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Will Kathleen Wynne’s last-ditch hydro fix just add to the mess?

Kathleen Wynne's Liberals are frantically trying to make up for lost time in addressing public fury over soaring hydro bills heading into next year's Ontario election.

But if not too little, exactly, the governing party's new-found urgency on the matter may very well be too late – both to help it recover from its dismal poll numbers, and to provide the province with a serious solution to a pricing problem decades in the making.

Courtesy of a plan brought before provincial cabinet on Wednesday, the Liberals are set to claim that residential hydro bills will soon be fully 25 per cent lower than this time last year. To achieve that, they have settled – in addition to a rebate of the 8-per-cent provincial sales tax announced last fall – on a "smoothing out" of energy costs that stretches costs of power-generation contracts over a longer period than the contracts currently allow.

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It's not a crazy idea, in theory. In an op-ed published earlier this week in The Globe and Mail, approvingly cited by a source in the Premier's office, a quartet of professors from Ivey Business School made a reasonable case that the useful lifespans of generation assets such as wind turbines and gas-fired power plants – on which Ontario utilities have spent billions of dollars over the past decade – will exceed contracts that are typically for 20 years. So it makes sense, the authors argued, to try to spread some of those contracts' costs to after that 20-year period – possibly by offering generators with existing contracts the opportunity to bid on new, longer ones.

But while reopening the contracts might have been an enticing option for the Liberals if they had moved on it sooner, it would not fit their political needs now. They need savings to be felt by ratepayers before the 2018 campaign starts and protracted negotiations would not allow that. And a government that spent years mired in a scandal involving the sudden cancellation of power-plant contracts around a previous election knows full well – and is constantly reminded by the energy sector – that it would have to move extra-cautiously around any attempt to change the terms of existing deals. That leaves the government, the source acknowledged, embracing a second option raised by the Ivey professors: using public funds to subsidize rate cuts by energy utilities, until those expensive existing contracts have expired.

In the op-ed, even this latter option sounds fairly logical. Subsidies would be designed to equal the difference between annual amortization under the current contracts, and what that amortization would be if calculated according to assets' actual lifespans. It would purportedly be an easy cost for the government to absorb even if it contributes to a budget deficit, given historically low interest rates, and somewhere in the 2030s, money would be returned to provincial coffers because then the amortization gap would work the other way.

But as the actual policy is rolled out by the province, the timing and early messaging – as well as history – offer ample cause for skepticism.

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A party facing imminent defeat, and already flailing about trying to make pocketbook angst go away (most obviously with a recent about-face on the merits of road tolls), does not seem ideally suited to crafting a sophisticated model to flatten costs over decades.

The 25-per-cent figure – in which a few other surprise mechanisms to come are also supposed to play a role – does not provide reassurance. Maybe the government was happily surprised to find that its proposed measures arrived at such a nice, round number, but it might also be that it is trying to make complicated policies fit an arbitrary target.

And if you're familiar with past intersections of Ontario's elections and its energy system, the echoes are eerie. There is a long, sorry record of governments trying to buy goodwill (or ease anger) by trying to manipulate hydro prices – both Bob Rae's NDP and Ernie Eves's Progressive Conservatives doing the system huge damage with rate freezes as they unsuccessfully tried to hold office.

The Liberals have flirted with similar stuff for years, with Dalton McGuinty (in 2010) and Ms. Wynne (last year) using public funds to pay for energy rebates – a somewhat problematic premise, since it uses money collected from all taxpayers to the particular benefit of those who consume the most electricity. But what they're now pitching is a more structurally significant attempt to change the way energy is priced.

At this point, they might feel they don't have much choice. Overdue but expensive investment in the energy infrastructure during Mr. McGuinty's first term, followed by a disastrous gamble on green energy in his second, has given way to public demand for something dramatic to be done about prices that have risen wildly above inflation. And the opposition parties – the NDP already making a dubious promise of a 30-per-cent rate cut, the PCs for now playing coy – will inevitably make it sound all too easy to turn back the clock to when power was relatively cheap.

But if one of those parties wins office, it will at least have to live with the consequences of its own decisions. The worry with the Liberals, who might be too late now to atone with voters for past mistakes no matter what they do, is that their last-ditch clean-up attempt will just add to the mess that the next government wades into.

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About the Author
Political Feature Writer

Adam Radwanski is The Globe and Mail's political feature writer. More

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