The red-hot outrage over electricity prices in Ontario is a noisy attempt to shape a political narrative of discontent. It is misleading because the hype has a tenuous link to the facts.
Although actual electricity price increases over the past decade have been higher than the consumer price index, they are directly tied to a massive investment, on the order of $50 billion, for the renewal of Ontario’s aging electricity infrastructure.
If the debt obligation of such an investment were to come at zero cost, then pigs could fly as well. The relevant questions are: What did we get for this investment? And, given the costs are real, is there a way to give relief to customers most affected by the price increases?
We now have a cleaner electricity system. Removing coal, a cheap but dirty source of power from Ontario's supply mix, brings a positive environmental dividend, better air quality (no smog days), and a dramatic reduction in greenhouse gas emissions from electricity generation — now 80 per cent lower than in 2006. Reducing the health care costs of poor air quality is a separate but important part of the benefit calculus that is entirely ignored in this discussion.
We do not have any imminent threat of electricity supply shortages — recall the crisis in the sector around 2005. With a surplus supply capacity, the low-carbon electricity system can now help relieve the cost of reducing greenhouse gas emissions in other sectors of the Ontario economy such as transport.
The effects of the price increases in electricity is a tale of two cities: for rural customers, who lack access to cheaper resources, and small to medium enterprises, the economic burden is high compared to the average increase in the cost of electricity overall. There is a need for targeted adjustments to the prices the most vulnerable pay and the government’s targeted response for a subsidy to the rural and remote customers is reasonable.
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The total electricity bill for Ontario consumers has increased at 3.2 per cent per year on average from $15.5 billion in 2006 to $20.5 billion in 2015 (adjusted for inflation), and the unit cost of electricity has increased from 10.1 cents to 14.3 cents per kilowatt hour. For a typical residential customer (single detached home consuming 750 kWh), the monthly electricity bill in Toronto is $142. Rather than an across-the-board price freeze for all customers — which would have been an extremely poor policy option — the government has chosen to stretch out the time for payment of the debt to reduce prices for all customers today. This shift of carrying the interest costs over a longer period puts a small burden on future beneficiaries of the current investment in the system. This slight price increase in the years ahead is not a sufficient basis for a call to arms given the government’s plan will not undermine existing contractual obligations or create poor signals for future investment in the sector.
And are the electricity prices in Ontario really all that high? Compare the monthly cost of $140 for a typical residential customer in Toronto to $233 in San Francisco, $226 in New York City, or $210 in Boston. The Ontario median cost at $130 is somewhat higher but not outrageous in comparison to other Canadian cities such as Charlottetown ($126), Halifax ($122), and Regina ($114). The cost of electricity in B.C., Quebec, and Manitoba is much lower — between $55 and $75 — but this not entirely relevant given the large amount of cheap hydroelectric production from generating stations built and paid for several decades ago in those provinces. There is no way for Ontario to produce enough inexpensive hydroelectric power to fulfill its needs.
What about prices in the future? Ontario’s long-term energy plan projects an increase below 2 per cent every year over the next 10 years. For a typical household, this translates into a monthly electricity bill rising from $167 today to $198 in 2026: an increase of $30 over 10 years.
Reliable electricity is an absolutely critical service for the entire household and underpins the basis of our prosperity. Without a robust and reliable supply of this essential service, you are practically back to the Stone Age. If public discourse is to be served well, sticking to the facts is crucial. Even more crucial is context.
Electricity costs have increased because a massive investment in the long-term reliability and stability of the power grid has been completed after a prolonged period of underinvestment and ‘rate freezes’ in the electricity sector through the 1990s, which culminated in a major supply crisis in 2005. One key lesson from the Ontario experience, relevant for other provinces, is this: decarbonization of the economy will come at some cost. Ontario’s electricity sector is Exhibit A for the path to a lower-carbon economy.
Jatin Nathwani is a professor and Ontario Research Chair on Public Policy for Sustainable Energy at the University of Waterloo.
Photo courtesy of Antonio Atalaya and licensed for commercial use under a Creative Commons licence. (See the uncropped version.)
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