Money-wasting full step backward
Just in case anyone had forgotten how badly the Ontario New Democrats messed up the energy file in just five years during their one term in government in Ontario (1990-95), the NDP released its energy policy in early 2017. Helpfully, they made their completely unworkable energy mess the subject of an Opposition Day motion in March 2017, at which I had an opportunity to comment on it in the Legislature.
Drawn from the Hansard, with some editing and extra comments, here is the Ontario NDP energy policy, and the response to it.
NDP Energy Policy
- Reduce hydro bills by 30 percent;
- Remove time-of-use electricity pricing;
- Remove high delivery charges from northern and rural users;
- Re-nationalize Hydro One, Ontario’s electricity distributor.
1. Electricity policy overview
This opposition motion is a self-inflicted testament by Ontario’s New Democratic Party on exactly why they remain manifestly unfit for government in this province. The NDP policy behind this motion is ideologically driven, dead wrong, unworkable, counter-productive, wasteful, confrontational, against Ontario’s best interests, and almost certain to lead any government that would try to implement these points into protracted litigation.
Let us dissect and debunk this mess of an opposition day motion in some detail. This motion blames the cost increases of the largest renewal of infrastructure in Ontario’s history on root causes that have little or nothing to do with electricity generation, transmission and distribution. The NDP seem to want to own and politically manipulate everything that generates and transmits electricity. This would require capital and borrowing that would divert money away from highways, universities, schools, hospitals, water systems, bridges and other facilities that Ontarians need to have built, repaired or renewed.
The GTA can plan on choking on NDP ideological traffic if those billions of dollars were yanked away from urban renewal, public transit, education and health care.
2. Lowering residential electricity costs
In reality, the province has already rolled out a plan that lowers prices by an average of 25 percent, and in many cases even more than the 30 percent in this strange motion. Ontario’s plan would lower global adjustment, and also lower the distribution costs across the province of Ontario. In other words, the NDP wants to propose something that the province has already done, and done better than the vague proposals in the NDP policy.
For more information read about the Ontario Fair Hydro Plan.
It is better than the NDP’s proposal, and already being implemented! The price relief will be lasting because it is built on a real change. Bills won’t jump back up within a few months or years.
3. Time-of-Use electricity pricing
Time-of-use, or in some areas, season-of-use electricity pricing is a widely-used and effective means of shifting electricity usage from peak use periods (7:00 a.m. to 7:00 p.m.) to off-peak periods.
Time-of-use is effective because the off-peak electricity price is less than half the on-peak price. For an explanation, see the Enersource web site. To get the greatest benefit from time-of-use pricing, households have learned to shift the power-intensive appliances to the evening, weekends or statutory holidays. For example, most things we use in our homes really don’t consume much power, so it doesn’t matter much when you watch TV, use the computer, turn on the lights, or even use the stove or iron.
It does make a difference when you use the clothes dryer or dishwasher (both use electric heating, which does consume electricity), and when you run the air conditioner. Setting the air conditioner two degrees cooler in the evening, and two degrees warmer during the day allows the cooler air you store in the evening to remain in an average insulated home during the way. The dryer and dishwasher can be set to start after 7:00 p.m. Most people have figured out how to easily shift about two-thirds of their electricity usage to times when power is less expansive.
What does this mean? The NDP proposals would mean Ontario needs to build expensive electricity generation facilities, buy the extra daytime power at premium rates from outside the Province, or use more expensive power sources within Ontario, thus driving electricity bills up instead of down. The NDP’s plan suggests they will need to buy that extra power at several times what it costs to generate it here in Ontario, and send even more Ontario money into Quebec or to pollution-producing coal plants in Ohio, Indiana, West Virginia and Kentucky. Bad idea.
Find out more about energy-saving and cost-cutting programs that are already here, and proven effective, at the Save on Energy web site.
4. Delivery charges
In an urban area like Mississauga, where electricity is delivered by a well-run (and privately-owned, by the way) distributor like Enersource, soon to be re-named Alectra, delivery charges have always been reasonable, even low by comparison with other jurisdictions. This is not the case for Mississauga residents who may have homes in rural or remote areas of Ontario.
The NDP says that northern and rural residents should have someone else pay the much-higher costs of having electricity delivered in those areas. In urban areas, a utility has ‘more customers than poles,’ or in other terms, can divide a lower infrastructure cost by a large number of customers. This means lower distribution costs in urban areas. In remote or rural areas, you have the opposite: ‘more poles than customers,’ or a higher infrastructure cost divided by a smaller number of customers. This means higher distribution costs in these areas.
Given the slap in the face the NDP has already delivered to urban areas, a good reason why 905 residents don’t vote NDP, one can reliably assume that Toronto and the 905 belt will be paying delivery charges for NDP-held rural and remote areas on top of their own electricity bills.
The Province’s Fair Hydro Plan would lower global adjustment and also lower the distribution costs across the province of Ontario.
The NDP wants to keep costs high for Mississauga electricity ratepayers by forcing electricity users today to pay upfront for assets that will be used decades later. That’s like insisting that home buyers looking to finance a new home pay unnecessarily high interest rates and remain house-poor as they pay off a home far faster than what might make sense in their family budget. It’s punitive, it’s unworkable and it’s unfair. But that’s what the NDP is, and that’s what they are.
