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.