June 30, 2006
The Ontario government has promised to bring a giveaway of conservation to electricity usage. Conservation and demand management, aimed at reducing energy use, are the backbones of a 20-year plan to dramatically alter consumption.. It’s a grand dream that hides a reality. Current conservation schemes have created a consumer rip-off and yet another reason for future blackouts.
Ontario’s largest conservation program is operated by Toronto Hydro. It spent $13.4-million on conservation programs in 2005 as part of a three year, $42-million program under the direction of the Ontario government and the oversight of the Ontario Energy Board. The utility operated 12 programs during 2005 and claims to have saved enough power to supply 6,000 homes for a year.
The actual program results, even applying the rose-coloured-glasses assumptions of conservation program effectiveness ordered by the Ontario Energy Board, tell another story.
Toronto Hydro has triple-counted the claimed electricity consumption savings for some of its conservation programs.
Not only are the results inflated but so are the costs. Toronto Hydro giveaway programs are funded by a hidden tax that its customers pay. Some of the product giveaways cost 10% more than a matching product available from a popular retailer and up to seven times that of similar products available from discount retailers.
Toronto Hydro’s largest conservation program was a series of electrical product promotions offered through Home Depot. The program was composed of three elements: a giveaway program for compact fluorescent light (CFL) bulbs and discount coupons for air conditioners and Christmas lights.
Last fall, the Ontario Energy Board issued guidelines for utilities to use in reporting conservation savings. The guidelines provide the assumptions utilities are required to use in calculating the energy savings associated with conservation programs. For example, when a utility gives a CFL to a consumer, the guidelines indicate what type and wattage of bulb the consumer is assumed to replace with the CFL. The number of hours a CFL will be used in specific time periods during the year is also assumed. The regulator also provides an assumption for the number of customers who would have upgraded their bulbs on their own without the subsidy program.
The regulator’s assumptions appear designed to mollify the government with its “conservation giveaway” commitment, not to reflect reality. The regulator assumes, for example, that consumers will use the new bulbs in the same way the used the old bulbs. It ignores independent studies showing consumers use low-energy bulbs more, knowing that the new bulbs will consume less electricity. The same is proven when car buyers switch from SUVs to small cars; they average more kilometres. The regulator also assumes that only 10% of those receiving freebie efficient bulbs would buy them without the subsidy, even though efficient bulbs sell well without subsidies.
Accepting that every giveaway appliance acquired by consumers was used as assumed by the regulator and also assuming that every appliance was installed immediately upon acquisition by every consumer. The savings claimed by Toronto Hydro are 2.12 times greater than the saving calculated using the Energy Board’s calculations. Although the foregone consumption attributable to the giveaways is fundamentally unknowable, the actual savings achieved by the giveaway programs are probably much less than officially assumed.
The largest individual product promotion under the Toronto Hydro/Home Depot program gave away “free” CFLs. The embedded cost of the giveaway program to Toronto Hydro customers was $7.71 per bulb not including regulatory overheads. CFLs of equivalent size are available at Ikea for $6.99. Slightly smaller CFL bulbs can be purchased from discount retailers for $1.
The conservation silly season is just getting started. This week, the Ontario Energy Board approved a Toronto Hydro program to give customers who cut their usage this summer by 10% a bill reduction of 10% paid for by other customers. The program will be particularly kind to high-income consumers. In granting this approval, the Board acknowledged that customers without air conditioners, who are more likely to be low-income customers, will generally be subsidizing consumers with air conditioners. Consumers with other power demands that are easily cut, such as pool pumps and Jacuzzis, may also benefit. Spending more time at the cottage will be another strategy some will use to get others to pay their power bills. Toronto Hydro has no quantitative analysis suggesting that the program will be effective in cutting peak electricity demand when the power system is most vulnerable.
According to the Energy Board’s assumptions, every dollar spent on this program will yield $4.70 in benefits. That conclusion is exaggerated. To arrive at its conclusion, the regulator assumes that only 10% of the subsidy recipients get a free ride because they would have dropped their usage by 10% without the program. Independent analysts studying a similar California program found that 65% of the beneficiaries got a free ride. They were cutting back anyway.
While sham conservation flourishes, real conservation languishes with government organizations the leading wastrels. Toronto Hydro continues to rent unmetered flat-rate water heaters – a program designed to promote electricity consumption. Part of Ontario Hydro’s legacy is more than 400,000 residential suites in multi-occupancy buildings with only a single bulk meter for the building and no suite meters – also installed as part of a push to boost use. The provincial government continues a policy that goes back decades of subsidizing construction of very inefficient electrically heated social housing units.
Conservation programs, like those of Toronto Hydro, are one foundation stone of the Ontario government’s plan to keep the province’s lights on. The Energy Minister, Dwight Duncan, would have us believe that aggregate power usage is susceptible to his opinion. Earlier this month, he directed government agencies to assume that peak power usage in the year 2025 will fall below the power usage anticipated for this summer. With the Ministry of Finance anticipating three million more citizens over this period, Duncan’s order implies a corresponding drop in usage per person.
Ontario power usage per person has been fairly stable for many years and is far below the national average. Residential and commercial usage per person in Ontario is already less than the U.S. average. No major industrialized country has achieved a reduction in usage per person comparable to that order by the McGuinty government while growing its economy.
Politicians, particularly Liberals, love to appear energetic with the energy file, but their commitments are too often vacuous. A case in point was former Liberal prime minister Chretien’s vacuous promise to cut carbon dioxide emissions to comply with the Kyoto treaty. McGuinty’s airhead 2003 coal phase-out promise was the same. McGuinty’s now unachievable promise to implement 800,000 smart meters by 2007 is similar. Following in their footsteps, Minister Duncan’s conservation directive was issued without supporting analysis.
Yesterday, the government’s power planning department – the Ontario Power Authority – issued a report outlining how the conservation directive and many others will be assembled into a 20-year power plan for the province. The planner’s report obediently regurgitates the government’s directives as if the future the government has ordered is a fact.
Official government reliance on Toronto Hydro-style conservation programs to keep the lights on is destined to have the opposite effect.