Embattled Ontario Premier Kathleen Wynne unveiled a 17% hydro rate cut yesterday, to be achieved by spreading capital costs for the province’s power plants over a longer payback period.
“The plan will lift billions of dollars in costs off customers this year, and load them onto future hydro bills and taxpayers,” CBC reports. “Low-income households will also see a 50% increase in a rebate program designed to make their hydro costs more affordable,” plus an additional rebate for low-income households that heat with electricity.
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The 17% rate cut comes on top of an 8% reduction the government had previously announced. It will save ratepayers an estimated $2.5 billion per year this decade, but increase future costs by up to $1.4 billion per year, iPolitics reports.
“Sources say the massive reduction in rates will come mostly by ‘smoothing out’ the financing costs of electricity generation contracts over longer periods,” the Toronto Star explained earlier in the week. “It’s the equivalent of refinancing a mortgage to enjoy lower payments over a longer time on nuclear reactors, natural gas-fired power plants, and wind turbines.”
With a provincial election coming up next year and Wynne’s Liberal government 14 points behind the Progressive Conservative opposition in a variety of recent polls, the premier acknowledged a politically damaging issue. “Everywhere I go, I hear from people worried about the price that they are asked to pay for hydro, and the impact it has on their household budgets,” she said. With this plan, hydro rates will “stay down, and everyone will benefit.”
Like Energy Minister Glenn Thibeault before her, Wynne said the previous Liberal government of Dalton McGuinty had made a mistake when it tried to pay for $50 billion in power plant investments over too short a time span. “The way we financed those investments was a mistake,” she told media yesterday. “We asked one generation, today’s generation, to unfairly shoulder the burden of nearly all of those costs.”
Late last month, Ivey Foundation President Bruce Lourie had a different analysis, arguing in the Toronto Star that all three provincial parties had concentrated those costs by postponing needed investments to keep rates artificially low and voters a bit more satisfied. By 2003, McGuinty “inherited a seriously broken system”, and “the government had a choice: build infrastructure and raise prices, or do nothing and risk the political fallout of failing to maintain basic electricity service to the province.”
Reporting on yesterday’s announcement, CBC notes that the new government plan “would keep electricity rates at or below the rate of inflation over the next four years, but government officials said they can’t predict the size of the electricity rate increases after that period.” But the electoral impact could be more immediate. “After hammering the Liberals over hydro prices for months, the opposition parties are now faced with the prospect the government has figured out a way to bring bills down.”
The opposition parties pointed to the future cost of the announcement. The New Democratic Party made a pitch for public ownership of the provincial power system, after proposing rate cuts of up to 30%. Conservative Energy Critic Todd Smith tried to pin the cost increases on renewable energy systems installed under Ontario’s groundbreaking Green Energy Act.
“For 30 years, we’re going to be paying off these Liberal mistakes thanks to the Green Energy Act, and it’s just completely unacceptable,” Smith said.
Analysis released earlier this year by Toronto-based Environmental Defence showed that renewables on the Ontario grid cost the average ratepayer $20 per month, consumed 12% of the province’s generation costs, and delivered 13% of the electricity.
