In an article published by the Financial Post on June 29, 2018 “Make Ontario hydro great again by reviving the Common Sense Revolution”, Lawrence Solomon argues the case for the Progressive Conservatives to resume the work started by former premier Mike Harris in the 1990’s known as the “Common Sense Revolution” with Ontario’s electricity industry.
The revolution started by the PC government of the 1990s era would have been more accurately termed the “Non-Sense Revolution” since it accomplished the opposite of what Mike Harris implied from the start of the initiative. It did not lower electricity bills nor did it make any sense to the average rate payer. Instead it created the most complex and unruly industry structure in the history of electricity in Ontario.
Costs went through the roof and the PC government needed to step in to freeze rates and suspend the Retail energy market. Eventually it contributed to the ousting of the PC government in 2003.
To illustrate my point I would ask you to name someone you know that understands how the electricity industry manages supply, demand and pricing today?
In a 2015 Ipsos Reid survey conducted by the Ontario Energy Board
“Only 4% of consumers would say that they are ‘very knowledgeable’ about how the price they pay for electricity is determined”
If you do know anyone with knowledge of the industry today you would be part of a very small and exclusive club – otherwise, welcome to the majority of the population!
Why would we want to pick up where the last PC government left off?
That’s a good question! Most electricity ratepayers would not since it wouldn’t be of any benefit to them. It does however benefit a small number of players – greatly. Unless you are part of that exclusive club I mentioned – you won’t know who they are and how much they benefit.
The answer in this case would be evident if you knew more about the author of the article, who he represents and what the agenda is.
About the author
Lawrence Solomon is the Executive Director and co-founder of Toronto-based Energy Probe. He is the author or co-author of seven books and a columnist with several major national and international news publications.
On the other hand
I must confess that I am not nearly as worthy with only a couple of technical papers and an obscure blog to my credit, however I can smell something amiss with this article and do get a kick out of tugging on Superman’s cape.
Energy Probe
This is a private organization that bills itself as a leading environmental and public policy research institute.
They are not entirely transparent about where they get their funding. It is key to understanding the motivation behind their work. Some of their money comes from articles and research papers; some from consulting and intervening on Ontario Energy Board submissions by businesses under OEB jurisdiction. Most of their funding comes through donations from undisclosed sources.
They claim to be neither left nor right-wing, which in my mind makes them anarchists seeking opportunities to stir things up.
Energy Probe has a very impressive list of staffing resources with decades of experience in the energy industry. Their articles are always interesting and controversial.
It is very clear that they oppose public ownership, nuclear power and global warming reduction initiatives. They are also connected to the oil and gas sector. It would be in their best interest to lobby for privatization of the electricity industry with a shift to natural gas as the primary fuel for generation.
Wherever there is anarchy there is opportunity
The opportunity for organizations like Energy Probe to provide consulting services to the government and lobbying for the gas industry would be tremendous if there are major changes coming.
The most amusing quote out of Energy Probe that I have ever seen…
During the common sense revolution in 2001 while the details of Ontario energy markets were being hammered out, a US-based company – Enron – was being used as a consultant. In an article by Matthew McClearn referencing Enron an executive director of Energy Probe was quoted:
Sure enough, Enron’s anonymity was short-lived as later that year it filed for bankruptcy and their executives were indicted for fraud in the biggest corporate corruption scandal in US history.
So much for a crooked er… phenomenally successful company – and where does a crazy person cash in on their bet?
But I digress.
Questionable article claims
Privatization
The article claims that privatization of the entire power system could yield $50 to $100 billion dollars.
Highly unlikely – it’s more like $10 billion for the provincial government and $10 billion for LDC owners.
That leaves the industry’s stranded debt held by the OEFC of $21.1 billion outstanding!
The combined assets of all of the Local Distribution Companies and Ontario Power Generation was approximately $40 billion according to 2016 financial statements. Considering the debt carried by these businesses, you would be lucky to get half of that amount through sale. Only half of that goes to the Ontario government with the balance going to the owners of the Local Distribution companies.
Who wants to buy a used nuclear plant?
Pickering is end of life, Bruce is under lease for the long-term and Darlington needs refurbishment. While OPG will show an asset book value, they could never sell them.
If you add what is left in the Hydro One interest it may add another $5 to $10 billion depending on when you pull the trigger. That’s about $25 billion that will be disbursed among many different owners. Ratepayers may never see any of the $15 billion that the Ontario government would get since it would fall into general revenues.
