Thursday, January 3, 2013

Conservation or Consternation: A Reflection of Ontario's Energy Policy

Parker Gallant's latest - may also be downloaded/printed as a .pdf file

An article in the Ottawa Citizen on Boxing Day indicated Ontario was the only place in North America forecasting negative growth in demand for electricity for 2013-2022 and carried quotes from an Ontario Power Authority (OPA) spokesperson on the reason. Chuck Farmer, director of planning policy had this to say about Ontario's position: “It's really because the growth is being offset by energy efficiency in one form or another and I think that's quite a success story.” Ontario's ratepayers know that “energy efficiency” is another way of saying “conservation” and it is impossible to open up your hydro bill without finding coupons or energy efficient rebate offers or an offer to pick up your old fridge for free. In Ontario we hear ads on the radio, see them on TV and find them in newspapers and webpages and they all all aimed at helping us save energy.

Ontario also has “smart meters” which were touted by our Liberal government as energy savers when introduced by then Minister of Energy, Donna Cansfield in 2005. Minister Canfield said: “By helping Ontarians make smart choices about how and when they use electricity, we're helping them save money and making the most of our electricity supply.” Ms. Cansfield promised to couple that “with a pricing structure that reflects the cost of power production at certain times of day and year, allows consumers to make informed decisions about their electricity use. This will save money for Ontario consumers and reduce the strain on the power system at peak periods.”

The “pricing structure” referred to by Minister Cansfield, begat time-of use (TOU) pricing reputedly to allow us all to save money. Just prior to that announcement the OPA had been created and Minister Cansfield in the November 3, 2005 press release indicated that they would appoint Ontario's first “Chief Energy Conservation Officer.” Almost exactly one year later the appointee to that position; Peter Love, (part of the Bruce Lourie circle) delivered a speech to the Empire Club about conservation and opined on how it would all save us money. Included in his speech were the words; “When it comes to being of benefit to the economy, electricity conservation has a multiplier effect. It truly is a gift that keeps on giving.” The OPA has led our publically owned energy sector companies in spending billions of ratepayer dollars to entice us to save energy as Minister Canfield envisaged and as so persuasively stated by Peter Love.

Several years have passed since our Liberal politicians first began pushing “conservation” so lets have a look at what we have achieved, the money we have saved, and if it is the “success story” that Mr. Farmer says it is and the gift “that keeps on giving” as Peter Love said. Lets examine a few facts;
  • Smart meters cost ratepayers about $2 billion with the principal purpose; to allow our local distribution companies (LDC) to bill on a TOU basis. The Liberal government told us TOU pricing would allow ratepayers to choose when to do our laundry or cook our meals to “save us” money. 
  • In 6 years (2006-2011) the OPA budgeted spending on conservation initiatives of over $1.6 billion and have developed over 30 programs aimed at getting us to conserve energy. 
  • Our 75 LDCs have also spent several hundred million dollars in the 6 years on conservation initiatives. NB: In 2011 alone they spent about $94 million over and above the OPA initiatives. 
  • The conservation initiatives were started in earnest, by our current Minister of Finance, Dwight Duncan when he occupied the Energy Minister's chair. He issued his first directive on conservation matters to the OPA on May 2, 2005 and issued a definitive one July 13, 2006 that took the initative province wide. These directives always mentioned the reason behind the conservation initiatives was to allow Ontario to close those coal plants. 
  • Minister of Energy, Brad Duguid on April 23, 2010 issued a directive to the OPA to continue the conservation program to the end of 2014 (beginning January 2, 2011) after having issued one to the Ontario Energy Board (OEB) March 31, 2010 instructing them to reduce peak demand by 1330 Megawatts. 
  • Millions of dollars have been spent by the OPA advocating conservation by advertising on radio, TV, in the print media and the internet all due to the issuance of Ministerial directives. 
  • When LDCs demonstrate they have met conservation targets they can freely apply for rate increases to the OEB to cover the loss of revenue from ratepayers conservation efforts. 
So after spending $4 billion or so in six years to get us to conserve how did the ratepayers respond was the question that needed an answer!  Was the money well spent so that the ratepayers of Ontario got value for those billions of dollars and was it the “success story” Chuck Farmer said it was?

