Archive for the The Chairman’s Corner Category

KEEPING THE GENIE IN THE BOTTLE

On July 16, 2018   /   Blog, The Chairman's Corner, Uncategorized  

We all have a lamp.  Sooner or later, all of us learn that if you rub the lamp, you will summon forth a genie.  In a perfect world, we would all make this discovery organically, at no one else’s prompting, at a time in our life at which we have been appropriately armed, by our parents or someone else with our best interests in mind, with a sophisticated understanding of the consequences, both good and bad, of summoning that genie.

But that is not how life works.  It never has.  Because others know that they have a lamp, they also know that everyone else has a lamp.  Some will show people their lamp when they shouldn’t; others will ask to see our lamp.  Even more will talk a lot about lamps and genies, and will inevitably make the genies sound even more mystical than they are.   And once freed, it is impossible to get the genie back in the bottle, and that genie, once freed, can cause havoc for individuals, families and society.

So we have to arm our children with an understanding of genies as soon as they are capable of understanding them.  We can’t wait until we think they might have otherwise been inclined to rub the lamp, because there are sadly others who might be looking to rub their lamp themselves.  And we have to keep that dialogue going, with increasing sophistication, always arming them with information about the genie that is appropriate to their capacity to understand.

It is not an easy task, and parents have the central role in this process.  Whether they know it or not, how they model healthy lamp management by their deeds will probably impact their children even more than their words, but their words matter as well.  But we cannot leave this task to parents alone, because not every parent can or will model or teach good lamp management, and the societal impact of unmanaged genies is simply too high.

The school system offers an appropriate place to reinforce or, if necessary, introduce lessons about managing lamps and genies.  Creating curriculum to do this is difficult; not every child and adolescent of the same age is at the corresponding same stage in terms of their lamp-awareness.  But again, their vulnerability to predatory lamp-rubbers is unfortunately often inversely correlated to their own level of lamp-awareness.  Genie lessons will inevitably be revelatory and unsettling for some, but necessary.  Parents need to make themselves aware of what their children are learning about genies, and provide context, both culturally and morally, for what they are learning.

Parents might well be challenged by their children when the context into which they cast that learning conflicts with a more inclusive view of genies that they might have received at school.  Parents might find themselves having to concede that others in society take a broader view of what you can do with your genie than they do, and might be required to make the case for that more restrictive view of what their child may wish for from their genie.  This may cause some conflict in the home, but far less strife and conflict than that which can arise when lamps are rubbed without any understanding of the power of the genie that is being summoned.

Doug Ford became the Premier of Ontario promising that parents will be left with the power to decide when the genie is released from the bottle.  Sadly, history has shown that no amount of lamp rubbing will ever give anyone that power.

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STUCK IN THE MIDDLE WITH ME

On June 18, 2018   /   Blog, News, The Chairman's Corner  

For anyone who self-identifies as a radical centrist, these are trying times.  The political discourse on both social and economic issues has never been more polarized.  There can never be any nuance to any discussion of longstanding issues, no acknowledgement of the truth that, for many and even most of those issues, their endurance is testament to the fact that both sides have a point, and that resolution of these issues must be found in solutions that reflect the need to at least acknowledge if not accommodate the reasonable demands and expectations of both perspectives.  That is why it is important to note and salute political actions that reflect a balanced and centrist approach to any issue, and we are fortunate in Canada to have a rare opportunity to do just that.

The federal Liberal government is not one that has been thought of as being particularly centrist.  As a matter of style, NDP leader Jagmeet Singh’s colourful turbans come off as the personally appropriate equivalent to Justin Trudeau’s fashion forward sock choices.  And on social issues, the federal Liberals leave little rhetorical space on the progressive spectrum for those on the political left in Canada on touchstone issues like Indigenous rights, gender equality and cannabis legalization.  For social conservatives (and strident Conservatives), there appears to be no party of the centre.

That case, however, has never been as easy to make in the context of economic issues.  The rhetoric of the federal Liberals, both in the 2015 election and in government has been unequivocally pro-trade, and never more so than in the recent context of the forced renegotiation of the North-American Free Trade Agreement.  As true centrists, the Liberals’ commitment to free trade has always been conditioned upon the tabling if not insistence upon progressive notions of fair trade and human rights commitments, but the primacy of the concept of global free trade ahead of absolutism on these issues has always been clear.

The application of this commitment to centrism has, however, been less tested and thus less certain as it applied to environmental policy.  The bargain offered on the campaign trail by the Liberals was perhaps vague but undeniably centrist.  To address the legitimate local concerns raised by affected communities, Canadian provinces and enterprises bringing forward proposals to further develop and move product from the oil Sands would be asked to submit to a more rigorous and multi-lateral approval process to obtain what the Liberals deemed the required “social license”. However, once that process had been honoured and a decision upon the merits of the proposal were ruled upon, the development would proceed.  At the same time, the government would address the national and global issue of man-made climate change by imposing a carbon tax on a national basis to shrink the carbon footprint of Canadian businesses and consumers.

