Electricity policy: What went wrong in Ontario

People strongly criticize electricity policy in Ontario (How Ontario can end the cycle of meddling in electricity markets, April 5, 2017). Failures of will, political pandering, ambitious plans, failed experiments, et cetera were predictable, avoidable and preventable, if only government were constrained, subject to independent, transparent, deliberative review to oversee procurements and approve expenditures.

Ontario has a strong sense of identity when it comes to electricity; from its beginning, “Hydro” was an enterprise of strategic provincial importance.

The province’s hybrid electricity system is both a market-driven and a regulated marketplace, with licensed distributors, contracted, regulated and merchant generation, an ecosystem of energy technology and customer-service providers.

Ontario’s electricity market sets the price each hour at the marginal cost of supply: the variable cost of energy. The fixed costs – of nuclear, wind and solar, gas plants, conservation – are bundled together in a so-called Global Adjustment and it is high. This high fixed system, however, produces an abundance of energy at very low cost. Before the market opened, free-market theologians preached “energy-only” markets in which generators recovered long-term capital by bidding superhigh “scarcity prices” when the market was tight. Hard to imagine that was ever going to work.

Market restructuring in Ontario was not pain-free. Bills are higher because Ontario phased out coal, cancelled plants the community did not want, kept plants where the community insisted, subsidized conservation and made funds available for innovation. They are higher because Ontario gets half its energy from an aging fleet of Candu nuclear generators and has a massive fleet of gas-fired generators to stand in when nuclear isn’t available.

With a regulator in charge, one supposes, none of this would have happened. It’s unlikely to have approved of solar at all, nor much of wind, no batteries, probably no conservation, no critical peak pricing, no carbon tax; we might still be burning coal.

In most of the country, the system is monopolized by vertically integrated Crown corporations. But in Ontario, monopolies are on the wane. New technologies and business models are evolving past one-way flow of electrons, to giving people the energy services they want.

Government policy over the past 20 years arguably has generated more benefits for the environment, public health and economic activity for Ontario than ever would have been the case under a regulated model. The operation of politics in society is the machinery that narrows options, sets out choices and ways of choosing. Messy it may be, but it has a way of giving people what they want.

People forget, but the best reason to shut down coal wasn’t carbon; it was sulphur, nitrogen, fine particulates and heavy metals. Southern Ontario used to be a giant summer smog zone, putting Ontarians’ health at stake. It took decades to persuade Ontario Hydro to quit burning coal, but we have not had a single smog day in Ontario since the plants shut down.

Ontario’s regrets ought not be conflated with “manner of governing,” as if handing over decision-making could avoid mistakes. There is no way of de-risking long-term projects. Political acceptability – mutable as it may be – is an essential planning requirement. In the absence of social licence, the authority of premiers and accountability to the polls always overrides.

There are some lessons from Ontario, some “do’s and don’ts.”

Don’t ram things down people’s throats; when you do, you will pay a high price; when you cancel the plants, you will pay a high price. Don’t tell customers what they can and can’t buy.

Do lead the narrative on needs, alternatives, outcome. Do allow time for people to come to the right conclusion. Do offer choices. Do model solutions. Do make the right choice easy, safe and cheap as possible.

Resist the temptation to regulate. In the emerging distributed-energy world in which Ontario is a leading example, we don’t need utility monopolies or public utility tribunals to decide what customers want and need.

The art of politics is giving people what they want. Good politicians are good listeners. It’s not the quasi-judicial process some want, but it’s real. Ontario’s ambitions are a shared vision. Generations of Ontarians have skin in this. Let the politicians be accountable. Social licence and political success go hand in hand; without one you cannot have the other.

 

The Globe and Mail, May 22, 2017

Adam White