5. Re-nationalizing Hydro One
The NDP make a wild, reckless and unsubstantiated claim that allowing electricity distributor Hydro One access to capital markets through a partial privatization is a bad idea. The NDP’s repeated incorrect assertions about Hydro One assume some of the following:
- That Hydro One will never change in any material way. This is wrong;
- That Hydro One will never get any better, any more efficient or any more effective than what it is now or what it was when its first shares traded about a year ago. This is false;
- That the best way to oversee and regulate Hydro One is by political directives arising from politically motivated questions in this Legislature. This is clearly false.
Indeed, Hydro One is now overseen by the same entity, the Ontario Securities Commission, that regulates banking, telecommunications, railways and industry in Canada. The Ontario Securities Commission has teeth, and every quarter, publicly traded companies need to comply with tough disclosure rules and to report to shareholders.
As well, Hydro One no longer needs to go cap in hand to the Legislature to raise capital and to claim dividends from its profit stream, which it can then flow to Ontario investors and to Ontario pension funds.
The NDP states, without any basis whatsoever, that making Hydro One a publicly traded firm just like Enersource, which supplies power in Mississauga, and Enbridge, which supplies natural gas, would somehow affect costs. This is false.
Let us be clear: Hydro One’s ownership, whether public or private, does not affect electricity rates one bit. Hydro One does not set electricity rates. Hydro One does not generate electricity or decide where electricity comes from or goes to. Hydro One is a common carrier, just like a trucking company. Its market share in the province of Ontario is about 24 percent.
There are three such large distribution companies whose market share combined is about 80 percent. The largest of them is Hydro One; second is Toronto Hydro; and third is the newly merged company called Alectra, which combines Enersource and several other companies. Indeed, the new company, Alectra, will continue to be publicly traded. Enersource, Ottawa Hydro, Toronto Hydro, London Hydro and all of the others, some 70 or so distribution companies, operate the same way.
Their rates are set by the Ontario Energy Board. They’re not set on the floor of the Ontario Legislature, nor should they be. All of these companies carry a product, electricity, whose price they do not set and whose origin and use they do not control. The NDP’s assertions about Hydro One are completely wrong, and they know it.
Multi-billion dollar share buyback
So let’s get to the biggest whopper of this completely ridiculous motion: that an NDP government would, or even could, repurchase the 30 percent or so shares of Hydro One now owned by investors. The NDP thinks, without any basis, that it could snap its fingers, if in government, and buy back all of the Hydro One shares at the same price at which they were issued — and you can just hear the gales of laughter coming from the traders on Bay Street at that whopper.
Aside from a protracted set of expensive litigation before this wasteful scheme could even start, the NDP would face stiff fees as well, and of course a re-nationalization of a publicly traded company would certainly provoke a price run-up of all of its shares. The Ontario taxpayer would be on the hook for every dollar of those completely unnecessary costs. So whatever figure the NDP tries to sell on the proposed re-nationalization of Hydro One, you should prudently double or at least triple it. In the end, this is a broken promise in the making even before it’s made, as no government would ever go through such a needless and wasteful re-nationalization. Ontarians would not tolerate it if it were ever tried.
Consider also that a re-nationalization of Hydro One means a negative return on equity, or losing money, on the nearly $4.5 billion of capital already raised. Only the NDP would come up with a scheme to lose billions of dollars trying to renationalize a profitable company. Simply to set out on this predictably disastrous re-nationalization scheme of Hydro One says to more than half of Ontarians who live in urban areas that the NDP will bring badly needed renewal in transit and municipal infrastructure to a shuddering halt.
From the NDP to urban commuters everywhere in Ontario: You are going to be stuck in gridlock forever if you ever vote for this peculiar scheme. That means no more new tracks on the Milton line to serve Milton and Mississauga commuters. That means GTA traffic that now moves at about 24 kilometres an hour will get slower and slower as there will be no alternative to more and more cars on the road.
The NDP, in effect, pledges to Ontarians that they will pay more — much, much more — and own much less, as desperately needed transit and municipal infrastructure would never get built.
What would have happened if the NDP had done what it proposes to do now some 23 years ago when the federal government privatized CN Rail? CN Rail, like Hydro One, was a firm that the public and elected officials loved to hate. Since becoming private, CN Rail was able to raise equity capital, raise it on the open market and not have to go cap in hand to Parliament. Hydro One can do likewise.
CN Rail became one of North America’s best-run railroads. Hydro One will do likewise: get more efficient, be better run and be better able to evolve its business and compete in new and innovative areas.
If you had invested in CN Rail in the 1990s and held on to your investment, would you have lost money, as the re-nationalization of Hydro One guarantees that Ontario will? No. Your return on equity from just the appreciation in the value of the shares and not including the stream of dividend income would today be about 2,000 percent. Why shouldn’t Ontarians be able to share in the benefits of a growing, more efficient and more profitable Hydro One? Why shouldn’t your pension fund, your mutual fund or your RRSP not be able to share in Hydro One’s dividend income?
This was one motion that richly and truly deserved to go down to ignominious defeat in the Legislature. It served to show people why you should never, ever trust the NDP with either money or electricity.