Crock of Conservation

Premier Kathleen Wynne’s mandate letter to Energy Minister Bob Chiarelli, released September 25th, acknowledges that her government intends to keep raising electricity rates but says her government will solve this problem for consumers with something she calls “Conservation First”.

Getting more value from each kilowatt-hour is a fine idea, but dropping power demand is worsening the problem of power rate competitiveness and affordability in Ontario.

Aegent Energy Advisors has a published a handy guide to the rate impact of conservation here. As Aegent explains, the arithmetic driving electricity rates in Ontario can be summarized as: rising total cost, divided by static or falling energy sales, equals higher rates.

The amount of money that must be collected from Ontario electricity consumers and/or taxpayers this year is a little over $19 billion. Next year, that figure will increase by about $1 billion. The cause? Mostly Ontario’s growing fleet of wind, solar and other renewable generators. Meanwhile, electricity demand in Ontario peaked in 2005. Where after, it has fallen about 4% after filtering out the impact of weather variations.

Since 2004, Ontario’s average power rate — the total provincial power bill in inflation-adjusted dollars divided by the total volume of sales — has increase by 52%. Ontario power rates are now among the highest in North America and also among the fastest rising. (An upcoming report will explain why popular annual rate surveys like those published by Hydro Quebec and Manitoba Hydro do not accurately gauge Ontario’s comparative performance.)

Ontario’s overall power bill is not going down. Premier Wynne’s mandate letter orders Minister Chiarelli to expand the 2013 installed fleet of wind, solar, biomass, and hydro-electric generators in the province to about 290% of its current size within this decade. All recent additions of these types of generators have been drastically expensive, particularly when applying the total costs (including transmission and distribution impacts) against just the usable portion of the output of these new renewable generators. Wind power on warm days in winter or at 1 am, incremental water power in the spring, and solar power any time except during air conditioning season is all valueless junk generation.

Paying for programs to encourage consumers to use less juice makes particularly little sense these days in Ontario. Right now, Ontario is exporting vast amounts of electricity at prices recovering pennies on the dollar while also paying vast but undisclosed sums to generators to not generate.

Purpose of Conservation

Wynne’s “Conservation First” plan has a purpose, but that purpose is not to benefit you.

The government’s emphasis on electricity conservation programs is central to its strategy to secure public acceptance for steady rate increases. When consumers complain about rising bills, the government’s response is to blame the victim and change the channel — tell them they aren’t conserving enough but that programs are on the way to fix the problem.

The government’s marketing program for rate increases exploits a common perceptual blindspot. Our experiences as consumers in non-monopoly markets for everything from shoes to tomatoes reinforces the common notion that buying less of something saves you money. The reality of Ontario’s electricity situation turns this apparently obvious notion on its head.

No matter how much we collectively conserve, Wynne is ensuring that Ontario’s overall power bill will keep rising. By continuing to add to the fixed liabilities embedded in the annual revenue requirement, the game is rigged.

Even if Wynne reversed the ruinous course McGuinty initiated and Ontario’s total bill was stabilized, reducing sales volumes would drive up average rates.

Electricity conservation in Ontario today is a rate boomerang. When you cut your usage, more costs flow to your neighbours. As their costs rise, your neighbours also cut their usage and their electricity costs flow back to you. As factories close, like many pulp and paper plants across the north and food processors in the south — often due in part to high power rates — a lot of costs have come boomeranging back at the remaining consumers.

In April 2004, then Premier McGuinty launched what became an enduring Liberal government slogan when he coined the phrase “culture of conservation”. This slogan was the packaging for McGuinty’s costly initiatives then focused on killing coal power and undoing the Ernie Eves rate freeze of 2002. The culture of conservation would save you money, he promised.

Premier Wynne’s has transitioned to a new slogan — “Conservation First” — but has cleaved to the same underlying power plan. Conservation First will save you money, she promises.

Cost of Conservation

Those brochures you get exhorting you to turn off lights when you leave the room, the programs giving away $650 government subsidies for the installation of central air conditioning, the “$5 off” coupons for new light bulbs, and the “free” fridge pick-ups you see advertised cost you big money.

In 2012 (the most current available data), Ontario’s regulated electricity distributors spent $136.2 million (see page 8) on conservation programs. In 2013, the Ontario Power Authority spent $335.2 million (see page 17).

The only consumers almost completely off the hook for these costs are a handful of the very largest industrial consumers.

The Ontario government’s energy conservation programs harm consumers by raising rates with little offsetting benefits. Subsidized light bulbs might make lighting your house cheaper if they are not used more than your previous bulbs, but a big chunk of the subsidy cost is picked up by electricity intensive employers and low income consumers.

The government’s big conservation slush funds go into identifiable pockets. Conservation programs are big business for energy bureaucrats, sustainability consultants, regulators, and contractors. For example, payroll at the Ontario Energy Board increased from $8.66 million in 2003 to $26.1 million in 2014, in part to fund making evidence to justify even more conservation spending.

