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Cleaning up Ontario's hydro mess

Cleaning up Ontario's hydro mess

Mark Winfield
Mark Winfield

One of the central promises in the 2018 platform of the Ontario Progressive Conservative party was to “clean up the hydro mess.” And a mess there certainly is with the costs of subsidies out of general provincial revenues to artificially lower hydro rates now approaching the level of the province’s total pre-COVID-19 deficit.

There is no doubt that Doug Ford’s government inherited a significant “mess” around the province’s electricity system from the previous Liberal governments of Premiers Dalton McGuinty and Kathleen Wynne. But the Ford government has also demonstrated a remarkable capacity for undoing the things its predecessors had managed to get right while doubling down on their mistakes.

The Liberals did have some significant positive achievements to their credit. Most notably coal-fired electricity generation, which had constituted twenty-five per cent of the province’s electricity supply in the early 2000s, had been phased-out in 2014. The phase-out resulted in major improvements in air quality in the province.  There was also a significant growth in renewable energy production. From a standing start at virtually zero in 2003, by 2018 the province had installed 4500MW of wind-powered generation, and 450 MW of solar PV.

At the same time, public concerns over rising hydro rates flowing from a major reconstruction of the province’s electricity system from 2003 onwards, became a central political issue in the province. But rather than re-consider the role of the key drivers of the continuing rate increases – namely the massively expensive and risky refurbishments of the Darlington and Bruce nuclear facilities, the Liberals adopted a financially ruinous “Fair Hydro Plan.” The central feature of the 2017 plan was a short-term 25 percent reduction in hydro rates, financed by removing the HST from hydro bills, and extending the amortization period for capital projects within the system. The total long-term cost of the plan in terms of lost revenues and financing costs has been estimated in excess of $40 billion, largely falling on future ratepayers and taxpayers.

Ontario's hydro: some unwelcome truths
Photo credit: Policy Options

The Ford government, on its arrival proceeded to add more layers to these troubles. The province’s relatively comprehensive framework for energy efficiency was effectively dismantled in March 2019 with little meaningful replacement. That was despite strong evidence that energy efficiency offered the most cost-effective strategy for reducing GHG emissions and electricity costs.

Decision-making around the electricity system became deeply politicized. Legislation adopted by the Wynne government in 2016 eliminated the requirement for the development of system plans that were subject to any form of meaningful regulatory oversight or review. Instead, the system was guided through directives from the provincial cabinet. Major investments, like the Darlington and Bruce refurbishments proceeded without meaningful, public, external reviews of their feasibility, costs or alternatives.

The new government basically retained the Fair Hydro Plan, and promised further rate reductions. To its credit the government did take steps to clarify real costs of the plan. These were revealed last year to amount to a de facto $5.6 billion/year subsidy out of general revenues. That constituted the major portion of the province’s $7.4 billion pre-COVID-19 deficit. The financial hole was deepened further through November’s financial statement, with the addition of a further $1.3 billion subsidy to commercial and industrial consumers. The numbers can only get worse as the costs of the Darlington and Bruce refurbishments become embedded more fully into electricity rates.

The government also quietly dispensed with the last public vestige of an energy planning framework, relieving itself of the requirement to produce a Long-Term Energy Plan every three years. The next plan would normally have been due in February 2021.

Even the gains from the 2014 phase-out of coal-fired electricity are at risk. Major increases in emissions of greenhouse gases (GHGs) and smog precursors from natural gas-fired power plants are projected as the plants are run to cover electricity needs during the Bruce and Darlington refurbishments over the next decade. These developments could erode as much as 40 percent of the air quality and GHG emission improvements gained through the coal-phase-out.

Is Canada’s Ontario an “innovation wasteland”​ for energy?
Photo credit: Policy Options

The province’s activities around renewable energy, energy storage, and distributed energy resources are at a standstill, with exception of a few experimental “sandbox” projects. Globally these technologies are seen the leading edges of energy systems development and decarbonization. Ontario seems to have chosen to make itself an energy innovation wasteland instead.

The overall result is a system with little or no space for innovation, that is embedding ever-higher costs, while trying to disguise those costs at enormous expense to the provincial treasury and still failing to provide effective relief to low-income electricity consumers.

The decline in electricity demand associated with the COVID-19 pandemic gives the province an opportunity to step back and consider its next steps with the electricity system. A phase-out of the Fair Hydro Plan electricity rate reduction and its replacement with a more cost-effective strategy of targeted relief aimed at those most heavily affected by rising hydro rates, particularly rural and low-income consumers, would be a good place to start.

Next, the province needs to conduct a comprehensive, public review of electricity options available to it, including additional renewables, whose costs have fallen dramatically over the past decade, distributed energy resources, hydro imports from Quebec, and energy efficiency, before proceeding with further nuclear refurbishments.

In the longer term, a transparent, evidence-based process for electricity system planning needs to be established – one that is subject to substantive public and regulatory oversight and review. Finally, the province needs to establish a new organization, Energy Efficiency Ontario, to revive its efforts around energy efficiency, developing a comprehensive energy efficiency strategy for the province, covering electricity and natural gas use, and addressing the needs of marginalized communities.

Without these kinds of steps, the province seems destined to continue to lurch from contradictory decision after contradictory decision as the economic and environmental costs of the system’s existing trajectory continue to rise.

Mark Winfield is EUC professor and co-chair of the Sustainable Energy Initiative (SEI). He has published articles, books, and reports on a wide range of climate change, environment and energy law and policy issues and has acted as Advisor to the Environmental Commissioner of Ontario and Federal Commissioner for Environment and Development. Original article published in Policy Options, January 2021.