Ontario’s biggest users of natural gas told the Ontario Energy Board they don’t need subsidies to take conservation seriously.
Ontario’s largest businesses told the Ontario Energy Board (OEB) last year that they didn’t need any help – in the form of government-mandated subsidies – when it came to conserving natural gas. In December, the Board agreed, saying that large volume natural gas customers are already “sophisticated and typically competitively motivated to ensure their systems are efficient.”
The OEB said that due to the small number of customers in the large volume class – it listed about 79 in total across the province – any mandatory conservation program would see “one customer subsidizing business improvements of another.” The OEB is spot-on in its assessment, as most large volume customers – which includes manufacturing and chemical plants, large food processors, greenhouses, steel plants and gas generation plants, among others – already take the necessary steps to ensure they are operating efficiently, as it boosts their bottom line by keeping costs low (ultimately making them more competitive).
An association representing large volume users argued to the Board that conservation subsidies would simply act as a charge against the companies and plants already seeking out conservation measures and reward the laggards by allowing them to invest at the expense of their competitors. Any mandatory conservation program would also be funded by hiking energy costs for all large users – as it would be applied to the rate charged for natural gas to that class – and eventually passed on to consumers in the form of higher prices for goods. Ultimately, the most inefficient plants would benefit most.
The OEB concluded that any conservation programs proposed by the two major natural gas utilities in the province – Enbridge and Union – should be on a user-pay model where the user is on the hook for all costs associated with the conservation program and is not spread among the entire rate class.
The Board also agreed to raise the amount of money to be spent on conservation programs for residential and other users, but limited that amount to one that will have a “reasonable rate impact.” Some groups were arguing for the Board to dramatically increase the amount of conservation spending by Enbridge and Union to hundreds of millions of dollars a year and more than seven times the amount currently being spent.
The Board noted that because all conservation programs involve “cross-subsidization”, where a small number of users benefit from the program at the expense of many, the costs should be minimal to each ratepayer.
The Board opted to allow Enbridge and Union to spend $75 million and $60 million, respectively, annually (excluding shareholder incentive amounts) on conservation programs. While that’s about double what the two distributors spend now and would add about $2 per month to the average ratepayer’s bill, it’s a far cry from the hundreds of millions some were requesting.
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or at (416) 964-9223 ext 236.