Ontario electricity consumers would be better off if the money now being spent on electricity conservation programs was incinerated rather than used to build bigger networks of interests groups feeding off programs whose real purpose is simply to raise rates.

24 Comments

  1. Terrific post
    Just so I write something aside from praise… it’s astonishing how juvenile Ontario’s dialogue is on “conservation” considering the money going into it. This post reminds me of a post by Severin Borenstein this past summer, primarily on U.S. utilities and what he calls peak-time rebates (PTR). This quote applies equally, if not more, to Ontario’s extraordinarily poor distribution of costs for programs that might reduce peak demand:
    “If PTRs are so bad, why are they so popular? Because they hide the cost. Rather than a higher price on the hottest days of the year — reflecting the truly higher cost of providing electricity on those days – PTR pays out for conservation (real or imaginary) on those hot days and raises the price a bit on all other days to cover the cost. Thus, customers who consume a higher share of their electricity on non-peak days (e.g., those who use less, or no, air conditioning) subsidize heavy peak-time users who manage to be slightly less heavy users on a specific peak day.”
    This is quite obviously what the Industrial Conservation Initiative does, but the distribution of costs other programming – mostly couponing it seems – is no saner.
    September set a record rate for the global adjustment and the overall commodity rate, and I’d be astonished if both records aren’t shattered in October. The cost elements pushing the records are dumping surplus and curtailment of supply
    Borenstein’s post is “Money for nothing?” – http://energyathaas.wordpress.com/2014/05/12/money-for-nothing/
    In Ontario, the question mark is not necessary.

  2. Tom, Love this post!

    I can’t believe that the Minister of Energy would tell me I can save money when I can’t as they do with this Q & A on their website? http://www.energy.gov.on.ca/en/faqs/ Can it be true that they are simply feeding me BS? The website even talks about dim bulbs but I thought they were referencing incandescent ones not the people in the Ministry! I have read and heard that Premier Wynne is committed to “open and transparent” government or is this a reference to old clear incandescent bulbs? I just received a glossy 24 page brochure from Toronto Hydro describing the wonders of how to save money on my use of electricity and they even say on the front page: “small steps, big savings:”! It presumably was partly responsible for Tony winning a CEA equivalent “Tony” but now I am wondering if the award was for “Best Fiction”?

    Your post should be required reading for every ratepayer in the province! Nicely said.

  3. Pingback: Ontario: wind farms contribute to $20-million power sell-off | WCO | Wind Concerns Ontario

  4. It would appear that Ontario Liberal Gov’t believes electricity consumption is bad for us, just like cigarettes. And they will restrain our consumption of electricity using a higher price mechanism, just like cigarettes. OK, that’s Econ 101 and it works. But I just can’t figure out why, dear god, they have concluded that electricity is a bad product for public consumption. The world we compete against out there is highly focused on producing electricity at the cheapest possible rate.

  5. Pingback: Wind farms: another $20 million gone in a weekend | Ottawa Wind Concerns

  6. We are in the beginning stages of a death spiral for electricity in Ontario. Even without the exacerbating effects of subsidized conservation programs, the demand for electricity will slump more each time the rates increase. At the end of it all, the only solution will be a massive ($10-20 billion) taxpayer bailout and emergency reforms to the system. I wonder if Ontario’s already shaky credit rating reflects this harsh reality.

  7. This is a wonderful post. Conservation in Ontario is a complete scam. “Conservation First” yet we spend billions on green junk generation. Pretty much all of our costs as rate payers are fixed. Using more or less electricity hardly moves the cost up or down. These idiotic policies will be ruinous.

  8. If the government loves Conservation so much why is it spending so much on an Industrial Electricity Incentive (IEI) program to encourage big load customers to use more electricity by giving them a preferential rate? All this does is shift the true cost around like in an electricity sector shell game. Really, really dumb.

  9. This is a delicious commentary to add to one of my former favourites, here!
    http://www.tomadamsenergy.com/2014/02/24/conservation-can-be-rewarding/

    Behaviour modification programs flogged as conservation initiatives/ incentives are obviously not limited to Ontario (or even Canada) – I more recently stumbled across this information specific to Massachussetts:
    Real-time Energy Consumption and Behavioral Modification
    https://www.nesl.edu/userfiles/file/CLSR/EAP%20Essays/TurnerEnvAdvFinalPaper.pdf

    It appears this USA example, the “culture of conservation” McGuinty promoted and the re-branded version Wynne is marketing may be all based on the same principles and “values” underlying this Sustainable Consumption & Production (SCP) program:
    http://www.un-documents.net/a21-04.htm
    Re Canada’s enrollment and implementation progression:
    https://www.iisd.org/worldsd/canada/projet/c04.htm
    http://sustainabledevelopment.un.org/dsd_aofw_ni/ni_pdfs/NationalReports/canada/SCP.pdf
    http://www.rona.unep.org/documents/scp/OneEarth%20ACTOR%20MAP%20April%202011%20FINAL.pdf
    http://www.uncsd2012.org/content/documents/National%20Submission%20Canada%20(EN).pdf

