Ontario Electricity Sector V – What they knew, and when they knew it…

Last month I published a full-length article in the “The Monitor” magazine providing a “how we got here” analysis of the Ontario electricity sector and some options for the next Government.  Since then, two things have changed: first on May 31 two investigative journalists, Carolyn Jarvis and Brian Hill, wrote an excellent story for Global News about how successive Liberal Ministers of Energy ignored expert agency advice, which resulted in Ontario households having to pay billions of dollars more for electricity (see 3:51 Global News video here); and second, on June 2 the current Liberal Premier conceded that the Liberal party will not win the election to be held tomorrow (June 7).

My article brings together and updates the four electricity-related blogs that I’ve prepared at the PEF (first, second, third and fourth), focusing on the gradual, stealth privatization of electricity generation and showing how criticism of this process by progressive groups was muted by the promise of energy democratization and renewables (wind and solar) generation that would help reduce emissions and pollution. The electricity sector in Ontario became a prime case study of some of the inequality-creating trends buffeting our societies. Corporations (and their investors) who secured lucrative contracts and high-income households and speculators that could afford solar panels made out like bandits, while low-income households in Ontario faced growing electricity poverty. When prices became a political liability, the government responded not by going after the power producers, but rather by borrowing on behalf of ratepayers. I argued that objectives matter, and that the experience in Ontario shows that governance, policy and implementation matter even more.

The Liberal Premier’s concession confirms that a new government will indeed be able to review and implement new electricity policy in Ontario. Jarvis and Hill’s reporting shows how much work awaits the new Minister of Energy. Their story is based on over 4,000 pages of internal emails, ministerial briefings and other documents created by OPA in the 18 months staring January 2009 during which the Green Energy Act (“GEA”) was being discussed and the feed-in-tariff (“FIT”) program was being designed and implemented. These are the most relevant findings and how they fit into the themes I develop in my article:

1) The Ministry ignored Ontario Power Authority (OPA) and other expert advice on the design, pricing, and scope of the FIT program

In past blogs I’ve sometimes critiqued the professionalism of the relevant bureaucracy because it was hard to believe that they would have proposed/signed off on some key design aspects of the FIT and other programs. Based on the Global News story, it appears I may have been too harsh. The story highlights the fate of the key bureaucrat in charge of the FIT program, presumably now retired and feeling comfortable enough to talk about his experience almost a decade after the fact. The story is one of the Ministry apparently going “full steam ahead” on the FIT program regardless of expert opinion that would have saved billions of dollars. I have covered in detail the policy lunacy of front-end loading high-priced long-term contracts without any price-adjustment mechanism. According to the OPA documents and the person in charge of the FIT program, the Liberals knew this and still went forward with it. Ontario rate-payers and tax-payers will continue to pay the price.

2) In addition to having widespread support from environmental organizations to move forward with the FIT program, the Ministry was being pressed by the private sector

The Ministry was selling the GEA generally and the FIT program specifically as the “green” alternative that would kick-start the “democratization” of the “distributed” grid. Environmental groups were on board, along with most progressives. So were the capitalists. As policy, the Liberals specifically excluded the provincially-owned generating company, OPG, from renewable generation programs. So green energy would be provided exclusively by the private sector. Energy cooperatives got the smallest pieces of the pie. The process favored corporations and other independent entrepreneurs, who made out like bandits. The Global News article notes that in stakeholder meetings, industry groups and individuals pressed the government to increase FIT prices, which were ultimately established by the Ministry, often above the prices and/or for longer periods than recommended by the experts.

3) The Ministry did not appear to have evidence-based rationale behind its claim that the FIT program would only “add 1% per year for 15 years” to electricity prices

According to the FIT expert and OPA record, it appears that the Liberal Minister of Energy’s 2009 claim that the cost impact of the FIT program would be minimal was not based on OPA advice. At the time, the Ministry did not provide the OPA its rationale for the 1% figure. That figure was ludicrous then and has now been proven to be false. In the absence of such rationale, it seems that the 1% was a politically-driven “alternative fact” designed to sell a policy that would not have been implemented, or would have been implemented very differently, had the public, progressives and environmentalists known its true ultimate economic and social cost.

And political cost… it appears that high electricity prices have been an important factor in this election and is one of the reasons voters appear in the mood to punish the current government. The electricity file will be a priority for the new government. However, the new Minister of Energy will unfortunately have limited scope to deal with the problems of the future, as s/he will be burdened from having to deal with these legacy issues from this sorry past.