Myth, Magic or Misinformation? - Does Anyone understand our electricity Bills?
In 1906, Sir Adam Beck created Ontario Hydro to provide Ontario with “public power at cost”. His legacy was us a highly reliable system which, from 1906 to 1960 delivered declining electricity rates as economies of scope and scale resulted from the electrification of Ontario. Our homes, farms and industries benefitted from amazing productivity improvements.Â
Ontario’s Green Energy and Green Economy Act is setting the stage for a new energy paradigm in Ontario – a sustainable energy future, where consumers and communities are able to become generators and conservers as well as consumers of energy. Opportunities for economic development will abound in all areas of the province for farmers, First Nations, the North, our communities and our industries.
But changing paradigms creates debate. Debate should be healthy. When a casualty of debate is truth, we must be concerned. A consistent hallmark of anti green energy arguments in the press and on energy related blogs as well as in the legislature illustrates our collective confusion about energy pricing in general and electricity pricing in particular.Â
 This lack of comprehension of our electricity bills is not the fault of the average consumer. For millions of consumers in Ontario, energy and water expenses are buried in rents at home or in monthly condo fees. Hundreds of thousands of business owners are also in the dark; they are charged for their energy and water use based on square footage rented. In industrial plants, bills are based on the readings from a meter located at the plant gate not on specific processes. Â
It is disappointing that the few, but vocal opponents to green energy have exploited our misunderstanding of our bills to reinforce our confusion and prey on our fears. The Green Energy Act, they say will drive up electricity rates.  The truth of the matter is any new electricity supply is going to cost more than our current supplies.Â
The cost of power from Niagara Falls is about 1 cent per kWh – but we don’t have any more fully paid-for mega plants like those at Niagara Falls. Ironically, the cost of electricity from Adam Beck’s Niagara Falls in 1910 was 12 cents per kWh in the dollars of the day about the same as we pay today. At the same time a pound of butter cost 4 cents. Today a pound of butter costs about $5.00 – and close to $10 if you opt for an organic product. With that kind of multiplier, electricity would cost us $15  to $30 per kWh if early improvement in economies of scale hadn’t triumphed over inflation.
Where did this confusion come from? We used to multiply the number of kWh consumed by its price per kWh and that is what we paid.
In the late 1990’s Ontario restructured the electricity market and the price of each cost element has made separate, in a spirit of transparency. And then, in 2002, the government of the day capped electricity prices at 4.3 cents per kWh. Suddenly everyone in Ontario thought that this was the price of electricity.Â
So if you used 1000 kWh per month, which was the average for homeowners in Ontario, could you have expected a BILL of $43.00 per month?Â
No! That 4.3 cents per kWh did not include the cost of transportation (transmission and distribution), the physical losses resulting from sending power long distances across transmission and distribution lines, or paying down about one half of the outstanding debt from the former Ontario Hydro.Â
Nor did it include the out of market costs associated with reliability purchases from US utilities, the full cost of most new supply in the province, conservation or the cost of running organizations like the Ontario Power Authority or the Independent Electricity System Operator which are buried in something called the Global Adjustment Mechanism (GAM) which is also known as “the provincial benefit”.Â
Confused yet? There is more!
Paying down the rest of the former Ontario Hydro’s outstanding debt of $38 billion is also added to the cost of generation, transmission and distribution in the form of the debt retirement charge.Â
The purveyors of misinformation on pricing like to the use the Hourly Ontario Energy Price from the Independent Electricity Operator as their starting point. Today that price is 5.3¢ while the so-called provincial benefit is 3.4¢.  And to the credit of the IESO, it is now showing both amounts on its website, but even this combined total of 8.7¢ still doesn’t include transmission and distribution charges, the debt retirement charge, and coming soon, the harmonized sales tax which add another 13% to our energy bills.
The Provincial Benefit was so named because when it was created, it represented a credit on our bills resulting from the fact that some of Ontario Power Generation’s plants were regulated in a way which ensure the benefit of the “heritage” assets, like Niagara Falls benefitted all Ontarians. The Provincial Benefit ensures reliability by providing adequate generating capacity for Ontario. It accounts for differences between the spot market price and the rates paid to regulated and contracted generators. As a result, its value may be positive or negative, depending on the fluctuation of prices in the spot market. The rate is set to reflect the difference between the spot market price and:
The regulated rate paid to Ontario Power Generation’s base load generating stations;
Contracted rates paid to Non-Utility Generators.
Payments made to suppliers that have been awarded contracts through the Ontario Power Authority. These include new gas-fired facilities, renewable facilities (like wind farms) and demand response programs which are already delivering power to the grid; and
Critics of green power would like you to also believe that it is the new feed in tariff (FIT) program that is responsible for these higher rates. Also not true – few and then only small FIT contacts have been turned into projects generating electricity.
And finally, critics of green power also like to point out the intermittent nature of some renewable energy. “The sun doesn’t always shine.” and “The wind doesn’t always blow.” Both statements are true, but Ontario will not be paying generators of solar or wind energy when they are not generating. This is not the case for the new gas fired peaking plants. Should these plants not run as often as their owners would like, through the Global Adjustment Mechanism, their owners will be compensated to keep them whole from an investment perspective.
Of course, the biggest myth of all is that nuclear power is cheap. In France, almost 75% of its power comes from nuclear plants and less than 1% from new renewable energy. Yet its household rates are over 18 cents per kWh in Canadian dollars.
Recently, the Ontario government put their plan to building additional nuclear reactors at Darlington on hold. The price tag on those reactors (a reported $26 billion) caused the government sticker shock, and the procurement process was suspended in June 2009. AECL's $26 billion bid was based on the construction of two 1,200-megawatt Advanced Candu Reactors, working out to $10,800 per kilowatt of power capacity. By comparison, in 2007 the Ontario Power Authority had assumed for planning purposes a price of $2,900 per kilowatt, which works out to about $7 billion for the Darlington expansion. During Ontario Energy Board hearings last summer, the power authority indicated that anything higher than $3,600 per kilowatt would be uneconomical compared to alternatives, primarily natural gas.
In other words, we can’t blame renewable energy alone for higher prices. Any new form of generation will cost us more. Our only hope to deal with rising energy rates is conservation that will reduce our bills. The most important item is the amount of the bill, not the rate per kWh. While the average monthly electricity bill in Toronto is still about $100; the average bill in Germany is 54 Euros or $86 (in Canadian Dollars) and in the US it is $120 with New York at $123 both in Canadian Dollars. Canada’s national average hides the significant variations in costs in different parts of the country. In Canada, household electricity rates range from 6 cents per kWh in Winnipeg to 15 cents per kWh in Moncton, with Toronto coming in at about 12 cents per kWh. In the US, the variation is even greater from less than 7.3 cents per kWh in Wyoming to more than 30 cents per kWh in Hawaii. With New York state averaging 18 cents and New York City topping 24 cents per kWh. (As US figures in Canadian dollars)
The only road to lower electricity bills is not artificially low rates, it is conservation.Â
The Canada Green Building Council has estimated that homes and buildings can cut their consumption of energy and water by 50% through a combination of better insulation, new technologies, better operating and maintenance strategies and understanding how home or buildings compare to other similar facilities.Â
To achieve this, we have to go beyond just thinking about conservation, but to actually do it.
