(November 28, 2017) The Ontario PC’s energy plan doubles down on a couple of poor policies.
The Ontario PC party recently released its energy plan. Unfortunately for electricity customers, the plan doubles down on a number of costly energy policies and fails to end the Fair Hydro Plan, which will defer billions of dollars of costs to future customers.
1. Unneeded conservation spending to continue. Rather than end the province’s $2.6 billion conservation spending policy, the PCs promise to lower hydro bills simply by shifting those costs to taxpayers.
Conservation spending in Ontario has repeatedly been shown to be either unnecessary, due to the province’s large surplus of power, or wasteful. Hydro One – the province’s largest electricity distributor – conducted a large survey and found that conservation programs accounted for less than 10 percent of energy savings. The Auditor General found that most conservation programs were never reviewed for cost effectiveness and those that were, failed to pass muster. Another conservation program allowed a small group of companies to pocket around $100 million, while never actually cutting back on their energy consumption.
The decision to move conservation spending to taxpayers is a poor decision. If the conservation programs are cost effective – as the province maintains (and here) – then they pay for themselves by saving consumers more in energy savings than what they cost. If that’s the case, then those costs should continue to be paid for by ratepayers, as they are the beneficiaries (known as the “benefits follow costs” regulatory principle). But if the opposite is true – that conservation programs actually cost more than the energy savings they produce – they should be scrapped altogether, as they’re either a drain on ratepayers or taxpayers. Furthermore, the province’s energy surplus, which is expected to continue over the next few years, makes provincially mandated and utility-financed conservation spending a waste of money. Recent studies on energy conservation programs show that they overstate future energy savings and the cost per household is more than the savings achieved from reduced energy consumption.
2. Nuclear refurbishments at any cost. The PCs say they’re going to keep the aging Pickering nuclear plant operating until 2024 – even though the Ontario Energy Board (OEB) is the one tasked with approving the cost of extended operations – and go ahead with planned refurbishments of the Darlington and Bruce nuclear plants.
The economics of extending the operating life of the Pickering plant look increasingly poor. The Pickering nuclear plant is already a high-cost nuclear plant that performs poorly when compared to plants across North America. OPG, the operator of Pickering, admits that Pickering will always be a worst-in-class nuclear plant. Furthermore, the analysis that was done to justify keeping the plant open past 2020 is already out-of-date and many of variables that supported extending its operating life have moved against that option. Ratepayers could be $500 million worse off if Pickering remains in operation until 2024.
The current government has attached “off ramps” to the Darlington Refurbishment Project (DRP). The off-ramps were put in place in order to avoid refurbishing all four units if the cost of refurbing the first or second unit spirals out of control, as happened at previous nuclear refurbishments. The PC’s platform removes those off-ramps and moves ahead with the refurbishment of the province’s nuclear plants at any cost. If history is any guide, electricity consumers will be worse off.
3. The Fair Hydro Plan stays the same. The PCs will keep the Fair Hydro Plan and add their own artificial 12% hydro bill reduction on top of it. The Fair Hydro Plan does nothing to address the underlying costs that have resulted in near double-digit hydro rate increases in recent years, but does kick those costs to future customers while further dismantling the independence of the province’s energy regulator.
One recent estimate shows that the Fair Hydro Plan will see the province borrow $26.2 billion (through OPG) over the next decade to fulfill its promise to lower hydro bills by 25%. Yet, future hydro customers will have to pay back $21 billion (plus the initial $26.2 billion). Today’s savings are, simply, a mirage and will be a financial burden for future customers.
The Auditor General also recently highlighted that the Fair Hydro Plan contravenes the province’s own accounting rules by using a complicated method of removing those costs from provincial financial accounts. She warned that, as a result, the province’s future financial statements will become “unreliable.”
The Fair Hydro Plan also allows the Minister of Energy to set electricity rates as he sees fit, ending one of the last vestiges of independence in energy regulation in Ontario that ensured the price consumers paid for power reflected the cost of generating it. Energy rates are now a political decision rather than an economic or financial one.
The PCs, by not promising to end the Fair Hydro Plan, are ensuring that the many poor policies that are contained within it are here to stay.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236