(October 14, 2014) The Ontario Power Authority’s (OPA) 2014 “conservation” budget at $483 million is presumably based on directions from the Energy Minister, Bob Chiarelli.
Coming from that budget and Minister Chiarelli’s direction is a recent launch of the OPA Funding Programs. These programs offer grants to just about everyone for anything connected to “conservation”. The money, as it is spent, finds its way to the Global Adjustment (GA) pot and onto ratepayers’ bills. The conservation objectives were set out in Chiarelli’s “Minister’s Message” preamble in the December 2013 release of his version of Ontario’s Long Term Energy Plan (LTEP); “Achieving Balance” and had this to say:
Ontario has adopted a policy of Conservation First, focusing on rate mitigation over major investments in generation or transmission to curb costs for ratepayers. This will mean pursuing lower-cost options to meet energy needs when and where we need it.
He followed the LTEP up with a March 31, 2014 directive on conservation to the OPA which said:
To remain on track to achieve the LTEP 2013 CDM target, it is forecasted that 7 TWh [Authors Note: enough to power 730,000 average Ontario Homes] needs to be achieved between 2015 and the end of 2020 through Distributor CDM programs enabled by the Conservation First Framework.
Then just four weeks later on April 24, 2014, Minister Chiarelli issued another directive to the OPA for Stream 3. Streams 1 and 2 were the creation of Chris Bentley when he sat in the energy chair and the objective of the earlier “Streams” was to attract large new ($250 million) investments to Ontario and when that didn’t work the 2nd Stream was aimed at existing Ontario based large electricity users who planned to spend $250 million upgrading their existing presence. Both “streams” offered pricing that encompassed only the HOEP which has averaged around 2.5 cents per kilowatt hour (kWh) for the past two years. Those two streams attracted very little interest despite the cheap electricity rates proffered by the Ministry.
The latest iteration considerably broadened the base of clients setting lower standards of consumption and is available for companies “at a minimum during the first contract year, consist of consumption that is the greater of 5,000 MWh or a 15% net increase over the Eligible Facility’s baseline consumption as determined by the OPA.” To put the 5,000 MWh in perspective that would be about what 520 average households consume in a year!
The additional consumption aimed for is noted in Minister Chiarelli’s directive as; “The total amount of electricity contracted under Streams 1, 2 and 3 of the IEI program shall not exceed an annual cap of 5 TWh.” Those 5 TWh would be enough to annually power about 520,000 average Ontario homes. In order to give the reader a sense of what costs go to the GA, the following is from the OPA’s “Program Rules” under 9.1! It itemizes costs to be absorbed by Ontario’s ratepayers via the GA!
In general terms, the Monthly Payment in respect of a Participant’s Eligible Incremental Electricity will take into account the following charges:
(i) the global adjustment charge;
(ii) the variable component of the incurred transmission charge;
(iii) the IESO administration fee;
(iv) the OPA administration fee;
(v) the renewable generation connection rate protection charge;
(vi) the rural and remote electricity rate protection charge; and
(vii) debt retirement charge”
One of the principal requirements to obtain the benefit of cheap electricity is that Stream 3 customers must consume those 5 TWh during “off-peak” hours or be prepared (when necessary) to curtail their demand during peak hours to obtain the 80% reduction in electricity rates.
At this point it is worth noting that “off-peak” rates for all of the average Ontario ratepayers have increased 175% since May 1, 2008 according to the OEB website. The overall difference between Stream 3 rates and those of the other “average” ratepayers is about 12.5 cents/kWh which translates to $125 million/TWh. Those 5 TWh will therefore be subsidized annually by Ontario’s other ratepayers by about $625 million (assuming all 5 TWh are taken up). If the OPA’s conservation budget of $483 million is added Ontario’s other ratepayers will pay the price to move two more gas plants-every year the “conservation” budget reaches that level!
So Minister Chiarelli, where are those “lower cost options” you carried in your message and how does transferring another $1 billion in costs to Ontario’s beleaguered ratepayers equate to “rate mitigation”?
Parker Gallant is a retired bank executive and a former director of Energy Probe Research Foundation. As with all independent bloggers on this site, Parker’s views do not necessarily reflect those of Energy Probe.
The OPA runs a simple business: it purchases power at various prices, some at low prices below the selling price and some at high prices well above the selling price. In off peak hours, poorly dispatchable producers and others with guaranteed take PPAs supply power at prices above that in the electricity markets open to the OPA even when market prices are near zero or even negative – the result is that they subsidize ~$1.6B in losses primarily due to PPAs with nuclear and fossil fuel producers. During periods of high peak demand, they pay exhorbitant spot prices while curtailing some large users which represents both sales below cost and loss of sales. All of this adds cost to the system which is blended into the rate structure. Time shifting demand from peak to off-peak provides considerable cost savings so providing rate incentives to large users to do so is in order and lowers the average price paid for power as well as the losses due to forced sales below cost. The statement “Those 5 TWh will therefore be subsidized annually by Ontario’s other ratepayers by about $625 million” is contrary to what actually happens in the power market.
The other notion that conservation is a bad thing is unsupportable: consuming less power, particularly reducing use during peak hours will lower a consumers costs while also lowering the spot prices paid for marginal power which benefits all consumers in the long run. The value of negawatts is greater than just the avoided cost to the conserver. Also, given that the majority of loss of continuity of service is due to equipment failure and operational problems, removing demand from the system can greatly improve CoS where service interruptions have a cost of ~$2.5B per year to the Ontario economy. While the simplistic pricing model focuses on cost per unit of energy, the real issue is the total cost of energy per economic unit: for the residential customer it’s the total at the end of the month; for the industrial customer it’s the total cost of energy per unit of production. In either case, conservation is a good thing and considering the elasticity of power markets, more effective at lowering the cost of energy than any other measure.
In Ontario, the theory was that privatizing significant portions of the system would lower costs – it hasn’t. In fact, in an attempt for-profit enterprises to supply the market at even comparable prices, the government has had to sign PPAs with fixed prices, guaranteed purchase quantities and curtailment fees which abrogate market forces and effectively subsidize these players. A good part of the time, the OPA is purchasing power from these producers at prices above the market price.