By Marieke Walsh. Published on Apr 27, 2018 2:00pm
Ontario New Democrats say they can buy back Hydro One and cut rates by 30 per cent, all with no extra costs — to which experts say: bunk.
If they form government, the NDP say the proposed shake-up would be its first order of business.
Experts, though, suggest the party rethink what it plans to bring forward, likening the NDP plan to an attempt to “put Humpty Dumpty back together again,” having an “air of unreality,” and lacking a “clear path.”
Introduced more than a year ago, the NDP say their plan would bring Hydro One back under government control, end time-of-use billing, cut rural delivery rates to the rates that urban dwellers pay, convince the federal government to give up its GST revenues from electricity bills, and cap profit margins.
All of that, the party says would cut rates by 17 per cent on the average residential bill and 32 per cent on rural residential bills – compared to the 25 per cent cut the Liberals brought forward last year.
“We are going to change the hydro system so we can pay less for and own more of our electricity system,” Horwath said at her platform launch.
Skyrocketing electricity prices have drawn the ire of voters and have been turned into a political football by the opposition.
To take the heat off, the Liberals cut prices through their Fair Hydro Plan. The NDP say they would axe that plan. On Friday, the Progressive Conservatives said they would build on the rate cuts from the Fair Hydro Plan with an extra 12 per cent cut.
Some of the blame for the skyrocketing prices lies with the expensive contracts the Liberals signed that created an oversupply in the markets. Auditor General Bonnie Lysyk has estimated Ontarians paid millions more than necessary for electricity. But when the Liberals came to government they were also handed an electricity system on the brink of collapse. University of Waterloo Professor Jatin Nathwani says a decade-long rate-freeze starting in the 1990s meant necessary upgrades and investments were passed over year after year. The result was an unreliable system, prone to brown outs.
“We went through an absolute crisis in Ontario in 2004,” Nathwani told iPolitics.
The high prices, Nathwani says, stem “from the fact that we now have a new system in Ontario. We are not in a crisis situation and we have to pay for that investment over time.”
Still, the impact on consumers is real, especially for people on fixed incomes. Ontario has among the highest electricity prices in Canada— after P.E.I., Saskatchewan and Nova Scotia. The goal, according to the NDP, is to make it more “affordable.”
Buying back Hydro One
The NDP say they can deliver cheaper electricity if Hydro One is nationalized. How much it would change rates isn’t clear but the party says it would cost “between $3.3 billion and $4.1 billion.” So the dividends that it currently gets will be spent buying back shares instead of going into the public purse.
The plan “doesn’t add up,” according to Nathwani, who likened it to putting “Humpty Dumpty back together again” and said it “always comes at a cost much higher than you ever imagined.”
If the goal is to stabilize prices, he and University of Western Ontario Associate Professor Adam Fremeth say that can be done through strengthened regulations and that public-ownership doesn’t guarantee better management.
The success of public utilities is “quite mixed,” Fremeth said, cautioning that it won’t necessarily get the NDP the savings they’re hoping for.
Negotiating with Ottawa
Five percentage points of the promised cut would come from the NDP’s plan to convince Ottawa to give up its portion of HST revenue from electricity bills.
Fremeth said that’s far from a guarantee. The federal government needs the cash and if it agreed to Ontario’s ask that would then open the door to other provinces.
It’s “not necessarily a clear path,” Fremeth said.
He also said that, in that negotiation, Ottawa might take issue with another plank of the party’s plan that would end time-of-use billing. Charging more at peak hours of the day in order to encourage conservation fits in nicely with Ottawa’s climate goals.
The NDP say the billing method hasn’t worked, but Fremeth and Nathwani each say the solution isn’t to get rid of the practice, but to create a bigger cost incentive to change behaviour.
Ending rural delivery rate charges
The NDP say they would create a flat delivery rate for all ratepayers. Currently people in densely populated urban areas where it costs less to deliver electricity also pay less than rural residents.
That’s unfair, according to the NDP, and leads to a 15 per cent premium for rural residents. That would be cut, the NDP say, with no extra costs for other ratepayers by partially removing a fee that Ontario Power Generation (OPG) pays to send water through dams.
Since the NDP’s plan was released, Ontario has started paying for some rural delivery fees. So the party says it will cost less than previously expected to close the discrepancy between rural and urban charges.
To pay for it the NDP plan would stop requiring OPG to send more than $100 million in water fees to the Ontario Electricity Financial Corporation (OEFC), which pays off stranded debt from the former Ontario Hydro corporation. The plan expects the loss in revenue to be swallowed by the OEFC paying the debt off over a longer period of time, which then also costs more in interest charges.
Nathwani calls the idea “disingenuous,” adding that it holds an “air of unreality.” He said a better way to dull the bite of high delivery costs would be to create subsidies for low income people.
Citing an auditor general’s report that showed Ontario paid for more electricity than it needed between 2009 and 2014, the NDP say costs can be cut by bringing “accountability to planning.”
“Ontarians are paying for more electricity than it needs,” the NDP report says. But Nathwani says that is not as bad as the average person might think.
He said oversupply is much cheaper for the province’s economy than the undersupply issues that used to dog Ontario. “Be forewarned and beware that shortage costs the economy a huge, huge negative impact than having an oversupply,” he said.
Nathwani credited the party for being “careful and thoughtful” about its plan to review the electricity contracts that leave Ontarians paying more for energy than it’s worth.
Horwath dismissed most of the criticisms levelled at her party’s plan. “We’re guaranteeing that we’re going to bring Hydro One back into public ownership and get those rates down by up to 30 per cent,” she said.