Power(fool) Play

There are few things that irritate me more than when the government insults my intelligence. Actually, there is nothing that irritates me more than that. But, I’m getting ahead of myself. Let’s go back to two days ago, when I received my electricity bill for July and August. It was huge, which is sort of expected since it is summer and peak kilowatts per hour are typically pumped into my house. I cannot tell you why I paid attention to this particular bill, but for some reason I wanted to see the breakdown of all charges.

First on the list were charges for the actual used kilowatts. In Ontario, the provincial government has power rates frozen at specified levels, whereby the first 750 kilowatts/hour cost $0.053/kwh, and any usage over that costs $0.062/kwh. Next on the list was something called the “delivery charge.” Since I didn’t know what that charge involved, I called Toronto Hydro customer service, and that’s when I almost popped a vein in sheer frustration.

The reason why the delivery charge sparked my interest was that it was as high as 80% of my actual power usage. So, naturally, I wanted to know why. The explanation started well enough, when the lady I spoke to told me that part of that charge, or $0.0275/kwh in aggregate, goes towards building new and maintaining old infrastructure and for actual transportation of power from the power stations to my house.

But I completely lost it when we came to the charge of $0.032/kwh for something called the “market transition.” When Ontario Liberals were elected about four years ago, they made many promises to the voters tired of eight years of fiscally crazy Conservative rule. One such promise was to keep power prices in check, freezing the rates at the prices that I already explained.

But then came 2005, when the market prices of electricity hit record highs, trading at an average of $0.0721/kwh, even peaking in August and September at as high as $0.0952/kwh and $0.0997/kwh, respectively. I remember the outrage felt by electricity providers, who complained incessantly about the huge discrepancy between wholesale prices and government-regulated prices. Warnings about blackouts soon followed, and one even materialized in downtown Toronto in July that same year. It was time for the government to give the issue its two bureaucratic cents, which, to consumer detriment, it most certainly did!

You see, utilities are natural monopolies, created by economies of scale and scope, and propelled by demand and cost structures. Usually governments step in to regulate the prices of natural monopolies, or at least to ensure that worst aspects of monopolies are avoided. The problem arises, however, when natural monopolies start behaving like real monopolies, with the help and encouragement of the government.

In Ontario, electricity power system is overseen by IESO (Independent Electricity System Operator) Ontario. The IESO is regulated by the Ontario government and it, in turn, regulates power providers in local markets, such as Toronto Hydro. The IESO found a great friend in the government of Dalton McGuinty, since the province gave the IESO’s board of directors the right to adjust electricity rates upward, as applied for by local power providers, and intended to bridge the government prescribed rates to actual open market rates.

In 2005, I would have agreed with power providers that they shouldn’t be the ones picking up the tab for high residential and business consumption. But, this is not 2005. In fact, market rates have gone considerably down since then. For 2006, market prices averaged $0.0488/kwh, while so far in 2007, that average stands at $0.0499/kwh, or, in other words, much less than the Ontario government regulated rates.

So, what is the purpose of the “market transition” rate of $0.032/kwh slapped on top of the two regulated rates? Nothing more than pure greed! The Ontario government has put faith in a bureaucrat and the bureaucrat is behaving exactly as should be expected — taking advantage of a loophole that was supposed to serve as a safety net in tough times and as an incentive to consumers to save. Worst yet, while Ontario Liberals are mighty high on consumer protection initiatives, the bill allowing the IESO powers to adjust little-known charges became a law very quietly. I have to admit, it was one of better run-arounds I’ve seen in a while. Insulting and aggravating, yes, but quite a clever run- around!