather and high-priced imported power, and wholesale prices will once again soar.

Bruce Sharp, a senior consultant at Aegent Energy Advisors Inc., projects an average weighted price for the first year of the market (to next May 1) of 5.48 cents.

Mr. Sharp believes it will cost the government about $300-million more than it has set aside with the OPG.

There are indications the government realizes the rebate is too rich for its blood because it has tightened up eligibility requirements, particularly as they might apply to large-volume users. At this point, the cap applies for certain only to about 40 per cent of the total market, and Mr. Adams believes that rebate could be covered by the OPG fund. But he thinks the government is scrambling to narrow "the scope of these handouts."

The great irony in all this is that the government wanted to overhaul the electricity market because it felt something had to be done about the $38-billion debt that Ontario Hydro had built up. The fact that it could be adding to this debt is too precious for words.