Kathleen Wynne and the hydro rate “fix”

Will voters buy the spin?

To the Expositor:

Kathleen Wynne and the Ontario Liberals have “fixed” the hydro rates problem! A March 15, 2017 letter to this paper from the Energy minister is but one of a series of communications aimed at the ratepayers of Ontario. In summary, the minister presented the following points. First, the old system presented a danger to our health, to the environment and to the economy. He then went on to say that the financing arrangements weren’t fair in that the $50 billion spent on the hydro rebuild was to be paid by the current generation of customers. Stretching costs over a longer time frame more accurately reflects the lifespan of the assets.

He then made the interesting statement that the government has been asking ratepayers to pay for things that really should be part of the provincial budget.

Let us start with the rebuild issue. As far as I am aware, there has not been a public release of the accounting details of the $50 billion the minister refers to. Also interesting that his estimate for the spending has moved from $35 billion to the $50 billion most often claimed by the premier. In any event, an article published recently in the Financial Post by Parker Gallant provides some detail for some of the spending the minister is talking about. Gallant is a retired banker that has taken a personal interest in the Hydro rates issue. Here is a brief summary, check the article for details:

$7.4 billion for “smart” meters, “smart” grid, gas plant moves etc.

$21.4 billion for wind and solar install

$5.0 billion for transmission facilities to connect wind and solar

$4.1 billion for hydro upgrades that resulted in zero net benefit

$3.4 billion for Bruce Nuclear upgrade

Of the $36.3 billion in total that Gallant has identified, the only project that has contributed positively to the efficient operation of the grid is the $3.4 billion spent on the Bruce.

For the government to claim that $50 billion was spent on a Hydro rebuild is more than a stretch, the available evidence suggests that money wasted due to poor management of the energy file far outweighs any rebuild costs. For example, moving a gas plant for political purposes does nothing for the grid.

Secondly, it might be interesting to review the health benefits estimated by the government as they relate to power generation. Since 2005, the Liberals have claimed that ~ $3 billion in annual savings would come from the reduction of smog related air contaminants. At that time, the total Ontario health care budget was ~ $35 billion. Also, at the same time, power generation was responsible for about 1% of particulate emissions in Ontario. In other words, one tenth of all health care spending was due to a source responsible for 1% of emissions. To most people, this claim was a bit of a stretch. Ross McKitrick, an economist at the University of Guelph, issued a review of the claims in a May 30, 2005 paper and then followed up with a recent review with the assistance of Elmira Aliakbari of The Fraser Institute datedJanuary 17, 2017. As one might expect, the claims cannot be substantiated. Here is but one comment that the pair make regarding the methods used in the cost-benefit analysis, “Instability of the epidemiological model reflects in part the considerable scientific uncertainty over the air pollution-health connection.” Health care costs did not decrease when the coal plants were shut down, they increased. Also, air quality showed no significant improvement following the coal plant shut down. To summarize, the benefit claims for the Green Energy Act were based on a wonky study.

Thirdly, I would challenge the Minister to demonstrate how the Hydro issue is contributing to the economic health of Ontario.

We now come to the “fix.” The government is going to reduce rates by financing over an extended period. There are a few things that need to be said about this “fix.” First, refinancing an asset can be a reasonable strategy if it is truly an asset. For example, a house mortgage can be refinanced. At the end of the term, the asset is still in hand and hopefully has appreciated in value. In the case of hydro rates, what are we refinancing? If Parker Gallant is even half correct, we are refinancing the costs associated with projects that add no value to the system. In addition, the operating costs associated with hydro rates may also be part of the deal. We would then be financing annual costs and treating them like long terms investments which is a recipe for financial strife. It is like a family paying monthly hydro bills with a credit card and covering just the interest charges.

And now let’s talk about this statement by the Energy Minister, “We have also been asking ratepayers to pay for things that should really be part of the province’s budget.” It is truly incredible that a government minister would think that he can make a public statement of this nature and get away with it. The province doesn’t provide funds for it’s budget, taxpayers do! These same taxpayers are the people being burned by hydro rates. We are one and the same!

So – what did the Provincial Government “fix”? The answer is that an additional $1.4 billion in annual interest charges has been “fixed” to the tax bill for the people of Ontario.

A last question, “Are voters going to buy the spin?” There is some evidence about that the reduction in rates will help the Liberal cause. Some of it is evident locally. However, a recent poll conducted between March 6 and 13 by the Angus Reid Institute shows that the approval rating for Kathleen Wynne has dropped to 12%, a historic low and down from 41% just months ago. Note that this poll was conducted after the rate adjustment. I don’t think the average rate payer/tax payer is buying any of it!

Shane Desjardins