Rivers on energy and how he thinks the Auditor General blew it in her report - we are paying for that one.

Rivers 100x100By Ray Rivers

September 8th, 2016



Ontario’s Auditor (AG) had stated that electricity costs in Ontario exceeded the ‘market price’ by $37 billion, almost $4 billion a year. What on earth can that mean? Is this evidence that the provincial government is wasting our money?

Turns out the so-called ‘market price’ is a pretty imperfect instrument, an artificial value, given that the big sellers, OPG and Hydro One still dominate Ontario’s energy scene. And since the hydro and nuclear installations have already been paid-for or are part of the massive historical debt, these fixed cost assets don’t even figure into this market price.

Think of Ford Motors selling its cars for only the cost of the steel and labour that goes into making them because somebody else has paid for building and running its car plants. If the value of the fixed costs and the contracts securing long term energy supply were included in Ontario’s energy system, it would look more like a real market, the bids making up the ‘market price” would be higher, and the $37 billion residual would be much less.

That $37 billion comes with an unfortunate name, Global Adjustment fee – a catch-all phrase, a residual that covers the difference between those imperfect market prices and all the other payments the power companies need in order to stay in business and keep the electrons flowing and the lights on. Many of these costs are based on contracts, some of which go back in time to the break-up of Ontario Hydro back in the late nineties.

The most problematic of the contracts for the Auditor General were the open-ended ones, where the generator can sell all the power produced, even if there is a glut in the system – thus the criticism about paying energy companies to dump their power and selling at a loss. These contracts were either written in the days when energy shortages seemed more inevitable than gluts, or were designed for smaller generators who, for simplicity, are constrained by the capacity of their technology – rather than by market demand.

Hydro towers - Burlington

Ontario’s electric transmission system, along with railway lines cut right through the city.

But even with the global adjustment added in, Ontario’s energy situation is hardly a calamity. In fact the overall price of electricity in Ontario, including global adjustment, is not out of whack with that south of the border after exchange rates, where even more competitive electricity markets do exist and the fixed costs are included. And despite the steady rise in Ontario’s electricity bills, Los Angeles, Boston and New York residents pay more.


Coal mine – Ontario has at least stopped generating turbines that produce electricity through the burning of coal.

And the kicker – the Auditor almost ignored that Ontario has stopped burning cheap coal, unlike those operators in some other parts of Canada and stateside. Closing down the single largest source of greenhouse gases in the entire country should be worth at least a positive footnote. And in that vein it was unfair of her (the AG) to blame Hydro One for its faltering five year transmission system reliability, given that huge 2013 ice storm, the biggest in history which shut off power for over a week in some cases, was itself a consequence of our changing climate.

The right-wing media, and their stable of anti-renewable energy neocons, had been grumbling about energy management long before the AG gave her report, but she has emboldened them with her misleading and lopsided reporting. Most recently there was another letter in the National Post from a one of the solar power, advocates, lambasting the very program that butters his bread. He thinks there is too much money going into building renewable energy capacity, except for the solar producers he represents, that is.

So is the Province acquiring too much electricity generating capacity and is that why energy rates keep rising? It’s more complicated than that. But having slain the coal dragon, if the province wants to avoid simply substituting gas emissions for coal emissions it needs to strengthen its renewable component. That is at least until it has found some way to store the excess energy which gets produced on a sunny and windy day, such as converting that energy to hydrogen gas, to be used in stand-by hydrogen electric fuel cells.

BMW hydro EV charging device

Burlington Hydro leased an electric car for city Councillors to use – they provided the electricity as well. The data collected was needed to get some sense as to what average usage would be.

And if electric vehicles (EV) really capture the imagination of the motoring public, the demand for electrical vehicle plug-ins could be exploding in the near future – so better to plan for an excess rather than a shortage of power. By the way, higher energy prices haven’t been all bad. They have provided a huge incentive to develop and implement more energy-saving technology, e.g. LED bulbs – which in turn help to lower our bills.

It’s true that there have been mistakes that have helped push our rates up. Of course there are the billion dollar gas plant cancellations.

Then, as can be found in the AG’s report, the multi-million dollar energy conservation program is almost redundant now. And the number of agencies and all those bureaucrats with their fingers in the pie are still too many. The feed-in-tariffs for renewables are still too high and the open-ended contracts need to be curbed. And off-shore wind power, the most efficient way to make electricity without killing birds, is not even allowed.


Quebec is blessed with rivers that can be dammed up and used to generate electricity – much of which they sell into the United States.

Quebec has the lowest energy rates in Canada, since its source is virtually all hydro (water) power and it is managed by a government monopoly, Quebec Hydro, the way Ontario used to be. Mike Harris broke Ontario Hydro forever and we have been paying the cost of that mistake since. The Premier says she believes that electric cars must replace todays many gas-guzzlers, yet relatively high electricity prices mitigate against that. Perhaps that is the reason Ontario lags its neighbour Quebec in EV sales. What else would account for EV sales in that province being double those in Ontario on a per-capita basis?

Finally, the Auditor General. $37 billion is a mischievous red herring and she should have known better. It could be reduced but it is the cost of doing business in Ontario’s imperfectly decentralized market for electricity. Her report reads more like a series of sound bites and gripes intended to feed the opposition parties, rather than to constructively assist the energy sector to do a better job.

From her report it is not clear that she even understands Ontario’s energy system, let alone how it came to be this way or where it is going. I am not doubting her competence to perform a financial audit, but an operational or program audit requires more research and analysis and a lot more insight. Frankly I think we deserve better.