The OEB annually, since 2005, has produced a report referred to as the “Yearbook of Distributors” which is a compliation of data, of an economic/actuarial nature.  The report also contains all relative data in respect to the client base, annual consumption of electricity, number and class of customers and a myriad of other facts of each LDC on an individual and consolidated basis. Needless to say all of this data is beneficial in analyzing the effectivness of both the LDCs (individually and collectively), the programs initiated by their political masters and the oversight of their policy directives.

Co-incidentially the OEB just released (December 20, 2011) what they refer to as their; “Conservation and Demand Management Report – 2011 Results” (CDMR). This appears to be the first and only report from the OEB that deals with the “history” of the programs instituted to achieve what the Liberal political masters decreed so the data available is limited to just 2011. Each LDC was required to file a report and needless to say they vary in both size and achievements. In reviewing the Yearbook of Distributors from the OEB and the data presented in this Conservation and Demand Management report however one can extract certain key elements on the outcomes of that $4 Billion spent. Some of those facts follow:
  • Comparing the Yearbook of Distributors for 2005 total consumption with that of 2011 show the drop in consumption was 2,733,000 MWh (megawatt hours) or enough to power 289,000 average homes. That drop in consumption over those 6 years represented a 2.2% decrease. 
  • The foregoing drop does not include “industrial users” (consumption of 5,000 MWh or more per month) whose population at the end of 2005 numbered 172 and had dropped to 144 by the end of 2011 for a decline of 16.3%. 
  • Big Industry presumably showed a significant decline in consumption helped out by the change in how the Global Adjustment Mechanism (GA) is now calculated allowing them to reduce their GA costs by picking the top five peak hours to reduce consumption which commenced January 1, 2011. 
  • The OEB's CDMR report makes no mention of the effectiveness of “smart meters” and the move to TOU pricing in respect to ratepayers changing their habits despite it's cost of $2 billion. 
  • The OEB's CDMR report for the 2011 year indicates 2011 total “incremental energy savings” of 605,000 MWh which would represent 21.8 % of the consumption drop of 2.2% so one must assume the other 78.2% came in the prior 5 years. 
  • Using the $4 billion estimate of spending on conservation against the MWh saved (2006-2011), the 2,773,000 decreased consumption indicates each MWh saved cost ratepayers $1,442. 
As noted above each LDC was required to file a report with the OEB in respect to their conservation efforts and those reports are available for viewing on the OEB website. A quick look at some of the reports shows the average length to be about 60 pages with some stretching to almost 100 pages so in total the OEB sorted through approximately 3,800 pages to produce their 20 page report. This writer intentionally took some time to review the reports from the two largest LDCs to uncover what their success was in getting their ratepayers to buy into the conservation sales pitch. The two examined were Hydro One Networks and Toronto Hydro (TH) who together are responsible for electricity distribution to approximately 40 % of Ontario's households and businesses. I discovered some interesting facts about their individual conservation “success stories” which follow:
  • In 2005 Hydro One had 24 large industrial users (see above) and in 2011 had none (zero) whereas, Toronto Hydro had 47 large industrial users in 2005 but in 2011 had 52. 
  • Hydro One's customers consumed 500,000 MWh less in 2011 than 2005 representing a drop in percentage terms of 2.1% or less than the average of 2.2% whereas Toronto Hydro showed a drop in consumption of 1,688,000 MWh representing a drop of 6.4%. 
  • Toronto Hydro in their CDMR complained that the OPA didn't provide them with “any evaluations of savings from TOU pricing” for allocation to the LDCs meaning TH could not “provide any verified savings related to” their TOU program. 
  • TH indicated “incremental energy savings” of 173,000 MWh for 2011which represents 29% of the overall “conservation” savings reported in the OEB's 2011 CDRM report. 
  • Hydro One reported “incremental energy savings” of 126,000 MWh for 2011 which represents 20.8% of the overall “conservation” savings reported in the OEB's 2011 CDRM report. 
  • TH spent in excess of $1.5 million on 8 conservation programs with no (zero) participants and Hydro One spent $220,000 on 3 programs with no (zero) participants. 
  • TH spent an average of $127 to pick up that old fridge or freezer and claimed that each one resulted in conservation of 385 kWh per annum whereas Hydro One spent $120 and claimed conservation of 420 kWh for each. 
  • Energy savings from retiring or replacing old fridges or appliances seems to be an arbirtrary decision by each LDC without common standards and appear to apply even if the appliance or the old RAC was simply gathering dust in the garage. 
  • TH spent an average of $186 each to remove and decommission room air conditioners (RAC) which is about the price of a new Frigidare 5000 BTU RAC. It cost Hydro One $125 each. 
  • TH spent an average of $443 each to provide and install a load control device for customers who enrolled in the “peaksaver PLUS” program but the cost for Hydro One was $348 each. 
  • TH performed 60 energy audits for owners and lessees of commercial, institutional, multi-family buildings at a cost of $8,402 each and these audits cost Hydro One $7,743 each for the 3 they conducted. 
The individual LDC's reports frequently highlight faults with a number of the programs and with incompatibilty of some of the devices installed (eg; load control devices and programmable thermostats etc. were mentioned) and with the failure to have a comprehensive plan for roll-out of some programs. With no standards applied to “energy savings” for say, decommissioned appliances; each LDC seem able to pick what they think they should be in order to meet goals set by the OEB under the Minsterial directives.

