Lowering Hydro Prices: Good Policy or Good Politics?
By Terri Chu
Premier Kathleen Wynne announced in the Throne Speech Monday that the 8 per cent provincial portion of the HST will no longer be applicable to hydro prices.
Great politics, but is it really great policy?
There are many ways the Ontario government could have approached the problem of lowering hydro prices for Ontarians, but a blanket cut across the board is one of my least favoured solutions.
There is no question that generating electricity contributes to greenhouse gas (GHG) emissions. Giving a big break to the rich who have four-car garages and indoor swimming pools to heat is a poor way to target giving a small savings to the poor, who use relatively little electricity. And a blanket cut is not the kind of public policy that incentivizes conservation.
According to Quebec Hydro’s annual comparison of electricity prices in major North American cities, the average homeowner in Toronto or Ottawa pays roughly twice what a Montrealer would pay, and about half of what a San Franciscan, New Yorker or Bostonian would pay. This puts Ontarians, squarely in the middle of the pack.
For smaller businesses, we do a little better, paying only a 30% premium over our Quebec counterparts and about half of what New Yorkers pay; again, putting Ontario in the middle of the pack.
The story is a different, though, for the large industrial users. While the Toronto Sun might like to blast hydro prices as job slayers in Ontario, electricity prices are in the bottom third of all markets for big industrial users. In other words, the big manufacturers - the ones who are supposed to be the big employers - aren’t getting a much of a better deal elsewhere.
This isn’t to say that there is a real struggle for small and mid-sized businesses, but being in the middle of the pack is hardly the damning indictment that Ontario Progressive Conservative leader Patrick Brown would have us believe.
Electricity accounts for about 10% of Canada’s greenhouse gas emissions. There is absolutely no doubt in my mind that high consumption prices mean lower usage and a corresponding reduction in GHG.
However, the problem Ontario has isn’t high hydro consumption prices, it’s the fact that prices remain high even when consumption is nonexistent.
The industry defends the practice of flat fees as a connection charge of sorts. Whether you turn on a light or not, the ability for you to turn on that light costs money in the form of equipment, maintenance, and supply overheads. We take electricity for granted so much now that we forget that it costs a lot of money to maintain that infrastructure whether we use it or not. However, where we have lost our way is that this flat fee, completely unrelated to how many light bulbs we turn on, is such a high portion of the bill that there’s very little point to conserving. Whether I have one light bulb on in one room, or every room lit in the house, makes little difference to my bill. So there’s really a lack of incentive to go around turning off all the lights.
Power prices themselves remain low in Ontario - it’s the delivery, transmission, and other components of the flat fee that makes hydro costly. I would argue that since our infrastructure has been around for so long, it’s time to change the pricing model that incentivizes conservation.
The province could consider tiered pricing, where each kWh of electricity gets more expensive the more you use.
As it stands, small farmers in the province have little ability to control their hydro bills. Even scaling back to zero, they would still have to pay 75% of their costs.
The only way to reduce their electricity bill would be to go completely off grid. As the cost of off grid technology decreases and hydro rates remain high, cutting off from Hydro One looks ever more attractive.
But the entire grid faces a crisis if we get to this point. Imagine every backyard in your neighbourhood powered by a diesel generator when the reliability of the grid falls apart. This is not an environmental win, nor is it a good for the public.
In finding ways to lower prices for consumers, Premier Wynne should focus her efforts on lowering the flat portion of the fees. This is good for business, conservation, and meeting our climate change targets. Increasing fees during high demand periods (when energy is the dirtiest) is also a good idea. Still, "Time Of Use" rates work fine in principle, but the 7:00 pm spike in demand is anything but green.
Getting more renewable energy onto the grid is a laudable goal, however, renewable sources are notorious for their unreliability, rendering them unable to meet baseload requirements. Technology is being developed that can allow loads to turn on and off according to the schedule of the electricity production rather than the other way around, as we have right now. This ensures that the grid is balanced; green electricity is being put to good use and decreases the amount we sell off to other jurisdictions at a loss. This helps reduce cost to Ontarians and makes our grid the greenest it can be.
Investing in the future of the grid must be a priority for this government if we are to maintain the dependability of such an important public resource. Lowering electricity prices in and of itself won’t fix our problem. Ontarians need the prices to be comparable than going off grid, and need to be given incentives to use electricity when it is the greenest.
Terri Chu is an engineer and Ontario environmental analyst.