Why are our electricity bills going up?

January 27, 2010: Now we’re told that our hydro bills will increase 46 % over the next 4 years. Why? What caused it?

Political spin is often different from reality so I will try explain the what and the why without the spin.

Increasing electricity prices have a lot to do with our efforts to be good responsible inhabitants of the planet; conserving, recycling and reducing; just as the media, politicians and environmentalists have suggested. Along the way the government passed the Green Energy Act to reshape our power system, and told us renewable energy from wind and solar was the future of energy. What they forgot to tell us was the impact it would have on our ability to enjoy a comfortable retirement without worries of suddenly finding ourselves energy poor.

The government’s commitment to “renewable” energy from wind and solar also came with the promise that it would create green jobs. What they embarked on was a concerted effort to attract wind and solar developers to our province so they could erect industrial wind turbines, and solar panels to reduce our reliance on fossil fuels. The claim was, we would reduce carbon emissions and at the same time save our health system $3 billion.

No one could object to the future as it was laid out by the government. It was something we would all want-save the planet and save money! Forgotten in the process is our Premier didn’t tell us how much it would cost us or whether they could deliver on the promises.

In order to attract wind and solar investments, our Government offered above market prices and stripped local municipalities of their right to reject any of these developers. Local town councils would have no rights on where the wind turbines or solar panels were to be placed.
Samsung and others rushed in. Wind and solar developers were offered up to 20 times what our local publicly owned Ontario Power Generation was being paid, given 20 year contracts and a Provincial guarantee (read taxpayer). Hydro One, the publicly owned transmission company were instructed by the Minister of Energy to build new transmission lines to hook up wind and solar to the grid.

The Ministry also told your local distribution company, (Toronto Hydro, etc.) to get people to reduce electricity consumption and to further that goal, mandated the installation of “smart meters”. They told them to anticipate applying time-of-use (TOU) pricing on their customers in the not too distant future. The local distribution company was told they could increase delivery rates when they lost revenue because their customers reduced consumption.

At the same time the Ministry was getting private companies to build gas plants in case the wind wasn’t blowing or the sun was hidden behind clouds. These gas plants get paid whether they do or don’t produce power but we need them to make sure we don’t get left in the dark because we don’t have enough electricity to meet the demand.

Ultimately the money spent by your local distribution company to help you insulate, buy a CFL light bulb, install smart meters or for Hydro One’s transmission building efforts is billed out to us. And there’s more; like paying the bureaucrats at the Ontario Power Authority or for the revenue lost through conservation programs, as well as the costs of the Ontario Energy Board and the Independent Electricity System Operator. And that other annoying one; the never ending “debt retirement fund” paid to the Ontario Electricity Finance Corporation for the old Ontario Hydro “stranded debt.”

Add all that to the wind and solar developers who need to be paid for the power they generate at those high rates and 46% sounds like a bargain. The latter payment gets billed to us on the “electricity” line of our bills, whereas a lot of the other costs are buried in the “delivery” or “regulatory” lines.

All of this spending takes time to work through the system akin to how we don’t get our credit card bill until weeks after we have gone on the shopping spree. We saw the first big jump in our hydro bills last spring when the price of electricity jumped by about 12 % and than again in the summer when the HST appeared. The capital costs I mention above, along with conservation programs, smart meters, etc. if itemized, would be in the tens of billions of dollars but they are all still working their way through the system and we are in the early stages of seeing them impact our hydro bills. The worst is still to come as the governments shopping spree bills come in.

Over the years I have come to the conclusion that forecasts from politicians don’t always turn out as they said they would. Just to jog everyone’s memory it was only two years ago when the Minister of Energy put the Green Energy Act through the Ontario Legislature and was quoted as follows; “I have been very clear about it. One per cent per year, incremental on the cost of a person’s electricity bill, with corresponding capability through investments in conservation for people to lessen their use of electricity.” I think today we would all be very happy to pay just a 1% increase.

Parker Gallant is a retired banker and a Director of Energy Probe.

For more background information please see previous published articles by Mr. Gallant here as well as here