conservation costs

Ontario candidates overstate conservation costs

Energy management practitioners defend rate-based program financing
Wednesday, May 2, 2018
By Barbara Carss

The upfront costs of Ontario’s electricity conservation programs are lower than some candidates for provincial office are alleging. Progressive Conservative leader Doug Ford recently promised that his party’s plan to fund energy efficiency measures with tax revenue rather than directly through hydro rates would cut the average family’s annual electricity costs by about $43. However, the average residential customer currently pays less than $28 toward conservation.

“Electricity distributors and the IESO (Independent Electricity System Operator) are investing roughly $400 million annually, which is prorated to 130 billion kilowatt-hours (kWh) of consumption. That works out to about 0.3 cents per kWh allocated to the Global Adjustment,” calculates Andrew Pride, an engineer and consultant providing guidance on environmental sustainability and energy management, who oversaw provincial conservation initiatives prior to the Ontario Power Authority’s merge with the IESO. “For average households consuming 750 kWh, their share of program costs would be $2.30 per month.”

Beyond debunking flawed estimates of potential savings, he argues that decoupling conservation costs from the electricity rate structure would upend the most economically rational funding formula. The user-pay approach directly links charges to consumption, allows electricity distributors to self-sufficiently finance initiatives that principally benefit their own operations and ratepayers, and makes program administrators accountable to funders who are also their customers.

“Considering that, long term, the electricity system saves more than two dollars for every dollar invested in conservation, it makes sense for the electricity system to pay the costs,” Pride asserts. “Keeping the drivers aligned supports cost-effective energy savings.”

“Rate-based financing for energy conservation programming is a widely accepted practice throughout North America,” concurs Mark Winfield, a professor in York University’s Faculty of Environmental Studies and coordinator of its Sustainable Energy Initiative.

Cost-effective investment in matching supply to demand

Expenditures to implement energy-saving measures have proven to be investments with favourable returns. The Environmental Commissioner of Ontario’s recently released 2018 Energy Conservation Progress Report points to both the short-term benefits of reducing peak demand that would otherwise press gas-fired generation plants into production of pricier and dirtier power, and the longer term savings from delaying or avoiding the need to build new highly capital-intensive generating facilities and associated transmission and distribution assets.

Commissioner Dianne Saxe pegs the lifecycle costs of new generation at 7 cents per kWh for wind power, 12 cents/kWh for hydroelectric and nuclear, 14 cents/kWh for solar and 16 cents/kWh for bioenergy, versus system costs of 2.1 cents/kWh as existing generating capacity is stretched through conservation and demand management. “Over the past decade, conservation has saved money for all electricity customers and delivered additional benefits to those who participate in programs, including low-income customers and Aboriginal communities,” she states.

“Conservation is the cheapest way to match supply to demand,” reiterates Keith Brooks, programs director with the public interest group, Environmental Defence. “The Province should continue to put conservation first, pursue all cost-effective conservation and fund it from the rate base.”

Commercial real estate players and public sector facilities managers have clearly seen the value in energy efficiency, both individually and through industry organizations like REALPAC, the Building Owners and Managers Association, the Federation of Rental-housing Providers of Ontario, the Canadian Condominium Institute and the Canadian Healthcare Engineering Society. Currently, for example, management teams and tenants from more than 500 buildings, encompassing nearly 80 million square feet of commercial space, are enrolled in the race2reduce, targeting a collective 10 per cent reduction in energy consumption (relative to 2016) for the 2018-2020 period. This follows the 12.1 per cent energy savings achieved across 200 buildings participating in an earlier 2011-2015 iteration of the race.

Opaqueness of Global Adjustment fuels allegations

Yet, commercial electricity customers share residential customers’ concerns about escalating rates. In particular, the lack of details about the components and their relative weights within the bucket of costs known as the Global Adjustment — which now accounts for 80 to 90 per cent of the commodity cost of electricity — makes it easier for critics to typify conservation as a buried cost and to lump it with other presumed nefarious elements believed to be inflating the price of electricity.

“Right now, seniors, small businesses and families are paying for hidden expenses on their hydro bills that have nothing to do with keeping the lights on,” Doug Ford maintained, as he outlined a scheme envisioned to enable “the average Ontario family” to save 12 per cent on electricity costs. Along with transferring conservation programming to the provincial tax base, he also promised to return Hydro One dividends to ratepayers and to attempt to renegotiate some of the energy contracts now enveloped in the Global Adjustment.

Many observers acknowledge that Ford is tapping into justifiable concern about the opaqueness of the Global Adjustment. His targeting of conservation costs might be seen as a complement to the Toronto Region Board of Trade’s energy policy position paper — released to raise issues ahead of the looming provincial election — which recommends: “Costs not directly related to generation, transmission and distribution should be moved out of electricity prices and either funded by the tax base or cancelled.” However, proponents of energy efficiency counter that conservation is directly related to those key elements.

“Electricity supply and demand are always linked. Saying that energy conservation has ‘nothing to do with keeping the lights on’ is like saying that your right hand has nothing to do with your left foot,” scoffs Corey Diamond, executive director of Efficiency Canada, a national organization promoting energy conservation. “It’s all connected.”

More transparency would serve conservation well since it should reveal its lower cost in comparison to other Global Adjustment components. Many energy management practitioners and potential recipients of program funding would also welcome more scrutiny of the communications and marketing expenditures attached to conservation.

“I think having a review of where we’re spending the money and what we’re getting for it would be a good thing,” submits Scott Rouse, managing partner of the consulting firm, Energy@Work. “But I don’t think the programs should be moved off the ratepayer base to the tax base. It’s just one of the fundamentals: electricity should pay for electricity; water should pay for water, etc.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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