“Smoothing out” the costs of Ontario’s energy system by taking longer to pay off generating contracts, as the Ontario Liberals are reportedly planning to do, means borrowing from the future to make ourselves more comfortable now.
The Toronto Star reported the government’s plan Wednesday morning, citing unnamed sources speaking before Premier Kathleen Wynne had made sure her cabinet was on board. “We will make sure that we have immediate relief for Ontarians in the very near future, but no decisions have been made at this time,” Energy Minister Glenn Thibeault told the legislature.
As described, the plan is like refinancing a mortgage, taking longer to pay it and increasing the total amount you owe in exchange for smaller monthly payments now. A typical power contract pays off the generating company’s capital expenses, plus operating costs and profit, over 20 years. If that contract pays the company 10 cents a kilowatt-hour, maybe we can extend it a decade but lower the price to eight cents a kilowatt-hour.
Hydro price cuts coming?
Yes, we’re locked in for 10 more years and the contract will be worth more to the company in the end, but boom: we’ve cut the immediate cost by 20 per cent.
The idea makes political sense. After 15 years in power the Liberals will be in rough shape for 2018 no matter what, but no single thing hurts them more than the monthly bills we get full of cryptic arithmetic that always seems to add up to higher and higher numbers. Extending contracts is essentially a finance gimmick but it would make an immediate difference.
When he was the energy minister, Ottawa West-Nepean MPP Bob Chiarelli would talk about how we were suffering through a temporary bulge in our hydro bills. This was misleading, in that the bulge would never narrow again, but at least years of eye-bugging increases would be followed by relative stability. We’d get a lot of expensive things done, like upgrading those nuclear plants and replacing dirty coal-fired generating stations with windmills and gas, and then ease up.
A Liberal policy of overspending on green-energy contracts is part of the problem. Mis-estimating demand and buying more generation than we need is part of the problem. But also, and more than anything else, Ontario’s power system got rickety because of decades of underspending on both generating plants and transmission wires and we had to make up for it. Even worse, the Ontario Hydro of old undercharged customers even for its underinvestment, so there was a gap to make up there, too.
The Ontarians of the past stole from the Ontarians of 2005 and the Ontarians of 2005 decided not to do the same to the Ontarians of 2030. Now the Ontarians of 2017 are saying whoa, whoa, whoa, let’s not go overboard on the virtue here.
This is, for better or for worse, a plan. Progressive Conservative leader Patrick Brown experimented with calling the posited Liberal move a “shell game” Wednesday. “The member opposite hasn’t produced any plan whatsoever,” Finance Minister Charles Sousa shot back, gleefully.
As policy, well, it’s not necessarily bad. It doesn’t mean subsidizing the hydro system with tax dollars, which really would be a shell game. It doesn’t mean tearing up contracts, which leads to spending money on nothing. There’s a plausible argument for it.
We’re spending $26 billion to refurbish nuclear plants at Darlington and on the Bruce Peninsula, a truly massive amount of money that’s supposed to extend the lives of the reactors involved by 30 to 35 years. But the standard is to cover the expenses over 20 years. That’s prudent and cautious: If the reactors need to be shut down early for some reason, at least they’ll have been paid off.
Extending the paying-off period so it more closely matches the time we expect to use the reactors means deciding the cushion isn’t worth the price we’re paying for it. This isn’t crazy but it is a choice with consequences.
It means taking a chance that 20 years down the line we’ll still be paying for power plants we don’t want. Twenty years is a long time. Maybe breakthroughs in conservation or solar technology will have changed everything. Maybe we’ll have perfected cold fusion. In that case, the government’s move now won’t be like extending a mortgage on a house we want to live in, it’ll be like making payments on a car that’s gone to the scrapper.
March 1st 2017