Monies spent on program administration seems consistently more than any benefit to the participant in most cases. From all appearances the Ministerial directives have resulted in LDCs creating another level of bureaucracy driving up operations, management and administration costs (OMA) that are recovered from ratepayers using money that should have instead gone to replacing or refrubishing infrastructure.

So the burning question is, was there “real” value in spending $4 billion dollars to achieve a reduction in consumption of 2,773,000 MWh? A reduction that appears to have been caused by the economic downturn and the flight of large industrial customers from the province?

Interestingly enough the 2,773,000 MWh in reduced consumption from 2006-2011 could have been achieved by simply buying each of the 4.5 million Ontario households five (5) LED 16 watt bulbs (equivalent to 100 watt incandesent) each at a cost of about $1 billion or $361 per MWh of the reduced consumption. I suggest LED bulbs because they do not use mercury (a poison) in their production and will last 20 years.

On another note the 2,773,000 MWh could have been supplied by one 400 MW gas plant with a price tag of about $400 million in capital costs (developers expense) and supplied the power at $70/90 per MWh meaning it would have taken almost 20 years to spend the $1,442 that Ontario ratepayers have paid to conserve those same MWh. I am confident that the Auditor General of Ontario, had he examined the “conservation” issue in his 2011 report, would have reached the same conclusion as he did on the push for renewable energy—the monies were spent without any consideration of a comprehensive cost/benefit analysis.

From the evidence presented in the reports noted above the only conclusion one can draw is that the spending on “conservation” has been a waste of ratepayers monies to achieve nothing substantial. Couple that spending with the new initiative to attract “industrial” consumers to the province to soak up surplus electricity production recently announced by Minister of Energy, Chris Bentley, and it is obvious that the push/pull of the Liberals confused policy directions on the energy sector show they are trying to push the rope up the hill.

The gift that Peter Love saw as one “that would keep on giving” and that Minister Cansfield saw as a spending program to “save money for Ontario consumers” has cost Ontario's ratepayers and taxpayers billions of dollars that could have created meaningfull jobs.

In the end we are all conservationists and left alone Ontarians would have done a more efficient job at conserving without the Liberal government telling us they knew what we should do, and in the process throwing away billions of our hard earned dollars.


Parker Gallant, 
January 3, 2013

221 comments:

  1. Thanks for taking the time to dig all of this out, even over Christmas. It seems that every single aspect of the current energy policy is messed up. One has to wonder how much serious and long-lasting damage has been done (and will continue to be done) to Ontario residents by these misguided policies. Regardless of ideology (liberal or conservative) I'd think that fundamental incompetence would be punished by the voters. I guess we'll see.

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  2. Money sent to (confiscated by) the government, or agencies like Hydro, disappears into a black hole of bureaucracy, boondoggle, and incompetence. Unfortunately voters cannot see into black holes, and politicians/bureaucrats can't see out. And the hole keeps getting blacker, even with the odd candle being lit by stalwarts like Parker. We can only try to fan the flame.

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