Let’s not forget the $21.1 billion debit that is being held by the OEFC
The industry maintains a reasonable rate of return on investment of approximately 10%. Selling everything off means a secure annual income is gone forever.
Everyone keeps missing the point that government spending is the root cause of our fiscal problems. The short-term gain from a one-time influx of cash doesn’t solve the long-term problem.
Extinguish the renewable energy contacts
While this is highly desirable, and part of the PC election platform, it is not likely going to happen. The Liberal government tried this and lost in court. I covered this in my commentary Election Promises – Part 1 of 3.
See Iroquois Falls Power Corporation v. Ontario Electricity Financial Corporation, 2016 ONCA 687 (CanLII), Court of Appeal Summaries (September 19 – 23, 2016), Link and the 2017 OEFC Annual Report.
If the government passed legislation to make the contracts null it would be a disaster. It would take a contractual obligation upheld with legal precedents and throw it out. That sounds like a criminal act in itself and sends a terrible message to anyone wishing to conduct business in Ontario.
This is a non-starter.
Unlock the $20 billion set aside to manage nuclear waste
You’ve got to be kidding?
This money has already been secured. Much of it may be consumed through the construction and short-term operation of containment facilities. Long term it may not be sufficient.
Sorry but that is just over-the-top bad judgement. Much like Energy Probe’s position on global warming – it is not responsible.
The federal government has oversight on nuclear waste management and the provincial government is highly unlikely to win on this issue regardless of the scientific theory referenced by Energy Probe.
The risk is too great and the benefit too small.
This is a serious fail.
Start Fracking
The suggestion is to begin aggressively pursuing oil and gas reserves in Ontario by using the technique of fracking. We should then use the fossil fuel to generate electricity in Ontario.
Here is where the author really tips his hand on one of the primary motivators for the article.
Let’s forget about the environmental concerns about this process and make some fracking money!
Quebec, Nova Scotia, New Brunswick and New York have banned fracking. It poses serious risks to groundwater.
I find it quite bizarre that Energy Probe – which spun off from Pollution Probe – would lobby for such an environmentally risky process to move forward. Can you smell that something is off?
We already have excess generation capacity in Ontario and rock-solid contracts that will pay existing generators for the next 20 years – whether they sit idle or not.
So why would you add more gas generation in the short-term?
You would not.
Restore the Ontario Energy Board’s independence
The Energy Board controls a significant portion of the electricity sector in Ontario. Almost 100% of delivery and close to 25% of generation is under their jurisdiction. Why would the government want to give up their control of the OEB?
They would not.
Reference to the UK privatization
I don’t have any personal experience with the UK transition, however as a former industry insider I recall that it did not go well. A quick check of some current facts shows that their electricity still costs 20% more than in Toronto and they had a 63% increase in their rates after inflation from 2004 to 2014.
There is absolutely nothing from their experience that looks particularly enticing – including fracking.
We need another history lesson
The last time we went down this road it started with a government advisory report “A Framework for Competition”. This 1996 document is 181 pages of justification for privatization and speculation on the cost benefits.
Most of what they claimed never materialized.
For those that are making the same claims again, try a reality check please?
The takeaway
Somehow this is all going to introduce competition and lower rates?
Wait a minute… we tried that 20 years ago and it failed completely from a rate-payer perspective. But it did make a small number of businesses plenty of money. Are things different now?
Not really.
It’s still about making a small number of businesses a pile of money so that the government can step back from something that they have messed up for decades. There won’t be any net benefit to ratepayers or taxpayers because nobody has the intelligence and commitment to solve the root cause of the problem.
The smartest thing that Doug Ford and the Progressive Conservative government could do is distance themselves from the Mike Harris era and the non-sense revolution. If they have any competence at all they will learn from the mistakes of the previous PC and Liberal governments. Reform is needed however the failings of the past can’t be repeated.
Unfortunately, the Financial Post article is an epic failure. The common sense revolution shouldn’t be resuscitated. It should be buried in the archives in the basement of Queens Park. We should learn from it and move forward. This time with the best interest of the ratepayers in mind.
The Post article will get thousands more reads than my blog and some unfortunate people will buy-in on what Energy Probe is selling, thinking that it is legitimate.
I don’t think so.
When you are looking to tinker with a $20 billion industry it’s like chumming for shark in a dinghy.
You never know what you’re going to attract.
You may need a bigger boat.
Derek
