Drummond's Flaws: Electricity the 3rd biggest Ontario Ministry treated as 2nd Class

The Drummond Commission Report is a 562 page tome with hundreds of recommendations on how the Liberals should change their spending habits. The main street media has generally endorsed the report in its entirety seemingly to avoid the prospect of Ontario becoming the Greece of Confederation.

The Report's focus is on Health and Education spending which combined consumes 65.5% (Table 1.2, page 104) of Program Spending in the province. The pages devoted to those two sectors are respectively 59 and 55 whereas the pages outlining the electricity sector are lumped together with “Infrastructure and Real Estate and only two pages are focused exclusively on “Electricity”. With only two pages devoted to the Energy Ministry the Commission somehow managed to generate 10 of the 20 recommendations in this chapter and in my opinion those recommendations suggest a bias in favour of the McGuinty Green Energy and Economy Act (Act) instead of an objective review that would have highlighted the inefficiences of the Act. 

If the authors of the report had really thought about electricity they may have realized that Ontario can't live without it, so perhaps it's profile should have been higher. Electricity is as much a necessity of life as is health or education. Electricity has become a basic human right and according to a May 2011 research paper prepared by the Guelph & Wellington task force for Poverty Elimination, energy poverty (more then 10% of household income is spent on home energy) affects one in every five households in Ontario.

If the report had looked at the amount that Ontarians paid for electricity in 2010 and added the Energy Ministry budget spending they would have found that $14.3 billion (OPG & Hydro One alone had combined revenues of $10.5 billion for 2010 ) came from the taxpayers/ratepayers pockets to allow them to turn their lights on and cook their meals. It would have represented the third largest budget item after health and education. The Energy Ministry budget for 2011 was $1.446 billion and included in that was the Ontario Clean Energy Benefit (OCEB) of $1.138 billion. If the authors had looked further they would have discerned that Ontario's conversion to the HST added 8% to all ratepayer bills which meant the Finance Minister's coffers received an extra $1.027 billion (based on 2010 revenues) making the net cost of the OCEB $111 million which would be considered a “rounding” error to most economists reviewing Ontario's proliferate spending habits.

The Drummond report recommended an immediate elimination of the OCEB but ignored the cash grab of the HST implementation. The authors also failed to recognize high electricity prices have cost Ontario jobs. Ignoring the effects of high electricity prices is in contrast to the Auditor General's report which was critical of the Act. The AG's conclusion was that jobs allegedly created by the Act had lost Ontario 2 to 4 jobs for each one created. Ontario's industrial and residential electricity rates are presently the 2^nd highest in Canada behind only PEI and higher then most of the US states. Elimination of the OCEB would have quickly elevated Ontario to the highest in electricity rates in Canada and most of the US. Attracting jobs would be even more difficult as energy prices play a significant role in attracting new investment. McGuinty quickly killed that recommendation but that will only delay the inevitable!

The Drummond report's outright endorsement of the badly designed Long Term Energy Plan (LTEP) put forward by former Energy Minister Duguid, in November 2010, indicates that perhaps the author(s) are believers in climate change and that may have affected their judgement. The reports recommendation that the LTEP be used as the framework for the design of a 20 year plan would indicate that the Commission is endorsing over 10,000 MW of intermittent wind and solar as part of Ontario's energy supply. Those 10,000 MW will conservatively cost the ratepayers and taxpayer an additional $5 billion (approximately 33% of Ontario's current budget deficit) per annum for the next 20 years. The endorsement of the LTEP flies in the face of what other countries such as Germany, Spain, the UK and others are discovering and are rethinking their energy future away from the vagaries of wind and solar generation.

The recommendations in the Drummond Commission Report on the electricity sector, if followed, will ensure Ontario will continue to lose jobs and the tax revenue those jobs would generate. Energy poverty will affect more and more households as additional wind and solar are added to the grid and electricity prices climb to reflect their costs.

Parker Gallant,

February 28, 2012