By Philip Cross, August 13, 2020
The cost of electricity has been a drain on Ontario’s economy and public finances for decades. Successive governments have meddled more and more in the market for electricity, with Ontario ratepayers and taxpayers paying for the resulting rise in electricity costs, according to my new study, released Tuesday by the Fraser Institute. Despite promises to fix the mess, Doug Ford’s Progressive Conservative government has continued the policy of directly setting electricity’s price without lowering its cost.
As long as governments in Ontario treat electricity as a tool to be manipulated for electoral purposes and avoid re-establishing the supremacy of market forces, ratepayers and taxpayers will continue to hemorrhage money. When the government lowers hydro rates below electricity’s cost, taxpayers lose; when prices rise toward its cost, ratepayers lose. This no-win dilemma will continue until competition and market forces are unleashed to lower costs.
Governments in Ontario have long used hydro prices as electoral fodder, going back to the price freeze imposed by the NDP in 1994. Continued meddling by a succession of NDP, Progressive Conservative and Liberal governments led one academic as far back as 2005 to conclude “Ontario’s competitive market has been destroyed by the government.”
After 2005, government intervention only made things worse, culminating in the disastrous Green Energy Act of 2009 that guaranteed access and prices for renewable energy from wind and solar power. This substitution of government dictates for market forces in determining the source of energy had increasingly harmful results over the following decade. Fuelled by the high cost of renewable energy, Ontario’s electricity prices increased 71 per cent between 2008 and 2016.
Rising electricity prices aggravated the 2008-2009 recession and slowed Ontario’s recovery. Without guidance from market forces, falling demand for electricity had an unforeseen and perverse effect on Ontario’s supply. With demand cratering so much that the province could meet it with its nuclear plants alone, Ontario soon had a massive surplus of electricity, with capacity double its domestic needs. Because surplus power from wind and solar could not be stored it was dumped on nearby states at half the price charged Ontario customers. The province’s auditor general estimated that subsidizing exports cost $1.3 billion between 2005 and 2011. Worse, the low price for this power helped industries in nearby states become even more competitive vis-a-vis Ontario’s industries.