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                                                       Wynne's 25% Hydro Bill Cut: 

                 About As Believable As Those "You're Richer Than You Think" Ads

 

By Terri Chu

A friend of mine was solicited for financial advice recently. Someone was tired of their existing SUV and wanted a new one.  She hadn’t fully paid off the car loan yet, but really hated the car.  To make a long story short, a dealership offered to give her a loan that not only covered the new car she wanted, it covered the existing debt on her old car.  In essence, she had a $64k loan on a $40k vehicle that was to be paid off, not over the life of the car, but over a longer period than the new car is expected to last. 

Does that sound like good financial management to you?  Stories like this are the reason a billionaire hedge fund manager has come out of retirement to short Canadian real estate

It is also essentially what we are doing with our electricity infrastructure. 

Wynne’s 25% cost reduction reminds me of Scotiabank’s “You’re richer than you think” ads.  The bank will help you move money around so you can take that dream vacation, pay for that wedding, and all around spend money you don’t really have so you owe them more money over your lifetime.  And like the car loan, you’re paying off the asset for longer than you will have it. 

While that may sound appealing to a fifth grader, for everyone else who has completed high school math classes and have started learning the life skill of budgeting, it’s bonkers.  “You’re richer than you think” really should be “give us more of your money for longer”. 

There is absolutely no doubt that skyrocketing electricity prices are a concern, particularly for rural customers.  When it becomes feasible to move off grid, they will have the land available to make those investments that will pay off quickly.  When everyone moves off grid, we end up with diesel generators in every other back yard – an environmental disaster waiting to happen.

Though there is absolutely no easy answer, to me, the solution shouldn’t be asking for our children to pay for it.  When we buy a house, we can afford to take our long mortgages since land doesn’t generally decline in value.  When we mortgage electricity assets, that’s a different story. We are asking our children to pay for assets they won’t even get to use. 

There are many ways to make changes to electricity rates so that low-income households get help without giving a correspondingly larger savings to high-income households with a much higher consumption rate.  25% on a mansion with 10 bedrooms is a lot bigger savings than on a single bedroom condo. 

Here are some ideas:

-The province could consider mandating step rates like the Cubans do. Give a generous rate for low electricity users and have steep steps to discourage wastage. 

- The province could give direct subsidies to low-income households that are not tied to consumption.  Low-income households could conceivably make money by conserving electricity.

- The province could force the merger of the Local Distribution Companies.  Rural LDCs have to cover their own costs for delivery.  One 1 km line in the country might only serve a handful of customers, compared to a hundred in the city.  City folks who depend on food grown in rural areas should rightly subsidize some of those infrastructure costs.

As it stands, we have taken cheap energy for granted for a very long time.  We are still below the average of what other first world nations pay for energy.  If we are going to take our carbon reduction commitments seriously, we can’t run and cower at the slightest sign of discontent. 

We are not richer than we think. We should not be asking our children to shoulder the cost of our electricity infrastructure. 

 

Terri Chu is an expert in energy systems, with a Masters in Engineering specializing in urban energy systems. Terri founded the grassroots organization "Why Should I Care", a not for profit dedicated to engaging people on issues of public policy.

 

Posted date : March 21, 2017
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