Smart Meters and Stupid Policies, part 1:
The Phantom Rebate
A NETWIT special report
NEW IMPROVED HEAD is pleased to present a new three-part series from the experts at the NETWork Interested In Telling-it-like-it-is. The first instalment is about how yet another government plan to reduce debt isn't reducing it. Sound familiar? The government in question is Ontario's, but if you live elsewhere you may be seeing something similar soon.The new Ontario Minister of Energy, Donna Cansfield, had good reason to retreat in confusion at a recent press conference, leaving bureaucrats to explain the latest "rebate" being made to consumers of electricity. The rebate is supposedly for overpayments by consumers for their electrical energy between April 1, 2004 and March 31, 2005 because the legislated prices of $47 per megawatt-hour ($47/MWh) for the first 750 kilowatt-hours (kWh) per month and $55/MWh thereafter, which replaced the previous $43/Mwh cap, had supposedly been too high.In fact, there were no overpayments – consumers still were receiving a subsidy. What makes this so pathetic is that this is now a government that touts "paying the full cost" in support of a "conservation culture". Instead, the consumers covered by the price caps have received a two-part subsidy.
The first part is buried in the prices (the two-part $47 and $55) they have been paying. The price cap effectively guarantees that they will pay less than the actual cost of electricity. The second part will appear as a one-time credit on their bills in the guise of the mysterious "overpayments".
Who will pay for this sleight-of-hand? Future electricity consumers will. The half billion dollars cost of the McGuinty Liberals' largesse now appears in the books of the Ontario Electricity Financial Corp (OEFC) as the "unfunded liability" or "residual stranded debt" of the former Ontario Hydro. This was valued at about $20 billion in 1998 when Hydro was broken up and, despite paying about $1 billion a year since 2002 to something called the Debt Reduction Charge (DRC), the residual stranded debt is still valued at about $20 billion.
The reason that the Libs, like the Tories before them, will probably get away with this new scam is that no one understands – in large part because no one has bothered to explain – how electricity costs really work. Readers of NETWIT will be aware that:
Ontario's system, in our estimation, was always one of the fairest. Most other jurisdictions undercharged industry to one degree or another, with the French representing the extreme of this tendency.
- the cost of electricity varies with the time at which it is produced and
- electricity systems have always allocated these costs to different consumers according to the times at which the consumers consume.
The Libs and their apparatchiks, notably Jan Carr, chief of the new Ontario Power Authority (OPA) have been perpetuating the myth that the old despised Hydro somehow did not collect the "full cost" of electricity and that this led to the unsupportable debt that has now become OEFC's unfunded liability. Not only is this completely untrue but, as noted, the current regime is the one that actually subsidizes current electricity. Either deliberately or due to ignorance – hard to say which is worse – Carr confuses, in an op-ed for one of the Hogtown rags (in collaboration with David McFadden, longtime mouthpiece for the large users and Bay Street lobbyists), the hourly variation of cost with the total cost. In either case, he's wrong. Hydro tried to smooth out the hourly variation into average annual prices for consumers of small volumes and that is what is done now, except that the current process has been politically manipulated to produce the subsidies we talk about above.
For the sceptical, let us explain. According to Independent Electricity System Operator (IESO) data the average revenue paid to generators per MWh during the period was $52. On the usage side, those who used energy more in the off-peak periods would have a lower average cost than $52. Correspondingly those that consume more during peak than the average would have a higher cost.
The group that is getting the rebate is of the latter type. Residential loads consume more during peak periods, especially the evening peak, than the average. If residential consumers had paid a rate based on the actual cost of production of the electricity they consumed, we estimate that they ought to have paid about $58/MWh.
We can make a rough estimate of what all consumers did pay on average. The total load covered by the price caps is about 75 million MWh, or 75 terawatt-hours (tWh), representing about 3 million consumers. Three million times 12 (months) times 650kWh (many, in apartments, will not use the full 750 allowance for each month) equals about 25tWh at $47 and about 50tWh (about 75 minus 25) at $55. So a third of the electricity would be consumed at the lower rate and two-thirds at the higher. That works out to an average rate of .33*47+.67*55 = $52/MWh.
If residential consumers had been average this price would have been about right for them. Instead of which, they should, as just noted, have been paying about $58.
To add insult to injury the Libs have just announced that they are going to pay residential consumers a subsidy of about $5/MWh for alleged overpayments. Instead of the "full cost" in support of the "conservation culture" they get a subsidy of around $10/MWh and the taxpayer sees about $0.5B added to the "residual stranded debt".
Don't spend that rebate all at once. Maybe you should save it to pay for future rate hikes.
[Next week: how the introduction of so-called smart meters will cost you even more money.]Smart Meters and Stupid Policies, part 1: The Phantom Rebate © NETWIT, 2006 Posted February 22, 2006
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