(Nov. 20, 2010) McGuinty government is the biggest winner from the recent introduction of the Ontario Clean Energy Benefit.
The Ontario government’s clever Ontario Clean Energy Benefit – a 10% rebate on the rapidly escalating power bills of Ontario voters — is a win-win-win proposition. A win for the Liberal government, which needs to blunt a consumer revolt before next year’s election. A win for the power companies it owns, which now have a go-ahead to continue to escalate their rates. And a win for renewable energy suppliers and their environmental group allies, who had feared that the Ontario government would curb the lavish solar and wind contracts that have been clobbering consumers.
The rebate scheme – which is sure to dampen public revulsion at the way the power system is being managed — is especially impressive in how expertly the government has disguised its activities. To read the press reports, the government is deftly rejigging its provincial borrowing and fast-forwarding revenues from a long-term land registry contract to finance the rebate during a five year transition period to a cleaner energy infrastructure. Sweep aside these sleight-of-hand explanations and the reality is much simpler: The provincial government is in reality providing voters with a five-year break on their HST while rapidly escalating the power prices that all consumers face. Because the province and the municipalities overwhelmingly own the power system, they are making off like bandits as power consumers get squeezed.
Under the old Ontario Hydro monopoly, the provincial power system was run on a non-profit basis. While the absence of a profit motive eliminated an incentive to be efficient, the system did have one virtue – the government couldn’t milk it for revenue. Under the new government-run monopoly system, the power system is run on a for-profit basis, with the profit roughly proportionate to its equity. The more expensive the system, the higher the dividends, fees and taxes that accrue to the government. Put another way, the new power system rewards inefficiency — the bigger the boondoggles, the fatter the government coffers. The new system is already quietly filling those coffers with some $2 billion a year that wasn’t available to them under the old Ontario Hydro system.
The Ontario Clean Energy Benefit is also a lose-lose-lose proposition. Two losers are the opposition NDP and Conservatives, who had called for the Liberals to reverse their position and exempt power sales from the HST. Had the Liberals reversed the HST explicitly, they would have seemed weak and desperate, giving their political opponents a club to beat them with while forever losing a large source of tax revenue. Instead, the Liberals bested their opponents by calling their HST bid, which was worth 8%, and raising it to 10% under a different name. The political opponents came across as pikers and the Liberals as heroes for the day.
Large industrial electricity consumers are also losers. Because these companies don’t vote, the Liberals would have drawn no political benefit in applying Ontario Clean Energy Benefit to them. To the contrary, by collecting the HST from them, the Liberals are obtaining the cash they need to top up the rebate from 8% to 10%. In effect, the Liberal government is merely transferring the HST rebate that the large industrial consumers aren’t getting to the pot of money going to the smaller consumers that can vote – residential consumers, small businessmen, and farmers.
Of course, under the Ontario scheme, all consumers become losers. Rates, by the government’s own accounting, will be climbing another 46% over the next five years, and then rates will jolt up another 10% as the Ontario Clean Energy Benefit expires. By then, the new power system may also have expired. It took Ontario Hydro, running as a government-owned non-profit, 90 years to go bankrupt. Hydro’s government-owned for-profit successors will be far quicker at reaching bankruptcy.
Lawrence Solomon, Financial Post, November 20, 2010