February 2, 2004

Everyone wins if utilities' profits are linked to successful energy conservation programs

A coalition of environmentalists and energy companies is calling on the Ontario Energy Board to link the profits of the province's electric utilities (e.g., Hydro One, Hydro Ottawa, London Hydro, Toronto Hydro) to their success at reducing their customers' bills by making them more energy-efficient.

The coalition's report, Making Everyone a Winner, says linking the utilities' profits to their success at promoting conservation will create "a quadruple win" for Ontario in the form of:

- lower electricity bills;

- reduced risks of blackouts and brownouts;

- reduced air pollution from coal-fired power plants; and,

- higher profits for Ontario's electric utilities, which can be passed on to their shareholders, the Government of Ontario and Ontario's municipalities, to help finance public services.

The report estimates that the electric utilities' $225 million initial energy conservation budget, announced by Energy Minister Dwight Duncan last November, could reduce the electricity bills of industrial, commercial, institutional and residential consumers by $1.2 to $1.8 billion or more. (In addition to introducing legislation to revise the power pricing structure in Ontario (ELW December 1, 2003), Duncan unveiled a plan to enable provincial utilities (such as Hydro One, Toronto Hydro, etc) to earn their full commercial return on capital, effective March 1, 2005, if they reinvest "the equivalent of one year of these monies in conservation and demand management initiatives.")

Making Everyone a Winner is a joint report of Pollution Probe, the Green Energy Coalition (David Suzuki Foundation, Energy Action Council of Toronto, Greenpeace Canada, Sierra Club of Canada), Collingwood Utility Services, Electric City, Hamilton Utilities Corporation and Oakville Hydro.

The proposal is not without precedent: In 1998, notes the report, the Ontario Energy Board (OEB) linked Enbridge Gas Distribution's profits to its success at reducing its customers' bills by increasing their energy efficiency. Consequently, Enbridge's energy conservation programs are not only reducing customers' bills by approximately $725 million, they have increased the company's profits by $12.9 million to date.

Under the status quo, however, OEB rules in fact penalize electric utilities financially for reducing customers' bills by increasing energy efficiency; this is because the rules link the utilities' profits to their electricity sales, the report explains.

What the OEB should do, it says, is to establish Lost Revenue Adjustment Mechanisms (LRAMs) and Shared Savings Mechanisms (SSMs) for Ontario's electric utilities. Together, these will provide an incentive for the utilities to aggressively and cost-effectively promote energy conservation measures to their customers. The LRAMs will ensure that energy conservation programs will not reduce the electric utilities' revenues and profits, while the SSMs will provide the utilities a small proportion (e.g. 2 to 5%) of the total energy cost savings resulting from their conservation programs.

Finally, the report notes that the government's initiative will permit Ontario's electric utilities to raise their rates, effective March 1, 2005, to finance their energy conservation programs. Before then, however, they will need to hire staff, undertake research and possibly carry out pilot programs. The coalition thus recommends that the utilities be allowed to use part of their $225 million energy conservation fund to pay related research, development and pilot program costs incurred before March 1, 2005.

The report may be viewed on the Pollution Probe Web site, www.pollutionprobe.org/Publications/Energy.htm. More information is also available from Ken Ogilvie, executive director, Pollution Probe, 416/926-1907, ext 231; or Alex Bystrin, president and CEO, Oakville Hydro, 905/825-9400.

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