Ontario’s Power Trip: The high cost of ‘conservation’
November 17, 2010 – 10:44 pm
Guess what, demand reduction reduces revenue
By Parker Gallant
In June, 2006, Dwight Duncan was Ontario’s Minister of Energy and about to launch a new green initiative for Ontario’s electricity sector, the Conservation Demand Management (CDM) program. The objective was to get Ontario consumers to reduce their peak demand for electricity via conservation.
In a directive to the Ontario Power Authority, he set out the specifics: “The goal for total peak demand reduction from conservation by 2025 is 6300 MW.” Effectively, Mr. Duncan ordered the OPA to push consumers to reduce peak demand by approximately 25% of the load the electricity sector might expect on the hottest July day.
The first phase of that long-range plan, from 2007 to 2010, recently ended with costs well above budget. And a new directive last week points to more of the same over the next three years. Today, Mr. Duncan’s directive and others since are set over time to cost Ontario electricity consumers as much as $2-billion in rate increases.
The burden of those costs — along with others for green energy prices, solar power, and major transmission infrastructure — is now beginning to appear on consumer bills, promoting a political backlash that the Ontario government is now trying to turn back. To counter that backlash, Mr. Duncan, now Minister of Finance, was set to announce countermeasures in an economic statement Thursday.
Initially, the demand reduction scheme brought a heavy-duty marketing campaign. David Suzuki began appearing in OPA ads urging people to get rid of their beer fridges, take power pledges to reduce consumption, throw out old air conditioners, undergo home audits. Do all this, said the ads, and consumers would save money.
But it turns out that saving money via demand reduction apparently costs a lot of money. Each corporation in the Ontario electricity chain incurred costs setting up the program. Toronto Hydro spent $60-million from 2007 to 2010. To get that money back, it sent a bill to the Ontario Power Authority. In all, across the province, the bills mounted as the promotion campaign and other costs mounted. For 2010, the OPA budgeted $286.6-million for CDM — although the OPA’s recently filed 2011 budget now estimate that they will spend $361.1-million for 2010.
But costs for promotion are only part of the cost. Toronto Hydro, Hydro 0ne and all the other electricity distributors in the Ontario system claim to have lost revenue as a result of these programs. These “deteriorated revenues,” apparently the result of conservation, are losses they are now seeking to replace via rate increases.
Toronto Hydro has applied for an 18.2% increase for 2011, or $448-million, based on 2009 revenue. Hydro One, the province-wide transmission company, has applied for a 15.7% increase, or $555-million, based on their 2009 distribution revenues.
But there’s more to come. The current Energy Minister, Brad Duguid, issued a fresh directive last March setting out the new short-term targets. Officially called “2011-2014 Net Annual Peak Demand Savings Target,” it effectively orders Ontario’s 80 local distribution companies to achieve “Peak Demand Savings” of 1,330 megawatts (MW) by 2014.
On Nov. 12, the provincial regulator issued a list of targets by agency. For Toronto Hydro, the target was 286.3 MW and for Hydro One Brampton, the target was 259.2 MW. At an average cost per kilowatt hour of 0.135¢ (based on current billing), that would be a revenue drop for these 80 mainly municipally owed utilities of $1.5-billion.
There is no way of knowing the collective distribution revenue of these distribution companies, so these are only estimates based on current numbers. But Toronto Hydro will likely seek to recover revenue of as much as $338-million in 2014, equal to a rate increase of 13% of current revenues. Hydro One will likely seek to cover lost revenue of $328-million, or 9.3% of current distribution revenue.
Those rate increases are just for the lost revenue portion of the Conservation Demand Management scheme, which come on top of the marketing costs that are still to come.
The CDM is just part of the Ontario system. Then there are the “subsidies” for solar and wind generators that will be adding up by 2014. Ontario could be looking at 35% to 40% power rate hikes on top of the average of 20% experienced this year, plus the 15% to 18% increases that Toronto Hydro and Hydro One are currently seeking.
Financial PostParker Gallant is a former Canadian banker who looked at his Ontario electricity bill and didn’t like what he saw.
Read more: http://opinion.financialpost.com/2010/11/17/ontarios-power-trip-the-high-cost-of-%e2%80%98conservation%e2%80%99/#ixzz15drLML3e