Corporate welfare via conservation
ABANDONING ONTARIO’S DEMAND RESPONSE PROGRAM WOULD CUT $100 MILLION OFF ELECTRICITY COSTS, MOSTLY FOR SMALL BUSINESSES AND HOUSEHOLDS.
Ontario electricity customers will fork over $100 million to pay a small group of large energy consumers for a conservation program that won’t save any energy. Worse, the government agencies responsible for overseeing the operation and management of the electricity grid already know the conservation program is unnecessary, but are moving ahead regardless.
The money relates to a two- year program overseen by the province’s electricity system operator, the Independent Electricity System Operator ( IESO). The program, known as Demand Response, allows companies and large energy consumers to auction off chunks of time — during periods of high demand — when they would be willing to cut back on their power consumption. These companies “bid” this capacity into an auction to determine how much the province’s electricity customers would have to pay them for offering this service each year. The auction is supposed to act as a cheap alternative to new power plants that would otherwise need to be built, which would only be needed for a few hours each year.
Fortunately for these companies — and unfortunately for electricity consumers across the province who have to pay for this program — Ontario’s massive surplus of power means that, in reality, there’s little-to-no chance in the next few years that the province will find itself short on power generation. The companies “bidding” into this auction are getting paid to provide a service that they know they’ll never have to provide.
The companies benefiting from the program aren’t the only ones that know it’s a waste of time and money.
A group of experts at the Ontario Energy Board (OEB) that investigates and reports on activities in the province’s electricity market recently noted that this conservation program was “unnecessary and inefficient.” The experts pointed to the province’s own data showing that Ontario is “flush with supply,” concluding that any capacity procured through the Demand Response auctions is simply “not needed.”
Even IESO, the provincial agency that manages the electricity market and the Demand Response auctions, admits that the auctions are little more than a “learning opportunity.” Yet this learning opportunity, as the experts at the OEB point out, “comes at a cost” to ratepayers of $100 million while providing “little benefit.”
IESO’s own electricity forecasts show that the need for the auctions is non-existent well into the next decade. The agency’s most aggressive demand forecasts — which include a major uptake of electric vehicles and a switch from natural gas to electric heating — clearly show that existing generation assets in the province can meet summer and winter peak demand out to 2025 and 2023, respectively. A more realistic scenario, according to IESO, shows that existing generators can largely meet peak demand out to 2035, with just a very minor shortfall in one year (2025). IESO concluded that Ontario has “sufficient resources to meet demand requirements generally over the next decade across all outlooks.”
Nonetheless, IESO is planning to actually increase the size of its auctions by nearly doubling it next year. The experts at the OEB say the only reason IESO is expanding the program is so it can hit “administratively determined” targets, not ones based on a “reasonable expectation” of needs. Put more simply: The program isn’t needed and is simply a bureaucratic exercise aimed at hitting politically established conservation targets, rather than providing value to electricity customers or an environmental benefit.
Worse still for the province’s residential customers and small business owners is that the cost of conservation programs i s funded through a charge called the “global adjustment,” which is applied each month to the generation portion of hydro bills. Due to a provincial policy introduced in 2011, small customers now pay a greater share of global adjustment costs than large consumers, meaning the cost of the auctions, among other conservation programs, is paid disproportionately by small customers, while large customers remain their biggest beneficiary.
Abandoning the Demand Response program would cut $ 100 million off electricity costs for the province, notably for the small businesses and households that will pay the majority of those costs, while having no negative environmental impact.