Ontario energy plan: Conserve or pay

- Ontario power consumers should prepare for price shocks starting next May to encourage a new "culture of conservation" in the wake of last year's blackout, Premier Dalton McGuinty warns.

"We all need to find ways to reduce our consumption. Working together, we can ensure Ontario has an electricity supply that is reliable today and sustainable tomorrow," he said this week.

Energy Minister Dwight Duncan is developing an energy strategy, to be unveiled this fall, on how to boost electricity prices to encourage conservation.

"We have to set up a pricing regime that will incent people to conserve. We don't have that right now," Mr. Duncan said in an interview.

The strategy is simple: Set electricity prices higher in the peak hours of demand and lower in off-peak hours, likely between 8 p.m. and 6 a.m.

A key to the switch will be the installation of so-called smart meters in four million Ontario homes to record when electricity is consumed.

Those who adjust to using off-peak hours will be rewarded by getting energy bills that are lower than for those who continue to use power in peak periods.

To kick-start the program of price incentives, the government is considering investing at least $500-million to put the meters in place over the next five years.

Neither Mr. McGuinty nor Mr. Duncan would talk about specific prices, which are to be set by the Ontario Energy Board under legislation now before a committee.

The Association of Major Power Consumers in Ontario warned this week that its members face price jumps of between 30 and 53 per cent, largely because of conservation measures and the elimination of coal as a cheap, but polluting fuel for generating electricity.

"Ontario now has electricity rates higher than most competing jurisdictions in North America," president Mary Ellen Richardson said.

The association argued that the coming price increases would have a negative impact on industries facing foreign-based competition that uses cheaper power.

The major consumers of electricity long have benefited from special deals that have held down their costs. By contrast, householders have been exposed to higher prices already and the size of their increases would be smaller than for industry.

Adding to the pressures for a strong strategy to boost conservation is the lack of a long-lasting change in consumer behaviour that many thought would reduce demand after the blackout.

The indifferent public reaction to the sudden loss of electricity last Aug. 14 shows the need for a fiscal incentive to encourage consumers to reduce their demand, government officials say.

In the first six months of last year, Ontario used 76.635 terawatts. This increased to 76.753 terawatts in the first six months this year. (A terawatt is one million megawatts.)

In July 2004, consumption was up slightly by 6,000 megawatts after adjustments were made to account for the cooler weather, IMO spokesman Terry Young said.

The increase in demand this year occurred despite the rise in energy prices for homes and small businesses in April. Until then, the price was frozen at 4.3 cents a kilowatt hour. After April 1 the price was increased to 4.7 cents a kwh for the first 750 kwh used each month — the demand for a small apartment — and 5.5 cents a kwh for any additional power consumed.

But the plans to raise prices to promote conservation will run into political opposition, warned John O'Toole, energy critic for the Progressive Conservative Party.

"It's more cost for less service," he argued.

"I think [Mr.] McGuinty is just trying to make room for himself to increase prices steadily. Just like the imposition of the health premium, it is part of the government's plans to put more costs on taxpayers," he said.

Mr. O'Toole also criticized the government promise to shut down Ontario's five coal-burning generating plants, which contribute 7,500 megawatts of relatively inexpensive power.

"That's adding to our self-inflicted vulnerability to a blackout. ..... They can't shut that down without replacing the power. If they replace it they will have to go to natural gas and natural gas prices are volatile right now," he said.

But it is the higher electricity prices and the push for conservation that will cause the most controversy and have the biggest impact on consumers and industries in the immediate future.

While the major power users warn of job losses and an economic slump, several interest groups in the energy field are more or less onside with the government about the need to boost prices to emphasize conservation and rebuild the aging power system.

Tom Adams, a long-standing expert on electricity policy with Energy Probe, said: "We've been paying far less than the real cost of producing electricity for probably a generation or longer. And the consequence of that is we have accumulated vast debts."

He added: "Paying the real cost of electricity is not a sufficient condition to solving all of our problems, but it is a necessary step. We cannot make progress in solving this electricity crisis until there is, first of all, an incentive for customers to be more careful with their usage."

Keith Stewart of the Toronto Environmental Alliance, who has examined the deterioration of the power system, also sees a need to promote conservation.

"The grid is being pushed beyond what it was designed to do because we haven't been investing in conservation measures to actually reduce demand," he said.

"Conservation is much more cost-effective than, for instance, building new transmission lines. If you actually put money into reducing demand, there are fewer electrons travelling through the lines ..... [and] we can reduce our reliance on nuclear plants," Mr. Stewart said.