Tom Adams
National Post
September 24, 2003

To solve its energy problems, the Tory government in Ontario is trying a dim-bulb idea. It is ordering energy companies to pay customers to not use their products. Then, to compensate the companies, the government is allowing them to tack the associated costs onto customer bills, sometimes years later.

This dim-bulb idea isn’t new. In 1991, with such conservation-through-central planning schemes all the rage, Ontario Hydro signed on to them big time. Under what was then an NDP government, Ontario Hydro’s planners imagined that energy problems could be solved by stunts like distributing a pair of 52-watt light bulbs to households across the province. That “demand-side management” program, as the conservation schemes are known in the trade, alone cost $11-million. The budget for the overall conservation initiative ballooned to over $6-billion before it was scrapped and written off in 1993, when the utility started to come under competitive pressure.

Ten years later, this dismal business is back, this time under the auspices of Enbridge Gas Distribution, Ontario’s largest natural gas distributor. Enbridge shareholders last month scored an $8.1-million dividend bonus for claiming to have discouraged customers from using the company’s product in 2000 and 2001. Most of the payout, ordered by the Ontario Energy Board, was based on the company’s unaudited, self-reported results from its conservation programs in 2001.

This rich reward came notwithstanding the conclusions of an independent audit, approved by the Energy Board, of program results for 2000. The audit, the only one ever undertaken of Enbridge’s operations, discovered a long list of overstated savings. In fact, the audit found over half of the savings for some programs to be bogus.

The audit highlighted the difficulty – if not impossibility – of quantifying the actual savings and cost effectiveness for programs designed to prevent people from consuming. How can anyone know what consumers would have done in the absence of a particular program?

Of Enbridge’s $8.1-million payout, residential customers will bear 99% of the cost and industrial customers 1%, even though, according to Enbridge’s accounting, industrial customers will scoop 35% of the benefits. Oddly, this corporate giveaway comes with the blessing of the Consumers Association of Canada and a coalition including the union-backed Ontario Coalition Against Poverty – groups that appeared before the Ontario Energy Board in order to represent residential consumers. The bill for that 99% will start to hit households, small businesses, schools and other institutional users later this year.

While Enbridge wins praise from conservation advocates, a growing body of data that compares the performance of Enbridge customers with those in comparable utilities suggests that something could be going horribly wrong. The data suggests that Enbridge’s conservation programs may actually be increasing energy consumption.

A study conducted in 2000 by the respected Gas Research Institute found that between 1984 and 1999, households in a region that includes Ontario and five U.S. states cut their natural gas usage at a rate of 1.2% per year. Preliminary findings show that usage across this region has declined more quickly since. Meanwhile, between 1993 and 2002 – a period during which Enbridge actively promoted conservation – households served by Enbridge cut their usage by only 0.84%, a rate fully 30% slower.

Households served by Union Gas, Ontario’s second largest gas distributor, a utility often criticized by conservation advocates for dragging its feet on conservation programs, are also outperforming Enbridge households. They are cutting their consumption at a rate about 20% faster than their counterparts at Enbridge.

How conservation programs can backfire, and discourage conservation, is no mystery. When customers expect the government or a government-regulated utility to pay part of the costs of insulating their homes, or replacing their old appliances, they tend to put off their purchases until the program is in place. Enbridge customers are no different than customers in other jurisdictions that try to protect their pocketbooks. In their case, however, procrastination often pays.

The economic and environmental damage from natural gas conservation programs are relatively small. The big damage is slated to come in electricity.

Because the Eves government destroyed the electricity market by freezing electricity rates, Ontario’s electricity consumption has been rocketing upward and threatening to outrun our faltering supplies. The Eves’s government’s answer, like predecessor governments, is more conservation programs, this time to be implemented through Ontario’s electric distribution utilities.

The process is now in train. The consequences could be horrific. Unlike Ontario’s electricity sector, Ontario’s gas sector is financially and operationally sound, and mostly run on a businesslike, market-oriented basis. The gas sector can easily withstand conservation blunders. After all the shocks that the electricity sector has suffered – particularly the rate freeze and the end to a functioning market – it doesn’t enjoy this luxury. Conservation programs promise to speed us toward blackouts.

