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A closed-doors deal with Hydro-Québec isn’t Ontario’s electricity answer

Ontario's Liberal government is on the defensive again over its always controversial electricity policy. But Energy Minister Glenn Thibeault's eagerness to deny a leaked report that the province is poised to sign a $12-billion deal to buy hydro power from Quebec suggests common sense may yet prevail.

The report this week in La Presse that Premier Kathleen Wynne and her Quebec counterpart, Philippe Couillard, would officially sign a 20-year agreement in September, under which Ontario would import eight terawatt-hours (twh) of electricity annually from Quebec, sparked an immediate outcry. And not just from Ontario producers, who complained the province would simply be displacing local wind, solar and natural-gas-fired power with imported hydro without any cost savings and little environmental benefit.

News of the pending deal – which the La Presse report said would take effect in January – also seemed to herald an early closing of the Pickering nuclear station. That 50-year-old workhorse, which currently supplies 20 twh of power annually, is not set to close until 2024. But anti-nuclear activists have been pushing for an immediate shutdown and the timing of the La Presse report seemed to suggest the Liberals might throw the anti-nukes a pre-electoral bone.

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In the end, it all turned out to be a giant misunderstanding. Mr. Thibeault insisted he had already rejected Hydro-Québec's offer days before La Presse got wind of the contract proposal the Quebec utility had sent to Ontario's Independent Electricity System Operator in June. To prove it, he released the July 27 rejection letter he had sent to Quebec Energy Minister Pierre Arcand.

"The offer that was provided to the IESO was inconsistent with our discussions in May," Mr. Thibeault told Mr. Arcand, referring to informal talks the two ministers held then. "Specifically, the current Hydro-Québec offer would require significant curtailment of [Ontario-produced] renewables (i.e. wind, hydro and solar) and end up in increased costs to Ontario ratepayers."

Enhanced energy co-operation between the two provinces has been a major thrust of the premierships of Ms. Wynne and Mr. Couillard. Both leaders see it as a nation-building exercise and step toward the shared goal of an east-west Canadian energy grid. Still, Hydro-Québec's latest offer was so stacked in Quebec's favour that Mr. Thibeault was right to reject it outright.

Ontario currently produces more power than it needs. Most of this surplus electricity, largely consisting of unusable wind power, is sold at a loss to neighbouring jurisdictions. Under green-energy contracts signed under former premier Dalton McGuinty's government, Ontario must still pay producers for the surplus power – to the tune of $550-million in 2015 alone, according to a recent study by energy consultant Marc Brouillette.

Even so, intermittent wind and solar power cannot be considered baseload power – the dependable kind that keeps the lights on regardless of whether the wind blows or sun shines. And continent-wide rules require Ontario to maintain a certain proportion of baseload supply. Hydro power from Quebec could potentially replace baseload power when Pickering is retired. But Hydro-Québec's latest offer did not include a so-called non-recall clause, and hence, provided no guarantee that Ontario could have counted on it to meet baseload supply requirements.

The offer would also have boosted Ontario's already high electricity rates. At a wholesale price of 6.12 cents a kilowatt-hour (kwh), the Quebec offer would cost more than gas-fired power, even when taking into account carbon pricing under Ontario's cap-and-trade system. Quebec also proposed a deal under which Ontario would pay for the power whether it used it or not, heralding yet more money-losing liquidation of surpluses by Ontario.

Emissions-free power from Quebec, even taking into account the 2-per-cent annual inflation escalator included in the Hydro-Québec offer, might be cheaper than emissions-free power produced by the Darlington nuclear plant. But Darlington, which is undergoing a $15-billion refurbishment to extend its life to 2055, also provides thousands of jobs and billions in economic benefits to Ontario. It is crucial to maintaining critical mass of nuclear expertise in the province.

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It might yet make sense for Ontario to consider purchasing additional hydro power from Quebec in the future. Ontario currently relies very little on gas-fired power, except, ironically, to supply the Quebec market during that province's winter demand peaks. But without Pickering, Ontario could be forced to rely more on natural gas to provide its own baseload supply.

Instead of negotiating a sole-source deal with Quebec behind closed doors, however, Ontario should hold an open bidding process in which Hydro-Québec is forced to compete with local power producers to meet Ontario's future supply needs on the most cost-effective basis.

It's the only way to restore sanity to electricity procurement in Ontario.

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About the Author

Columnist Konrad Yakabuski writes on politics, policy and business for The Globe and Mail’s Comment section and Report on Business. More

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