The ‘W5 + How’ Analysis
Who? What? Where? When? Why? How?
By now, people know most of the story about Ontario’s reduction of electricity charges on our monthly bills.
- Who and what? Everybody will get a reduction, averaging 25 percent, off their usage and delivery charges for electricity, with costs held to inflation for four years;
- Where and when? On your electricity bill. For most of us in western Mississauga, that’s Enersource (soon to be renamed Alectra), and beginning this summer.
That leaves why and how: the most important parts. Why? Because Ontario, almost uniquely in North America, has spent nearly $50 billion improving, expanding, diversifying, refurbishing and upgrading both the way the Province generates electricity, and transmits electricity to utility customers. During a 30-year span between the end of World War II and about the mid-1970s, much of Ontario’s electricity generation and transmission infrastructure was built, or upgraded – much like what was done again during the past 13 years.
And after that? Nothing.
Nothing new or significant was done to expand or modernize the complex, multi-billion-dollar system of generation stations, transmission wires and distribution substations until the early 2000s. Projects under construction were completed. That’s it.
Like any system of machinery, no matter how well you look after your machines (in this case wires, substations, dams, and power generation stations), they get old. Machinery used all the time wears out, no matter how well you look after it. It gets out-of-date. Electricity systems are used around the clock, every day. In recent years, Ontario has spent $35 billion adding, replacing, and upgrading electricity generation; plus about $15 billion modernizing and expanding electricity transmission. That capital investment is what is showing up, like increased mortgage payments on a new home, on your electricity bills. That’s the ‘why.’
Ontario has a comprehensive suite of programs to help individuals, families, seniors, low-income households, and businesses of many types manage electricity costs, shift electricity usage to off-peak times, and lower charges. Many of these programs are not electricity generation programs, but like medical, pharmaceutical and educational supports, are social programs. They shouldn’t be on your electricity bill. They were on your electricity bill because they always have been, and for no other reason. In the rest of the world, those costs count as social costs.
As well, many of our electricity generation and transmission assets, such as nuclear reactors, gas-fired power plants, wires and so on were paid for, or ‘amortized’ over a period much shorter than their expected useful life. Why? Because they always had been, and for no other reason.
Like a couple buying a home, you’d like to minimize interest costs, but you have to actually afford to live in the home you buy. They choose a mortgage term based on what they can afford, and which does not leave them cash-poor. Paying for Ontario’s electricity assets during the full term in which they are used is the same principle.
How can electricity costs be held to about the level of inflation? Because Ontario has already incurred the bulk of the system improvement costs, something no neighbouring jurisdiction can say.
The costs have not gone away. There has been no accounting sleight-of-hand. The construction projects that built Ontario’s state-of-the-art electricity system were procured openly and transparently. Ontario has bought tomorrow’s electricity system; paid for it with yesterday’s money; and financed it for its useful lifetime at interest rates of nearly zero. The rest of the world must catch up, buying today’s electricity system, paying at tomorrow’s prices, and financing it at rates that have already begun to climb.
The principles of putting social costs on the tax bill, and paying for things during the complete term of their useful life reflects taking a fair, responsible and accurate look at how electricity costs are managed and paid. It is the way the rest of the world manages those same costs. That’s the ‘how.’
Now you know.