To solve its energy problems, the Tory government in Ontario is trying a dim-bulb idea. It is ordering energy companies to pay customers to not use their products. Then, to compensate the companies, the government is allowing them to tack the associated costs onto customer bills, sometimes years later.

This dim-bulb idea isn’t new. In 1991, with such conservation-through-central planning schemes all the rage, Ontario Hydro signed on to them big time. Under what was then an NDP government, Ontario Hydro’s planners imagined that energy problems could be solved by stunts like distributing a pair of 52-watt light bulbs to households across the province. That “demand-side management” program, as the conservation schemes are known in the trade, alone cost $11-million. The budget for the overall conservation initiative ballooned to over $6-billion before it was scrapped and written off in 1993, when the utility started to come under competitive pressure.

Ten years later, this dismal business is back, this time under the auspices of Enbridge Gas Distribution, Ontario’s largest natural gas distributor. Enbridge shareholders last month scored an $8.1-million dividend bonus for claiming to have discouraged customers from using the company’s product in 2000 and 2001. Most of the payout, ordered by the Ontario Energy Board, was based on the company’s unaudited, self-reported results from its conservation programs in 2001.

This rich reward came notwithstanding the conclusions of an independent audit, approved by the Energy Board, of program results for 2000. The audit, the only one ever undertaken of Enbridge’s operations, discovered a long list of overstated savings. In fact, the audit found over half of the savings for some programs to be bogus.

The audit highlighted the difficulty – if not impossibility – of quantifying the actual savings and cost effectiveness for programs designed to prevent people from consuming. How can anyone know what consumers would have done in the absence of a particular program?

Of Enbridge’s $8.1-million payout, residential customers will bear 99% of the cost and industrial customers 1%, even though, according to Enbridge’s accounting, industrial customers will scoop 35% of the benefits. Oddly, this corporate giveaway comes with the blessing of the Consumers Association of Canada and a coalition including the union-backed Ontario Coalition Against Poverty – groups that appeared before the Ontario Energy Board in order to represent residential consumers. The bill for that 99% will start to hit households, small businesses, schools and other institutional users later this year.

While Enbridge wins praise from conservation advocates, a growing body of data that compares the performance of Enbridge customers with those in comparable utilities suggests that something could be going horribly wrong. The data suggests that Enbridge’s conservation programs may actually be increasing energy consumption.

A study conducted in 2000 by the respected Gas Research Institute found that between 1984 and 1999, households in a region that includes Ontario and five U.S. states cut their natural gas usage at a rate of 1.2% per year. Preliminary findings show that usage across this region has declined more quickly since. Meanwhile, between 1993 and 2002 – a period during which Enbridge actively promoted conservation – households served by Enbridge cut their usage by only 0.84%, a rate fully 30% slower.

Households served by Union Gas, Ontario’s second largest gas distributor, a utility often criticized by conservation advocates for dragging its feet on conservation programs, are also outperforming Enbridge households. They are cutting their consumption at a rate about 20% faster than their counterparts at Enbridge.

How conservation programs can backfire, and discourage conservation, is no mystery. When customers expect the government or a government-regulated utility to pay part of the costs of insulating their homes, or replacing their old appliances, they tend to put off their purchases until the program is in place. Enbridge customers are no different than customers in other jurisdictions that try to protect their pocketbooks. In their case, however, procrastination often pays.

The economic and environmental damage from natural gas conservation programs are relatively small. The big damage is slated to come in electricity.

Because the Eves government destroyed the electricity market by freezing electricity rates, Ontario’s electricity consumption has been rocketing upward and threatening to outrun our faltering supplies. The Eves’s government’s answer, like predecessor governments, is more conservation programs, this time to be implemented through Ontario’s electric distribution utilities.

The process is now in train. The consequences could be horrific. Unlike Ontario’s electricity sector, Ontario’s gas sector is financially and operationally sound, and mostly run on a businesslike, market-oriented basis. The gas sector can easily withstand conservation blunders. After all the shocks that the electricity sector has suffered – particularly the rate freeze and the end to a functioning market – it doesn’t enjoy this luxury. Conservation programs promise to speed us toward blackouts.