    In addition to driving up additional user/ consumer costs, the same global program and justifications (ie: excuses?) appear to have been at the root of transitions to the new “consumption rate” billing model that incrementally but progressively punishes metered Water consumers on low or fixed incomes, following its local “implementation”. The marketing accompanying its imposition looks pretty much the same as this everywhere, as does that for electricity conservation programs?
    https://cumberland.ca/water-services/water-conservation/

    This suggests the intended progression from Heat or Eat… to Heat or Eat or Water is already well underway and it may be an even shorter hop to the inevitable “next logical step” down the same slippery “governance model” slope that always has aligned with (and been greased by) a centrally planned and managed/manipulated economic system?

  10. The sad evolution of Ontario electricity policy is analogous to taking a really bad golf swing and trying to fix it by adding a succession of band-aid solutions. One can also think of an undamped/unstable control loop.

    There are myriad mixed messages and it never ends well.

  11. Wah, wah, wah. So many whiners on this string.

    A few points:
    – my home’s electricity consumption in 2005-2008 was 10,800 kWh/year
    – my home’s electricity consumption now is 3,700 kWh/year
    – my total marginal cost was on the order of $6,000
    – at an average avoided cost of $0.20/kWh my savings are about $1,400/year
    – my return on investment is north of 10% depending on assumptions (e.g. cost of capital, future electricity prices, inflation, equipment lifespan, etc.)
    – I undertook only basic conservation measures (e.g. replacing equipment that got old with higher efficiency equipment, switching from electric to natural gas hot water, etc.) and did nothing that other homeowners could not also do
    – I relied on no conservation programs, though I did participate as a “free rider” and took a $600 rebate on a tankless natural gas water heater that I would have installed without the rebate
    – my home has the same appliances, equipment, size, rooms, occupants, etc. that it did before 2008

    So, does this mean that I disagree with Tom’s article? Only in part.

    The Liberals made a large error in 2009 by focusing on supply-side resources rather than demand-side. In 2009, there was already substantial conservation opportunity at much lower prices than new supply of any kind, never mind higher cost renewables. Some posters have pointed out that the increased electricity prices will only lead to more conservation. This is true, but electricity is not very price elastic, with consumption declining only about 5% for every doubling of price over much of the price range.

    Conservation programs actually compose only a small portion of utility DSM, with rate structures, codes and standards making up the bulk of DSM savings. Scaling back on conservation programs is not a bad idea at times, but what we really need to do is to stop building and renewing supply-side resources unless they can be demonstrated to be cheaper than conservation. That means all supply-side resources, including nuclear renewals.

  12. As far as I can determine Ontario is using demand side management.

    Don’t know who supplies your electricity but my Hydro One bills are more than double what they were back in 2009 and I use less electricity now.

    Have done all the conservation measures you mention as well.

  13. Just to provide further insight into how little effort the OPA placed on conservation in 2009, here is a link to a jurisdictional review prepared for BC Hydro in 2011:

    https://www.bchydro.com/content/dam/BCHydro/customer-portal/documents/corporate/regulatory-planning-documents/integrated-resource-plans/current-plan/0400d-nov-2013-irp-appx-4d.pdf

    As you can see on page 7, the OPA ranks dead last of the 25 or so jurisdictions surveyed in terms of conservation success assessed as total DSM savings relative to total sales.

    The issue remains as to whether pursuing demand-side (i.e. conservation) as opposed to supply-side (i.e. natural gas, wind, hydro and solar) resources would have been cheaper for Ontario’s ratepayers. The question is hypothetical because we don’t know with certainty what the cost of conservation would have been. But we have a pretty good idea from other jurisdictions. See page 8 of the following report:

    http://www.greenenergyeconomics.com/wp-content/uploads/2012/09/Exh-JJP-2-BCH-DSM-Report-v2.pdf

    For the vast majority of jurisdictions, especially those with established conservation programs, the levelized cost of saved energy was between 2 and 5 cents per kWh. I do not have access to all of the supply contracts signed by the OPA since 2009, but I doubt that any of them had a levelized cost of energy below 5 cents per kWh.

    • Try reading this study:

      Centre for Economic Performance
      “Role of Incentives in Energy Conservation”, June 2013, Funded by the Tides Foundation
      http://cep.lse.ac.uk/pubs/downloads/dp1222.pdf

      Field studies results on methods to reduce natural gas use in the UK. Which method would work best.

      Some of these methods are already being used on Ontario electricity consumers with the ultimate goal of enforcing electricity conservation on Ontarians

    • I am delighted that the Fraser Institute provided me with an opportunity to work with Ross McKitrick of U of G to undertake work identifying and quantifying the factors driving the rising commodity cost of power in Ontario. I hope to work with Dr. McKitrick on other analytical projects during 2015.

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