Global adjustment

Electricity rates are going up in May—between five and eight per cent depending on usage. Small potatoes really. Rates for electricity have been rising sharply since Dalton McGuinty came to office. Most household hydro bills are more than double those of 2002. There is no letup in sight—a couple of years ago McGuinty predicted electricity rates would climb a further 46 per cent over the next five years. His prediction is likely too rosy.

So what is driving rates higher? The Ontario Energy Board says prices are rising due to changing supply costs as coal generation declines and is replaced with natural gas, nuclear and renewable sources.

The message is plain: your government made the courageous decision to close coalfired generating plants to save the lives of children. Now we must pay the necessary price to save our children. It would be a good message—were it true.

Most Ontarians are, however, coming to realize that it was just a story—a poorly scripted made-up-on-the-fly fiction, filled with promise and hope—but in the end an unsatisfying tale in which the bad guys run off with the loot and the people of the land are left poorer.

What the province isn’t telling you in this story is that our use of electricity has declined significantly over the last decade, as the accompanying chart illustrates. Sagging fortunes in Ontario’s manufacturing and processing base are behind much of the decline in electricity consumption.

The truth is falling demand allowed the McGuinty government to close coal plants—not gas or nuclear power and not intermittent energy sources such as wind or solar. But that story isn’t nearly as compelling. The fact is jobs had to leave Ontario in order for the province to turn off a handful of its coal plants. The logical extension of this approach is that we must further shut down Ontario’s economy in order to part with the remaining plants.

But even if McGuinty were mad enough to do this, he wouldn’t alter the trajectory of electricity prices in this province. This is because even as consumption and wholesale prices for electricity are dropping—our hydro bills keep climbing

In the real world a fall in demand would be followed by a drop in prices. And indeed, prices for electricity—at least on the wholesale level— have indeed slackened since then. In May 2002 the province paid about 3 cents/kWh. So far in April, a decade later, the province is paying on average about 1.69 cents/kWh or about half the cost of the 2002 price.

But what you pay on your hydro bill in Ontario bears no resemblance to the wholesale price. Next month you will be asked to pay between eight and 11 cents/kWh—several times the cost of wholesale electricity. The difference is captured in a line on your bill referred to as the Global Adjustment.

According to the IESO (Independent Electricity System Operator) the wholesale cost of electricity in Ontario today is 1.48 cents/ kWh—while the Global Adjustment is a whopping 7.47 cents/kWh. So what’s in the Global Adjustment and why is it more than four times the price of the wholesale commodity?

The Global Adjustment represents the difference between the market price for electricity and what the province has agreed to pay contracted suppliers for (mostly renewable) energy. So when the province subsidizes a wind energy developer for 20 years, the premium is added to the Global Adjustment. When Ontario must pay neighbouring states to take our excess electricity caused by an inability to manage intermittent energy sources, that cost goes into the Global Adjustment.

When solar energy developers earn 30 times the wholesale rate for their intermittent electricity, the premium is added to the Global Adjustment. When developers give away free barns—the cost is included in the Global Adjustment. And when developers lavish hundreds of thousands of dollars upon municipalities in exchange for their nod of approval— consumers understand something has gone horribly wrong with management and oversight of Ontario’s energy system.

What began as an ill-considered campaign promise in 2003 has evolved into a ravenous and bloated monster. Good intentions have been corrupted and twisted. Safeguards and protections have been eliminated. Anything in the path of McGuinty’s green energy ambition has been pushed aside—either by legislation or by dollars. Often both.

Sadly, even if all the subsidies and incentives were stopped today and the Green Energy Act eliminated,the impact on electricity rates will still be inflicting damage on Ontario families and industry a decade from now.

Sooner or later voters in the province will have to make their own adjustment at Queen’s Park.

rick@wellingtontimes.ca