There is nothing like a massive power failure to short-circuit plans for a provincial election. It is possible Ontario Premier Ernie Eves may still move toward a fall vote; he says he is too busy restoring electricity to think about it. It is also possible he will wait until spring -- the final months of the five-year mandate won in 1999 by his predecessor, Mike Harris -- for fear the voters may hold last week's blackout against him.
Now, Mr. Eves has committed a few wrongs during his brief term in office, including the staging of his offensive antiparliamentary auto-parts "budget," but he doesn't bear the responsibility for last week's breakdown. As far as anyone can tell, the blackout was a combination of factors -- a malfunction in Ohio, human error, failure of an international system in place long before Mr. Eves became premier -- for which others will have to answer.
When it comes to the aftermath, however, and the threat of rolling blackouts this week, Mr. Eves has to shoulder part of the blame. He has to do so because he introduced a politically popular policy last November instead of showing leadership and having the courage of his convictions. Though he wouldn't put it this way, he announced a subsidy for those who waste electricity.
On May 1, 2002, the sale of electricity was deregulated in Ontario. The retail price of 4.3 cents a kilowatt hour that had been guaranteed by the government for years was replaced with a market price that changed from hour to hour and better reflected the true cost of supply. The weighted average price of electricity over the next 6½ months, based on how much power was consumed at the different hourly rates, was 5.6 cents a kilowatt hour.
People complained, and Premier Eves took the easy (in the short term) way out. In November, he promised that no households or small businesses would pay more than 4.3 cents a kilowatt hour until May of 2006, and made that promise retroactive to six months earlier. Major power users, such as steel and chemical plants, would continue to pay market rates, and power generators would continue to be paid the market price for all the electricity they sold. But the government would pick up the tab above 4.3 cents for all small consumers, who use about half the electricity in the province. The bill would be put on the books of the Crown-owned Ontario Electricity Financial Corp., and part of it would be covered by the profits of Crown-owned Ontario Power Generation (OPG), which still generates 70 per cent of the province's electricity.
This is no small sum. By May of this year, the bill had climbed to $1.5-billion. After OPG contributed $950-million from its profits, the net subsidy was $550-million. It has, of course, increased since May.
Premier Eves introduced the subsidy as a way to keep energy prices down for strapped consumers. In effect, however, he was telegraphing that using lots of electricity was a smart thing to do, because the power was cheap and there were no penalties for excessive use. Since last Thursday, he has been warning people that there is a penalty after all: renewed blackouts. But he would rather walk through fire than do the socially responsible thing: remove the subsidy.
Doing so would be politically risky. Consider his chief rival, Liberal Leader Dalton McGuinty, who flip-flopped so quickly on this issue last November that he surely must have injured himself. First, he attacked Mr. Eves's announced subsidy as "a quick fix, a transparent attempt to buy votes, to buy favour with our own money." Days later, he said he thought the subsidy was worth keeping until at least 2006, because "it's important that we introduce stability." Translation: votes at risk.
Beyond this political math, there is a technological hitch. Part of the conservation battle must be to persuade consumers to use energy in off-peak hours -- to use their dishwasher late at night, as Mr. Eves says he now does. But consumers won't see any saving from that switch until their houses are equipped with interval meters that measure how much power they use at different hours of the day. Commercial users already have those devices, but they are expensive: as much as $2,000 each.
That cost would no doubt be reduced if the government were to buy them in bulk and market them to consumers at the lower price. But that would work only if consumers had an incentive to buy them -- and that brings us back to the need toremove the subsidies that distort the market and encourage the careless use of electricity.
There is more than a conservationist argument to ending subsidies. Investors like firm rules. They want to know, when considering whether to invest in new plants to generate electricity in a competitive market, that the government won't interfere with the market on a political whim. Mr. Eve's decision last November didn't directly affect them -- they are still paid the full rate, and the government absorbs the difference above 4.3 cents -- but for all they know they might be sideswiped by the next politically motivated announcement.
For now, the conservation argument will do. Mr. Eves, or whoever succeeds him as premier, should remove or phase out the subsidy, encourage the use of smart meters and leave it to consumers to make sensible adjustments -- less air-conditioning, staggering the hours in which they use energy-gobbling appliances -- to reduce their bills. There might well be a case for helping low-income households to cope, but such assistance should be distinct from a blanket subsidy on electricity consumption.
Is anyone up to leadership on this issue?