Friday, July 30, 2010

Why you pay so much for hydro

By Andy Frame

Adam Beck, the founder of the electric power system in Ontario, had a vision in 1906. “Power at cost” was his cry. He would sell electricity at an affordable cost to everyone in the province — if there was a surplus of revenue, it would be used to improve the system or reduce rates. Nothing else!

But in 1998, Jim Wilson, minister of energy in the Harris government, declared: “The Adam Beck vision is over, a new vision for Hydro has arrived.”

The electric power system in Ontario would be operated like a private business, and it would have lower costs and rates.

Twelve years later, we know that the cost of electricity in Ontario for residential, commercial and industrial customers is more than twice the 1998 rate, and that jobs have been lost because of high electricity rates.

Wilson’s Energy Competition Act came into effect Oct. 31, 1998. It ended Ontario Hydro’s status as a Crown corporation and split it into two parts, Ontario Power Generation (OPG) and Hydro One, both to operate under the Ontario Business Corporations Act. Municipal hydro utilities were put under the ownership of the local municipality as their shareholder under the Business Corporations Act.

Under the old Power Corporation Act, Ontario Hydro had paid no corporation taxes or dividends. Instead, the Ontario government issued Ontario Hydro bonds and collected a guaranteed rate of return from Hydro. It also charged Ontario Hydro and private power companies a water-use fee for power generated on Ontario rivers. Ontario Hydro paid a fee to support the Niagara Parks Commission as well. In 1998, these three costs totalled about $180 million a year.

Under the new legislation, there were 10 new charges that cost hydro users at least $1.5 billion on their hydro rates:

• Corporation taxes paid by OPG and Hydro One.
• Dividends paid by OPG and Hydro One to their shareholder, the provincial government.
• Corporation taxes paid by local distributors.
• Dividends paid by local distributors to their shareholders.
• Cost of operations of the Ontario Energy Board (previously a provincial expense).
• Cost of operating the Ontario Power Authority (a new agency).
• Cost of subsidizing wind power and solar power generation through the Global Investment Fund, now about 4 cents per kWh, hidden in your hydro rate.
• The GST, although not the PST.
• Tax on lands held by OPG and Hydro One (not including land used for transmission or distribution lines). Previously, Ontario Hydro had paid property taxes only on buildings.
• Decommissioning fund and used fuel fund for nuclear plants.
On top of these, the McGuinty government has added a new set of costs and charges to hydro customers’ bills:
• Effective May 1, a special service charge to pay for conservation and renewable energy programs.
• Increase of 9 per cent on energy generation rates to replace lost industrial revenue.
• The HST, 13 per cent replacing the GST at 5 per cent.

• Increase in the Global Investment Fund charge to pay for new windmill and solar power programs operated by the Ontario Power Authority.

• Smart meter program. Some may save under this program if they can manage their load but estimates are a 10 per cent increase for most customers.

There is no accurate summary of what the extra costs add up to, but the best estimate is about $2 billion. In 2008, OPG alone paid $670 million in business taxes, $128 million in dividends and $151 million in land tax, for a total of $949 million. Hydro One, local distribution utilities and other charges provided the remainder.

The changes in rates have been driven by the decision to shut down coal plants and replace power supplies with green energy sources, as well as the need for revenue to deal with the provincial deficit. Adam Beck would be appalled.

Retail customers are paying much higher rates but the real damage is to the industrial sector, which was built on low power costs and made Ontario the economic engine of Canada.

Here are some changes that should be made to reduce costs:

• Eliminate all corporate profit taxes and the HST on all electric power facilities, and municipal distributors.
• Control the level of dividend payouts to shareholders of electric power facilities. There should be a fixed rate and no share options for management.
• Stop paying exorbitant prices for wind and solar power, and no more long-term contracts.
• Cut back regulatory and promotional programs financed by charges on the hydro rate.

Adam Beck’s ideal of “power at cost” is gone and it is clear that we cannot go back to the old system. But the dangers of the current approach to the Ontario economy are obvious.

None has said it better than Dr. Jan Carr, former president of the Ontario Power Authority, at the Waterloo Institute for Sustainable Energy in September of last year:

“Current policies reflect public concern about global warming at the expense of securing a stable and economic energy future. If such publicly popular but economically unsound policies continue, the province’s prosperity will be seriously jeopardized.”

Andy Frame is a consultant in the electrical power industry. He was formerly a senior adviser on electric utilities for the Ontario Ministry of Energy, a municipal hydro chairman and chair of the Utility Association.

51 comments:

  1. In PEI they have lots of wind turbines now and as a result they are expected to pay a huge new power rate increase next year. Get this, next year they will pay 13 cents per KWH. You heard me. Be prepared for the same thing in Ontario. If PEI people can pay it so can you, and your government and th power companioes are going to make you pay it. Be prpared. It's coming. Dump Mcguinty.

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  2. I can't believe it! Just got my bill and it looks like the more you use the higher your Delivery fee, which absolutely makes no sence. This is absolute ABUSE! It's time to move McQuinty out!

    ReplyDelete
  3. I agree with all of it.

    But I must say, it's not just H1 and OPG, the local power authorities are heavily engaged in the exact same practices.

    How about we get rid of them too, they just drive up the cost. I know they need to exist in some form, obviously, but if you are going to "reform", they can't escape it either.

    I don't want to sound harsh here or anything, but "formerly a senior adviser on electric utilities for the Ontario Ministry of Energy, a municipal hydro chairman and chair of the Utility Association" - fails to mention his own sector here. Rather conspicuous by it's absence, wouldn't you say?

    And for those who think Tim Hudak will set it all straight, by the looks of the Budget, when he takes power there won't be any money for projects like rebuilding the Hydro system. The way this financial crisis is going internationally, by then Ontario's ability to run a large deficit will be reduced if not gone altogether, by the Bond market.

    I'll vote for him, but Premier Timmy is going to have a lot of worries on his hands, I am sure the Daltonite Liberals have cooked the books for years. I would not want the job, nobody thanks you for cutting spending.

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  4. I just heard on the news they plan a 43% increase in Hydro over the next five years.

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  5. Andy Frank wrote in the Toronto Star today that because Blue Jays fans chose to sit in an air-conditioned stadium, this means that other Canadians want to pay more for hydro. I would like to tell this brain-dead, over-paid, blood-sucking, government leaching cocksucker that I am not a Blue Jays fan and I am sick and tired of being fucked up the ass by the McGuinty Liberals and Hydro One.

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  6. In response to the rate hikes I put up solar panels. Usage has gone from 1000 kwh a month to 100kwh. Everytime rates go up so do more solar panels.

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