Ontario’s new subsidies to industrial and large commercial electricity users will cost $2.8-billion over the next three years, according to the Financial Accountability Office of Ontario (FAO) – more than double the provincial government’s estimate.
On Jan. 1, the province began paying directly for most long-term wind, solar and bioenergy contracts, which previously contributed to ballooning electricity bills for all consumers. The new subsidy lowers electricity bills for auto-parts makers, paper mills and other industrial users by 14 per cent on average, the FAO estimated, and by 16 per cent for hotels, office buildings and other large commercial ratepayers. The subsidies will cost an estimated $15.2-billion by the time they expire in 2040.
“This is the cost of industrial policy,” said Peter Weltman, the province’s Financial Accountability Officer. “The government is trying to provide incentives to kick-start that piece of the economy. It’s not free.”
In recent years large businesses paid considerably more for power in Ontario than in most provinces and U.S. states – the fallout from thousands of pricey, 20-year renewable generation contracts signed by previous governments to help wean the province off coal-fired generation.
According to a comparison of provincial electricity rates published in October by the C.D. Howe Institute, industrial consumers in most provinces pay the least for electricity, followed by commercial users. Residential and small businesses pay more. Ontario did the opposite – it heavily subsidized rates for residential customers and small businesses, while charging industrial and commercial consumers the highest prices of any province.
Dennis Darby, president and chief executive officer of Canadian Manufacturers & Exporters, said electricity is typically the second-largest expense for manufacturers (after staffing) – and sometimes the first. In decades past, cheap electricity from Ontario’s early hydroelectric generating facilities, and later nuclear ones, attracted industry to the province. But rising costs over the past decade pushed new capital investments to other jurisdictions.
“Clearly Ontario has been out of step,” he said. “Ontario has had less than its fair share of investment in plant and equipment, and recapitalization… companies have been investing in other jurisdictions when they have to expand capacity.”
Premier Doug Ford’s Progressive Conservative government responded in its most recent budget, released in November, listing the elimination of “jobs-killing electricity rates” as one of six crucial ingredients needed to aid economic recovery from COVID-19.
But while the government praised itself for transparency, the document said little about the cost of its new subsidies, beyond an estimated expense of $1.3-billion over three years. The FAO said the government’s estimate subtracted unrelated costs from a separate rate subsidization program, an approach the FAO disagreed with.
Mr. Weltman said that the subsidies’ cost “was not really material” in comparison to Ontario’s $179-billion budget for program spending this year, which the COVID-19 pandemic has inflated considerably from historical levels. Nevertheless, Ontario’s extensive subsidization of electricity rates has been widely criticized, even by former finance ministers who themselves indulged in the practice.
Benjamin Dachis, director of public aﬀairs at the C.D. Howe Institute, said shifting the costs of the long-term contracts from ratepayers to taxpayers is “an important first step.” But it’s also fearfully expensive. Taxpayer subsidies directed toward lowering electricity rates increased from roughly $1-billion in 2015 to $6.5-billion this year – a figure that doesn’t account for the new industrial and commercial subsidies.
Mr. Dachis said the government’s more important – and difficult – challenge is to lower overall electricity costs, which could take years. He suggested reforming electricity rates to discourage consumption during periods of peak power demand.
“What we’re doing is throwing taxpayer dollars at it, and that cannot be the whole solution,” he said. “There’s no clear path, for the government, on reducing taxpayer subsidies.”
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