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Electricity set to soar if premier ends rate cap -15% hike expected

By Allan Woods, National Post
November 1, 2003

Ontario Liberal leader Dalton McGuinty's decision to hike electricity rates to tackle a $5.6-billion deficit will send a chill through homeowners, who could face monthly bills 15% higher than what they currently pay, industry watchers say.

Still, those experts, pundits and lobby groups say simply putting a higher cap on the cost of hydro will not address significant problems with Ontario's electricity system.

"Ontario is very close to suffering another blackout and one of the first and most important steps in securing the reliability of the electricity system is ensuring consumers pay the real cost," said Tom Adams, executive director of Energy Probe, a pro-conservation think-tank. On Thursday, Mr. McGuinty said Dwight Duncan, the Minister of Energy, has 30 days to decide on cost-saving measures before recommending a higher, fixed price for electricity to replace the current rate of 4.3 per kilowatt hour set last year by the Progressive Conservative government.

The Premier said he wants a price that better reflects the real costs of electricity. Mr. Adams estimated the average increase in monthly bills at 15% or more when the Liberal debt-cutting plan is announced.

"It's substantial," he said. "We should be looking at significantly higher electricity prices."

About 10% of that estimate is based on fee hikes linked to Ontario's energy infrastructure, including any additional costs stemming from an investigation into the August power failure that left Ontario and a large swath of the northeastern United States in the dark. The additional fee hikes will come from the other side of the electricity bill, which is based on the amount of power people consume. But Mr. Adams said it is difficult to forecast how big an increase the government might institute because its energy policies included in the recent Oct. 2 election platform are not specific.

"Given the lack of clarity in terms of their policy thinking, it's impossible to guesstimate what it might be," Mr. Adams said, adding there are dozens of formulations the government could use to increase the price. "The one-word answer is 'up.' "

David Burgess, professor of economics at the University of Western Ontario, believes the Liberals will likely work out a formula by which the rate hike will cover the $700-million deficit caused by the current price-cap.

"It will be the same thing [as the current 4.3-per-kilowatt-hour rate] but at a higher level, so the deficit will be less," Prof. Burgess said. "I don't have a lot of sympathy for repegging the rate."

He acknowledged, however, that it would be the most politically astute thing for the newly sworn-in government to do.

Moving to a market rate, under which the consumer would pay full price for the power, would raise bills by about 25%, by some estimates. The raw hydro price would be in the neighbourhood of 6 per kilowatt hour.

Prof. Burgess said no one having to pay that kind of price is likely to welcome it.

Deborah Doncaster, executive director of the Ontario Sustainable Energy Association, was also pleased at the possibility of a move closer to the market rate. She wants to see an even higher rate so renewable resources such as wind or solar power, which cost more than hydroelectricity or coal energy sources, can compete at comparable cost.