It was a policy position that many interpreted as a soft no; one that would empower environmentalists and opportunists to forever constrain a party committed to retaining the goodwill of all Progressives by withholding unanimity from any social license.  And in the early going, the federal government’s obvious discomfort in inserting itself into the growing economic and constitutional spat between the governments of BC and Alberta certainly seemed to reinforce that cynicism.  However, the boldness of the move to acquire the interest of Kinder Morgan in the Trans-Mountain pipeline is decisive and bold.  And most importantly, it is principled in a truly centrist fashion.  The overall policy offered by the Trudeau government addresses the economic need to provide immediate opportunities to Canadians while at the same time introducing an economic incentive to Canadian consumers and businesses to reduce their carbon footprint.  Those that wish to see the oil sands’ oil stay in the ground need only convince electorates in Canada and elsewhere to raise carbon taxes or otherwise voluntarily reduce consumption; any resulting reduction in global demand will hit higher cost oil sands production and shipment before almost any other source of fossil fuels.

The pipeline acquisition officially ends any honeymoon enjoyed by the federal Liberals with the radical wing of the Canadian and global progressive movement, freeing it from any inclination to even appear to be reflexively left-leaning.  And Canada now enjoys something currently seen in only a few democracies around the world: a truly centrist government.

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CHILD’S PLAY: ONTARIO ENERGY COSTS

On May 16, 2018   /   Blog, News, The Chairman's Corner  

Politics in general, and electoral politics in particular, have sadly never been a venue for frank explanations or sensible solutions for important public policy challenges.  The provincial election now underway in Ontario is certainly no exception to that rule, and no issue better captures the exasperating truth of this observation than the issue of electricity costs in Ontario.

That is not to say that the three major parties are ignoring the issue.  The incumbent Liberals have already chopped 8% from the bills paid by ratepayers across the province, with another 17% to follow shortly.  And rural ratepayers are to receive a subsidy to offset their higher power delivery charges that will knock a further 15-25% off their total energy bill.

The poll leading PCs want to up the ante by shaving an even 37% off the bills paid by all Ontarians, and will roll back salaries and severance benefits from the executives of the recently privatized  Hydro One.  The surging NDP has its own comparable offering: 30% off all bills, a further 15% cut for rural customers to offset higher delivery charges, the end of time-of –use rates differentials and a promise to negotiate with the federal government to eliminate the 5% GST from hydro bills, AND the buy-back of the 51% sold off by the province in the privatization of Ontario Hydro.

From the look of these platforms, one would have to conclude that it is pretty easy to cut hydro rates; it looks like a 35% rate reduction is just table stakes for this election.  However, on closer examination, it seems that these rate cuts are only easy because they are not what they claim to be.

Ontario has a problem with its hydro rates because of overcapacity.  Over the last 15 years, high cost electricity has come on line with the execution of contracts negotiated with private generators of solar and wind energy.  At the time that these green energy initiatives were entered into, they were justified in part as part of a plan to decommission carbon-generating gas plants and as part of an industrial strategy to establish Ontario as a leader in the manufacture of panels and turbines required to support green power generation.

Unfortunately, that strategy was flawed on both fronts.  Both at that time and at the present, green energy requires the maintenance of traditional generating capacity equal to peak demand, because there must be light and power when the sun don’t shine and the wind don’t blow.  And both of the traditional generation modes used extensively in Ontario (nukes 61%, hydro 24%) are high fixed, low marginal cost capacity.  So Ontario ended up with its existing full generating capacity that was buttressed by duplicative high cost green energy.

Even that problem was not so bad until the full impact of the 2008 global recession hit.  Economic activity fell precipitously as did the demand for power just as the bulk of these high tariff take-or-pay green energy contracts came on line.  Suddenly Ontario was an exporter of high cost power for which the market would pay only a fraction of the production cost.  Ouch.

So there is the problem.  Let’s look at the solutions that the politicians are offering.  Cuts to the cost of generation can only arise by one or both of two means.  One is entirely cosmetic.  Shifting the cost of power generation from rate payers to tax payers is truly meaningless.  Every ratepayer is also a taxpayer (with the exception of the homeless, who are neither), and given that electricity consumption is reasonably correlated to income, the burden of hydro costs are probably allocated progressively in either a utility or tax bill.  This strategy is nothing more than a shell game, pure and simple.

The other is to shift the cost generationally, incurring long term debt to fund the excess costs of today. If this is to be the strategy, the best and most transparent way to raise that debt is by issuing more government debt, where the creditworthiness of the province’s tax base, howsoever tarnished by excessive borrowing, will still result in lower interest costs than an issuance by the utility itself.  The worst and least transparent way to do it is to set up a special purpose vehicle under Ontario Power Generation to issue the debt, thereby adding even more structuring costs to the already higher issuance costs that OPG itself would attract.  Alas, the Wynne government went with the latter.   As a result, Provincial Auditor Bonnie Lysyk has noted that the rate relief program will incur $4 billion in additional interest costs to create a structure that can only be justified on the tenuous argument that it permits the government to exclude the debt from its own books.  Given the choice between a shell game and kick-the-can, the government chose the latter and then promptly kicked the can under a car.

The only part of this whole thing that has any remotely rational basis is the subsidization of delivery costs for rural users.  One can certainly quibble about the public policy justification for subsidizing more remote Ontario communities, but to the extent that there is a consensus on this policy, it is an effective mechanism to collectivize the cost and spread the pain.

The reality is that Ontario finds itself with electricity rates that are certainly high by Canadian standards, but still modest relative to those of many US jurisdictions.  There is no magic solution to reduce these costs in the short term.  It is time to stop the children’s games and have an adult conversation about how much of the cost can and should be deferred and how to finance that deferral most economically.

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