Cheaper electricity doesn't mean the death of conservation. Here's why

OPINION: The Liberal energy plan announced this week is panicky and crassly opportunistic. It may also be the best of a bunch of bad options
By John Michael McGrath - Published on March 3, 2017
Sir Adam Beck generating station in Niagara Falls, Ontario
Sir Adam Beck generating station in Niagara Falls. (dpmitchell/Creative Commons)



The author Barbara Tuchman, writing about Chinese leader Chiang-Kai Shek, said “if power corrupts, weakness in the seat of power, with its constant necessity of deals and bribes and compromising arrangements, corrupts even more.” The Liberal government in Ontario is weak — vulnerable even with its most consistent supporters and facing an election next summer — but is still for now in the seat of power. So here come the questionable deals and compromising arrangements.

Faced with a voter revolt over electricity prices, Premier Kathleen Wynne has joined the list of literally all of her predecessors from the last 20 years and promised Ontarians a break on their hydro bills, conspicuously timed to give the government maximum political advantage: if things work as planned, the average customer should see a 17 per cent drop in their bills this year, on top of the 8 per cent HST rebate that started in January.

How is the government proposing to pay for this double-digit decrease? In large part, by having Ontario Power Generation take on a lot of new debt so it can continue making payments to power generators. Under the previous plan, consumers were seeing big rate hikes now, and would have had them level off dramatically in coming years. The new proposal calls for smaller hikes now, paid for both by having them level off more slowly in future, and spreading the entire repayment schedule over a longer period of time. In short, the government is trading a higher total cost in the end for lower individual bills along the way.

The Liberals say the cuts will kick in by the summer — just in time for air conditioning season, and just in time for MPPs to head back home to their ridings with a ready answer to the most common complaint from their voters. They’ve also committed to keeping hydro prices flat relative to inflation for at least four years.

Aside from the usual political disputes about pandering to voters, the most obvious concern about the plan is that lower hydro prices will undermine the government’s conservation efforts. This may very well end up being wrong — and even if it’s correct, a bit less conservation won’t substantially undermine environmental protection efforts overall, and will have economic benefits.

It could be wrong because electricity prices aren't the only significant factor in encouraging conservation: even with a 25 per cent total cut in their bills, people still have an incentive to choose more efficient light bulbs and fridges. The harder parts of conservation need more than simply higher hydro prices to reduce energy use: people need help affording those more efficient fridges in the first place. Absent that help, high prices don’t really help conservation efforts, they just extract wealth from people who don’t have enough to start with.

But even if Ontarians do respond to lower prices by suddenly increasing their consumption, this may perversely end up being the more economical option, at little environmental cost. Ontario has a surplus of energy that we consistently have to export, at a loss. It would have been wiser not to build so much extra generation in the first place, but we can’t un-build that capacity now, and that energy is both going to be generated and is going to be paid for, somehow: the province is locked into contracts with private companies that require it to purchase power whether or not Ontarians wind up using it. The only question is whether it gets used in-province and paid for domestically, or exported at a loss.


Auditor General Bonnie Lysyk made exactly this point in her indictment of Liberal power planning: “From 2009 to 2014, Ontario had to pay generators $339 million for curtailing 11.9 million megawatt-hours (MWh) of surplus electricity; during the same period, Ontario exported 95.1 million MWh of power to other jurisdictions, but the amount it was paid was $3.1 billion less than what it cost to produce that power.” Paradoxically, conserving electricity in a time of surplus production can force us into losing money in the process.

And it’s not as if conservation is the government’s only tool for shifting to a more environmentally friendly energy policy. It also wants people to switch to a greater use of Ontario’s much cleaner electricity system in lieu of fossil fuels, eventually replacing natural gas for home heating, and gasoline or diesel in cars. (It’s important to note in all this that despite slightly lower hydro costs, Ontario will continue to proceed with its cap-and-trade system to control greenhouse gas pollution.) The environmental benefits of powering cars with electricity, especially the very clean electricity Ontario has in abundance during the nighttime, are substantial. With the rapid decline of oil and gas prices in the last few years, a lower, slower-growing price for electricity may be exactly what’s needed. The government’s equally shady decision to increase its subsidy to people who buy luxury electric vehicles will probably help, too.

It would be one thing if the government’s financial jiggery-pokery was obviously terrible, but no real-world policy to address electricity prices is going to be elegant. A decision to pay off the province’s hydro costs over 40 years has some logic to it, and some costs, but the status quo policy to pay them over 20 years wasn’t a neutral decision, either — it’s how we found ourselves with the sharp hikes everyone is upset about.

The government has an interest in making sure things like electricity aren’t artificially cheap by imposing unfair costs on others, like dumping pollution into the air for free. The decision to close down coal-fired power plants in Ontario remains broadly popular, but it means electricity here simply won’t be as cheap as it is in jurisdictions that have yet to follow suit. All that said, there’s no virtue to higher costs on their own, either. People are wealthy when the things they need — housing, food, energy — are cheap and abundant. They’re poor when those things are scarce and expensive.

The big question mark is whether any of this will matter. In her remarks Thursday unveiling the new hydro policies, Wynne repeatedly conceded that the Liberal government had made mistakes in its energy policy but is asking for forgiveness. Voters may decide this is insufficient, or they may simply not believe her. They’ll get to make their judgment known come election day.

Watch The Agenda with Steve Paikin tonight at 8 p.m. and 11 p.m. for a conversation about the new Ontario Liberal plan for lowering hydro rates.

Photo courtesy of dpmitchell and licensed for commercial use under a Creative Commons licence. (See the uncropped version.)