In part 2 of this 3 part series on election promises we look at the NDP.
That’s the campaign theme.
At the highest level the NDP is promising to cut hydro bills by 30% and buy back the shares of Hydro One.
In addition they have the short-term goals:
- remove time-of-use charges
- cap profit margins
- scrap mandatory time-of-use charges
- ensure rural users pay the same delivery charge as urban users
- exempt First Nations communities from electricity delivery charges.
- double the support for low-income families via the Ontario Electricity Support Program through taxes ($35 million per year)
Long term:
- end electricity over-supply
- cancelling, renegotiating or letting existing agreements for generation expire
- cancel the Liberal’s borrowing scheme
- get private profits off the bill
- lower the actual cost of electricity
- provide affordable electricity in First Nations communities
The NDP platform is quite extensive and extremely aggressive for a party that really hasn’t formed a government for over 2 decades. It is very impressive that they have included many of these bullets in their literature.
I didn’t find much substance behind these talking points so my critique will be entirely speculative – but informative.
Before drilling into the specifics of the proposal, it is worth noting that the electricity costs in Ontario are in the neighborhood of $21 billion. If you want to reduce rates by 30% you would be looking for almost $7 billion dollars.
That’s not possible.
So there is some kind of trickery at play in the proposal – or oversight – that would be impossible to determine with such vague information.
I suspect that a consultant retained by the NDP had something to do with it. If so, they should have sought a second opinion before making claims that can’t be met.
Cut hydro bills by 30%
Who wouldn’t like this one!
But seriously, that would put us among the lowest cost utilities in Canada and even North America.
Is that possible?
Pawning off the 30% bill reduction target is disrespectful to Ontario voters.
It may be possible in the short-term, but not sustainable. You would need to cease all capital upgrades, defer maintenance and fire thousands of people. That’s reminiscent of what Bob Rae’s NDP government did in the 90’s.
As I have pointed out in a number of my articles on Cost, High Cost, Rising Costs and Keynotes, we are at a serious disadvantage with other jurisdictions. Our energy mix, service territory, customer density, climate and geographic challenges are all stacked against us if we expect ‘cheap’ electricity in Ontario.
There are several mechanisms that any government has for a quick-hit on rates. They each have long-term implications, however if you don’t plan on sticking around for a second term they may be just what the doctor ordered.
the quick hit
A few of the tools that the government has to reduce rates include taxes, regulation, debit payment deferral, profits and labour costs from Crown Corporations. There is also the option of reducing energy cost by contracting to import from Quebec and Manitoba.
Taxes
The easiest hit on taxes has already been implemented by the current government. That is 8%.
The Federal tax is another 5% that could be negotiated with the Federal Liberals. That will be a non-starter since our transfer payments are already out of line and we are passing off the cost of nuclear waste management to them.
Perhaps they could look at the hidden taxes that exist in generation and capital projects? That may yield something, but it would likely be small.
Corporate taxes are calculated but are ‘Paid-in-Lieu’ to be put toward the debt.
There is no mention of this in the proposal.
Regulation
The government controls the Ontario Energy Board. They can direct the Board to refuse rate increase applications and reduce the return to shareholders for the portion of the industry which they oversee.
Freezing rates can be done but it will just defer the inevitable need for infrastructure investment and cause a reduction in system reliability.
The return on investment for Distribution companies is already modest at between 8 and 10%.
The OEB already ensures that ratepayers interests are looked after. That may seem like a motherhood statement, but it is true. Try looking at one of the large company’s rate applications with the volumes of evidence, dozens of professional intervenors and expert testimony. It is quite overwhelming for anyone but the pros.
Bottom line… not much fat to trim here.
There is no mention of this in the proposal.
Debit payment deferral
The long-term debit for Distribution Companies in 2016 was $5.5 billion. OPG and Hydro One carry $6.7and $10 billion respectively. The Ontario Electricity Financial Corporation has $17.6 billion in long-term debit.
Interest rates are rising.
We should be reducing debit, not increasing it.
Who wants to step in that pile?
There is no mention of this in the proposal.
Profits from Crown Corporations
If you count the Hydro One dividends and OPG profit in 2017 you have $1 billion that you could rebate to customers.
There is no mention of this in the proposal.
Labour Cost
The government fully controls OPG and has some say in Hydro One. It is hard to imagine that an NDP government would go up against organized labour, however if they are serious, they need to look for some savings here. It won’t be much due to existing labour agreements but they can’t leave any stone unturned.
Who remembers the last NDP government and the “Rae-Days”?
As it turns out, over the last couple of days we have heard that the NDP plan is to close the Pickering nuclear station in 2018. Not in 2024 in accordance with the current Ontario Long Term Energy Plan. The claim is that 4,500 jobs will be lost. If you know anything about labour agreements you would know that a catastrophic event like this would take over a year to sort through.
There is no mention of this in the proposal.
Import hydro-electric power
Ontario has links to both Quebec and Manitoba where there is potential for importing hydro-electric generation. Although there are technical and capacity limitations with the links, the importing of power can reduce Ontario costs. We already exchange power on these interconnections and there may be some additional opportunities here.
Bottom line – some savings in the longer term.
There is no mention of this in the proposal.
Items that increase rates
Some of the proposed changes will increase costs and put upward pressure on rates.
- insure rural users pay the same delivery charge as urban users
It costs more to service rural areas than urban. Significantly more. Historically there have been subsidies to offset the difference. The only question is – who is going to bear the burden of the cost?
Do you want to subsidize the electricity bill for someone’s multi million dollar seasonal property?
- buy back Hydro One
The increase dividends will pay back the borrowed money to buy the shares back, however the ratepayers are going to pay.
- exempt First Nations communities from electricity delivery charges.
Ratepayers pick up the cost.
Things you can’t do
- cancel or renegotiate existing agreements for generation
This isn’t going to happen in a way that is of any benefit to ratepayers. The contracts are solid.
As I pointed out in the PC promises article, the government tried to alter the terms of the contracts in 2010, got sued, lost and paid it all back to the generators.
Case closed.
- letting existing agreements for generation expire
Most of the NUG agreements have been renegotiated already. Compensation terms were lowered and some generators signed up for an additional term, some didn’t.
Not much left here.
The takeaway
In the short-term there are several billion dollars of potential short-term savings that mostly come from returning profits from the big corporations like OPG and Hydro One. But that hasn’t been offered up.
There just isn’t a sustainable solution to reduce our bill in Ontario by 30%. Unless there is some fine print hidden somewhere?
At face value, the plan has some legitimate goals. Some goals are just not possible.
I want to believe – but not today
Derek
