Ontario's Electricity Distribution Companies: Truth In Advertising

When ratepayers in Ontario opened their mail from Hydro One, Toronto Hydro or any of the other 75 local distribution companies (LDCs) over the past month they were offered free stuff like a free energy display or a free programmable thermostat. They also were offered 100 Bonus Air Miles. While the latter is worth about $10.00 the two former items are said to be worth $250.00, not including, in the case of the thermostat, installation costs which are also free.  The only condition attached to these free offers is that you must join “peaksaverPLUS” a trademark of the Ontario Power Authority. The peaksaverPLUS program is designed to; help you conserve energy and allow the LDC, for example, to remotely control your thermostat or refrigerator and reduce electricity demand on hot summer days.

So the question becomes, how can these LDCs give away all that “free” stuff? To put the potential costs in perspective; if all of Hydro One's 1.2 million customers joined, the costs would be quite significant. With installation costs of say $100.00 per thermostat the total costs ($250 + $100) to install them in all households would be a staggering $420 million dollars and represent about 65% of Hydro One's annual income for 2011. For Toronto Hydro the cost of those free energy displays would be about $155 million or $59 million more then they earned in 2011.

Further costs to the LDCs would be the loss of revenue as a result of the reduced consumption, through individual ratepayers conservation efforts, or the LDCs ability to remotely turn up air conditioners or turn off refrigerators during summer hot spells using the smart meters.

The Energy Minister (Brad Duguid) issued a March 31, 2010 directive that instructed the LDCs to reduce energy consumption via conservation by 1330 megawatts (MW) over the January 1, 2011 to December 31, 2014 period. If the target is achieved that would reduce consumption by about 12 million MWh per annum, which, at current delivery prices would reduce revenues of the LDCs by almost $1 billion and reduce revenue to Ontario Power Generation (with production of 60% of Ontario's consumption) by almost $400 million at 5.5 cents per kWh.

The optical effect of the directive from the Energy Minister coupled with the free handouts would appear, on the surface, to be bad news for the LDCs because of all that lost revenue however, shed no tears for them. What appears to be a weird economic theory is simply a government monopoly that will make up revenue losses by hitting up ratepayers for the lost revenues. Reflecting on the latter point the Ontario Power Authority (OPA) have an annual conservation program budget of $360 million funded by ratepayers. That budget is allocated to the electricity rates via the Global Adjustment that finances expensive renewable wind and solar projects and also pays the likes of Hydro One and Toronto Hydro for the “free” stuff.  In 2011 Hydro One received $39 million and Toronto Hydro received $13.7 million. That money takes care of the free stuff that includes; picking up that old fridge or freezer as well as the free thermostats and energy displays units.

The lost revenue from conservation is also clawed back. If the LDC can point to a reduction in consumption by their customers and label it as conservation they can apply for a rate increase to the Ontario Energy Board (OEB). The OEB generally blesses the request meaning the price for delivery of the electricity goes up to compensate for that lost revenue.

The almost $2 billion dollars spent on conservation over the past 5 years has partly gone to attract electricity consumers to the “peaksaver” programs which had about 185,000 members at the end of 2011. As a result the cost of attracting members to “peaksavers” is a big multiple of the cost of those free thermostats.

So, exactly, how does the conservation program make any sense?  The money spent on conservation could have gone to building the two gas plants that have so far, cost Ontario's taxpayers and ratepayers over $1 billion. Through the conservation initiatives, ratepayers have in effect paid for almost double the eventual cost of obtaining about 1200 MW of new gas generation without the benefit of actually having any new power or capital expenditures to improve the delivery of electricity by their local LDC. Ratepayers will now pay another $1.5 billion to hopefully save approximately the same amount of megawatts through conservation by 2014 and at that time still have no better delivery service!

As the foregoing demonstrates there are no free thermostats, there are no free old freezer pickups nor are there any savings from reducing our consumption. It is time to come clean and demand “truth in advertising” from our politicians and our publicly owned energy sector companies.  Its time to stop wasting taxpayer and ratepayer dollars on concepts that have no value; such as we have with wind and solar generation that must be backed up with gas plants because of their intermittent nature.

Save the ratepayer money and declare a moratorium on conservation!


Parker Gallant,
November 2, 2012