Ontario’s Environmental Commissioner Pushes the Conservation Con

In March 1993, one of the defining moments in Maurice Strong’s leadership period for Ontario Hydro occurred — Strong announced the shut down the utility’s energy conservation programs. He justified his initiative noting that conservation programs during the prevailing surplus of generating capacity would harm consumers already hurting from recent rate increases. At the time, a few conservation-at-all-cost folks whined but most people who thought about it accepted Strong’s sensible approach.

A measure of how different Ontario’s electricity policy debate has become a quarter of a century later is how alien Maurice Strong’s approach sounds today.

Today, the only extent to which conservation is debated politically or in any forums likely to influence public policy is whether the government’s current energy conservation efforts are ‘doing enough’. The successful and sustained strategy by McGuinty and Wynne to build constituencies to advocate for the government’s agenda has been a factor in establishing the conservation-at-all-cost perspective as the dominating policy discussions around conservation.

One example is the recent report of the Environmental Commissioner of Ontario, Dianne Saxe, called “Every Joule Counts”, issued August 11.

I have previously raised concerns about false statements about energy issues from Ontario’s current Environmental Commissioner and her advocacy for higher electricity costs.

In her new report, the Environmental Commissioner claims that Ontario’s conservation program subsidies are a great deal for ratepayers. In 2015, a total of $429 million was recovered from Ontario’s ratepayers through the Global Adjustment Mechanism (GAM). Don’t worry says the Environmental Commissioners, every dollar spent returned $1.29. Behind this assertion is a junk methodology that ignores lost revenues due to conservation and also ignores the fact that Ontario power consumers (and taxpayers) are paying massive penalties to dispose of Ontario’s rapidly growing inventory of unusable power and to pay generators further large but undisclosed amounts to not generate. The IESO reports that in 2016, 2.9 TWh of potential wind and nuclear generation was dispatched down to manage surplus power. (http://www.ieso.ca/corporate-ieso/media/year-end-data) OPG reports that in the second quarter of 2017 alone it lost 2.6 TWh of hydro-electric production due to power surpluses. (http://www.opg.com/about/finance/Documents/20170811CombinedNewsReleaseMDAOPGQ22017FINAL.pdf)

For those interested in tracking export losses and payments to generators to not generate, I recommend Scott Luft’s awesome work. Here’s an example.

The Environmental Commissioner also keeps pounding the drum for more aggressive programs to increase consumer dependence on electricity for heating and transportation. Saxe’s report recommends:

“Significant fuel switching to cleaner, non-carbon based fuels will also be needed. This will require policy intervention since Ontario’s electricity is much more expensive than natural gas and electric vehicles are more expensive than petroleum fueled vehicles.”

The Environmental Commissioner is influential. Previous recommendations of the Environmental Commissioner that have made their way into policies include changes to the Building Code effective at the beginning of 2018 requiring that new houses with parking to be built with a 240 volt/50 amp electric circuit and receptacle suitable for charging electric vehicles — a significant cost for new homeowners, few of whom are likely to use it, at least in the foreseeable future.

The Environmental Commissioner also endorses programs that directly and indirectly subsidize large industrials customers to install load displacement generation, and to get paid standby rates for load dispatch — again, all during a period where power surpluses are punishing consumers. The IESO administers these programs. Direct subsidies to install load displacement generation are available through a program called “Industrial Accelerator”. Indirect subsidies are through the “Industrial Conservation Initiative”, which is used to shift Global Adjustment costs away from the largest industrial customers onto smaller consumers of all types. Industrial customers can get paid for making loads available to be cut during times of constrained supply through the IESO’s “Demand Response” programs, all the while the IESO is forecasting very low likelihood of any periods of constrained supply in the foreseeable future.

There are pockets of rationality left in Ontario’s power and policy systems where harm to consumers is still considered to be something to avoid, rather than opportunities to seek out.

As Brady Yauch of the Consumer Policy Institute has recently noted, one example is the Market Surveillance Panel (MSP). The MSP has recently decried the government’s practice of paying industrial users for the option of reducing their use during times of a supply shortfall through the IESO’s Demand Response programs during a surplus period when shortfalls are extremely unlikely.

The Auditor General has made many sensible comments about the fundamental economic problems with conservation programs in the current power situation in Ontario. For example, the 2015 Audit General report noted that conservation in the existing surplus power situation contributes to expensive electricity curtailments and exports (pages 215-216, Section 4.4). As the AG notes:

When the available electricity supply exceeds the maximum hourly consumption plus the reserve requirements, as it has in Ontario for the past six years, reducing electricity consumption through conservation efforts is of little value…investing in conservation during a time of surplus actually costs us more: the first type of cost is for managing the conservation programs and initiatives themselves; the second is for surpluses and the resulting costly oversupply of electricity those conservation efforts contribute to.

The Auditor General has found that many of the government’s conservation programs are not subject to cost/benefit analysis and that the analysis that has been performed is often fundamentally flawed.

The Auditor General’s analysis on conservation appears to have been ignored by the provincial government as has the AG’s analysis on almost every energy-related subject.

Future Debates on Conservation

One of the steps that will necessary for any future government to stabilize Ontario electricity situation will be to terminate wasteful conservation programs and to staunch further uneconomic bypass generation from eroding the revenues available to discharge fixed costs.

Interest groups created or sustained by the Ontario government to promote the government’s agenda and conservation-at-any-cost advocates, like Dianne Saxe, can be expected to fight back. Hear the ranters in advance:

You’ve killed all the polar bears!
That bad weather last week is your fault!
You’re returning us to the blackouts and brownouts that Mike Harris caused in 2003!
Conservation is cost-effective, no matter what the cost!