The federal government should look to Ontario for examples on how not to implement renewable energy policies.
This speech was presented to the Standing Committee on Natural Resources on February 23, 2017. Read the full transcript.
I want to thank the members of this committee for the opportunity to provide my insight and thoughts on the proposed study.
I first want to provide you with a very brief background of my work and that of the Consumer Policy Institute, the Toronto-based organization of which I am the Executive Director. The organization’s overriding mandate is to advocate for the rights of consumers, ensuring they receive reliable services at the lowest cost, particularly within public service institutions.
In recent years we have focussed primarily on Ontario’s energy sector, which has been transformed under increasingly active political management. I have appeared many times before Ontario’s energy regulator, the Ontario Energy Board, as well as many media outlets.
Let me be clear at the outset, the term clean energy is a loaded one and assumes that technologies labelled “clean” have no environmental impact. There is ample evidence showing this to be demonstrably untrue.
Nonetheless, I urge this committee to look no further than Ontario for a clear presentation on the dangers of getting it wrong when it comes to clean energy policy. Over the past decade and a half Ontario has embarked on one of the most aggressive clean energy policies, not just in Canada, but anywhere in the world.
As part of Ontario’s clean energy push, Queen’s Park undertook a number of dramatic policies, including the forced closure of the province’s coal plants, subsidizing industrial wind turbines and solar panels to the tune of tens of billions of dollars (also see here) , overruling the rights of local municipalities and undermining and, ultimately, destroying the province’s electricity market by providing guaranteed rates to favoured renewable energy generators.
The result of those policies for Ontario consumers, businesses and the province’s energy sector has been calamitous.
The average household ratepayer in Ontario has seen the cost of power increase, in some cases, by as much as 155% over the past decade. That’s nearly 8 times the general rate of inflation in Ontario. Many customers in Ontario have seen the fastest rate of hydro bill increases of any jurisdiction in North America. In just the last two years, the price of power during so-called “peak hours” has increased by nearly 30 percent – or more than ten times the rate of inflation.
These dramatic price increases have seen hydro bills transform into one of the leading concerns among Ontario residents – leapfrogging concerns over traditional government services such as healthcare and education. The provincial government now finds itself facing unhappy ratepayers at every turn.
Utility bills, often considered a fairly boring and benign topic, are now front and centre at dinner table conversations across Ontario.
The policies implemented in Ontario have seen many households struggle to pay their monthly hydro bill. Across Ontario, the number of homes behind on their hydro bills increased by 20 percent between 2013 and 2015. The number of low-income households behind on their hydro bill has increased by more than 40 percent over that time.
Businesses – both large and small – have warned that these rate increases are making them uncompetitive. Just this past December, for example, an Ontario-based manufacturer with more than 200 workers cited soaring hydro rates as the main reason to expand its operations in the U.S. rather than in Ontario. There are many other similar stories.
In recent years, the province has tried to ease public concern over soaring hydro bills by issuing a number of “band aid” solutions. Unlike a traditional band aid that helps a wound heal, these band aids provided no healing, as they often came in the form of rebates that don’t address the real reasons for rising hydro rates. At one point, these rebates were simply moving more than $1 billion annually out of general revenues to subsidize hydro rates. Taxpayers were bailing out ratepayers.
In short, Ontario’s soaring electricity prices – which are a direct result of its energy policies – have imposed an unprecedented burden on households and businesses and garnered thousands of headlines. I hope Ontario’s electricity crisis will be top of mind for this committee when it writes its report on trying to “de-risk” the cost of clean energy.
If “de-risking” means tabling generous subsidies in an effort to support the renewable industry, Ontario offers a precautionary lesson on what not to do. Transferring risk from the companies receiving those subsidies, to the consumers who ultimately have to pick up the tab, is a poor policy.
But Ontario’s renewable energy experiment holds another crucial lesson – both for policy makers and the country’s resource sector.
That lesson is that the power market as a whole has been systematically destroyed in Ontario. The electricity sector has become a playground for political machinations, not the economic management of an essential service. And the reason the market was destroyed is largely because of misguided clean energy policies.
When Ontario Hydro went bankrupt, Ontario attempted to move itself towards a market-based system of power – a model that has worked successfully in jurisdictions around the world. A competitive and well regulated power market would match the supply of power to that of demand and take politics out of the energy sector.
The market reforms introduced in the wake of the breakup of Ontario Hydro were intended to ensure that generators, industrial users and small energy consumers would make decisions on energy production and consumption based on real market principles, signals and environmental laws. The province would focus on regulating the energy sector, not micromanaging it.
Under this market-based system, competition and efficiency – hallmarks of well-regulated and functioning markets – would be the norm. Consumers would benefit from lower prices, if possible, and the industry as a whole would remain financially viable and avoid the need for public handouts and bailouts.
To this day we need look no further than Ontario’s natural gas sector, regulated by the same regulatory board as that of electricity distributors, to see these principles in action. Gas customers have paid reasonable prices, received reliable gas service and, more importantly, done so without public or ratepayers subsidies.
These principles were undermined by a politically driven push for “clean” technologies at any cost in the electricity sector. Federal legislators should not want to see this play out across Canada.
Queen’s Park, ultimately, took it upon itself to use the legislature to set prices. In doing so, it offered lucrative contracts to produce non-fossil fuel energy in Ontario and downplayed the cost of those contracts to the public.
The politically determined gold rush for so-called clean energy saw market dynamics completely undermined. The supply of energy ballooned, but so too – thanks to generous ratepayer-supported subsidies – did the cost of that new energy. The result was a soaring of electricity rates in a time of shrinking demand – the exact opposite of what would occur in any well functioning market.
The system has become so perverse that businesses, industries and households across the province are now paying some of highest electricity rates in Canada for power that is, at many hours of the day, worthless by any market criterion. The province, realizing that the sector, as its currently being managed is unsustainable, is looking for a way out.
We hope Ontario serves as an example to this committee of how “de-risking” the clean energy industry through a barrage of subsidies can have perverse side effects. The best move by federal legislators would be to allow the benefits of competition and markets – that have served Canadians so well in so many other areas of the economy – to be the driving force behind clean energy adoption in the resource sector. The government’s best role is to regulate the market, ensuring that it’s fair and enlightened, not micromanage it.
Thank you for your time. I’ll happily answer any questions.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236