Ray Rivers

Ray Rivers

Ray Rivers is an economist and author who writes weekly on federal and provincial issues, applying his 25 years of involvement with federal and provincial ministries.  Rivers’ involvement in city matters led to his appointment as founding chair of Burlington’s Sustainable Development Committee.  He was also a candidate in the 1995 provincial election

Background links:

Ice Storm –  Solar Guy’s Gripe –  Global Adjustment –  More Global Adjustment

Even More Global –  Finally More Global –  EV Sales –  US Energy Prices –   More US Electricity – 

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8 comments to Rivers on energy and how he thinks the Auditor General blew it in her report – we are paying for that one.

  • John

    $3.17 per day – that doesn’t get you much these days,or does it ?

    That’s what my last hydro bill amounted to.
    $3.17 per day provided lighting on demand,hot water,heated electrically for bathing and laundry,power for televisions,radios,computers and an impressive work out for my air conditioner.

    Can’t think of anything that cost $3.17 per day that provides better value.

  • Lonely Taxpayer

    Photo caption: “Quebec is blessed with rivers that can be damned up and used to generate electricity – much of which they sell into the United States.”

    How can you be blessed and damned at the same time ?

  • Larry

    I think Ray has got this one just right. Insofar as the climate sceptics go, is it still too soon to ask if the Ft McMurray fires – and the subsequent hit to the economy – were not linked to climate change. Not that long ago (late 80s early 90s) I would fly the high Arctic and always see pack ice all year round. Now we have cruise ships plying the route!

  • Gary

    Sorry about the typos in my previous response, I should have done a better job of editing before pressing the send button.

  • Gary

    Interesting column, Mr. Rivers. I don’t buy into the “it is just too complicated for us peons to understand” meme. Sunk costs are just that – they are sunk. You can add them on to the “market price” to diminish the $37 billion excess identified by the AG if you want, for typical political optical purposes, but despite this “which of the 3 bowls has the pea under it” sleight of hand, the bottom line is what consumers have to pay for electricity in this province, and that is “where the rubber meets the road”, or, as the old saying goes, “what does all your bump have to do with there price of eggs?” Forgive me, I am definitely in cliche mode today.

    I hold in my hand a hydro bill for my 1050 square foot home in Whitby for the period of June and July of this year. The house is occupied by one person. The monthly bill is $140. The occupant is very parsimonious about saving electricity. I also have an electricity bill for the month of August for my 950 square foot home in southwest Florida (a state with about the same population as Ontario). During this summer, while we have sweltered here under 30 degree temperatures, SW Florida has experienced 40 – 45 degrees. The only electrical device operating in Florida home (currently unoccupied) is the air conditioner, which I am guessing must have been running constantly considering that my August bill is for staggering amount of $17 (U.S.). For the past several seasons it has been $12 – $14 a month during the time I am not there. It swells to about $60 – $80 a month when my wife and are in occupation and we have guests visiting us.
    30 degree weather,

    There was an exchange in the spring in the Ontario legislature concerning a zero electrical use bill from Hydro One for $113. It is worth googling. We learn from the mouth of the Minister that the average monthly electrical bill for residential consumers in Ontario is about $170.

  • In reading this I wondered how you, as an author and thinker, feel about the great likelihood the majority of people have little to no grasp of the issues you raise and analyze. Of course, we are fortunate to have you doing so. But cannot it be said that only a relatively small percentage of the population is aware of, much less grasps, the importance of your efforts?

    Editor’s note:
    I could not agree with you more. Few have a grasp of the complexity surrounding our hydro operations. However, part of the reason for that is the bureaucrats make very little in the way of effort to inform and educate the public – and the public, unfortunately, doesn’t pay as much attention to these things – all the public gets is a tax bill. Burlington is looking at a possible 3% plus tax increase – when inflation is running at less then 2%

  • Stephen White

    I used to work for one of the successor companies to Ontario Hydro. When I started there were 49 out of 360 employees on the Public Sector Salary Disclosure List (i.e. those employees earning more than $100K per annum). Three years later there were 160. Today the same organization has mushroomed to 430 employees, and the number of people on the PSSDA: over 350. Even factoring in inflation and the cost of living and it still doesn’t account for this rapid growth.

    The reasons: 1) too many senior managers. At the time I left we had 30. 2) a unionized workforce (91%, which also included engineers). 3) no controls on overtime, which was rampant. 4) no one ever challenged the status quo when it came to hiring. As soon as someone resigned they were automatically replaced…no questions asked. 5) excessively provident and overly generous salary, pension and benefits plans which are no longer sustainable in the current economy. 6) an entitlement work culture that feeds on greed and self-interest, particularly at the upper echelons.

    Kathleen Wynne’s handling of the energy portfolio has been an unmitigated disaster. The key to Ontario’s success in the past was affordable and abundant energy. Energy costs in Ontario during her tenure and “Mother McGuinty’s” have escalated out of sight and have driven many industries out of the province, and are now pushing Ontario taxpayers to the brink. Witness the recent by-election in Scarborough-Rouge River. The Liberals previously could have run a dead dog in this riding and it would have been elected. No longer. Many families in rural communities are having to go on welfare because they cannot afford to pay their electricity bills.

    Mr. Rivers can champion the elimination of greenhouse gases all he wants but this achievement pales in comparison to an economy that is floundering and taxpayers having their electricity cut off because they are in default (see Global News editorial Wednesday September 7th).

  • Hans

    Re: “…the number of agencies and all those bureaucrats with their fingers in the pie are still too many.” – Agreed, and each of those agencies has to have its own “CEO” – not a Manager, but a CEO – with a hierarchy of staff, accommodations, etc.
    It’s somewhat reminiscent of episode 7 of “Yes Minister” (entitled “Jobs for the Boys”).
    A major restructuring could save a lot of money; what’s stopping it?