Democracy Gone Astray

Democracy, being a human construct, needs to be thought of as directionality rather than an object. As such, to understand it requires not so much a description of existing structures and/or other related phenomena but a declaration of intentionality.
This blog aims at creating labeled lists of published infringements of such intentionality, of points in time where democracy strays from its intended directionality. In addition to outright infringements, this blog also collects important contemporary information and/or discussions that impact our socio-political landscape.

All the posts here were published in the electronic media – main-stream as well as fringe, and maintain links to the original texts.

[NOTE: Due to changes I haven't caught on time in the blogging software, all of the 'Original Article' links were nullified between September 11, 2012 and December 11, 2012. My apologies.]

Tuesday, December 06, 2011

Don’t understand hydro? Don’t worry. Just pay up.

When Ontario’s auditor-general has trouble figuring out what’s on a hydro bill, what hope do the rest of us have?

Jim McCarter has picked apart the entrails of Ontario’s electricity system and told us earlier this week that they don’t make a pretty picture. Or even an understandable one.

For example, he explained Monday that about 60 per cent of the energy cost of your hydro bill doesn’t come from the market.

Instead, it comes from an amalgam of special out-of-market contracts, make-up fees for exporting surplus power at a loss, supplemental payments to provide back-up power, and other charges cooked up by energy companies and bureaucrats in closed rooms.

And he threw a cold dose of reality on the idea that long-term retail contracts provide price protection for ratepayers. In McCarter’s view, they cost much more than they deliver.

But the system is so murky, it’s difficult for uninitiated consumers to peer into the sacred groves where energy prices and policies are set, and discern what sacrifices the high priests of the system are offering up to the regulators from behind their altars.

McCarter zeroed in on an increasing slice of a consumer hydro bill – the so-called “global adjustment” – and didn’t like what he saw.

The global adjustment is the bits and pieces of costs left over after a customer has paid the supposed market price for power.

Those bits and pieces are already bigger than the actual market price, most days, and McCarter notes they’re likely to increase.

He points a finger of blame at renewable energy. When the market price of power is in the range of 3.5 cents, but wind producers are getting up to 13.5 cents, and large-scale solar power facilities receive 44 cents a kilowatt hour, customers have to cough up more money to make up the difference.

So they pay the regulated market rate – or a contract price if they buy from a retailer – and then have to top it up with the “global adjustment.”

It’s a great name — utterly meaningless and opaque to the average consumer. But you don’t have to understand it to be required to pay it.

McCarter figures the global adjustment will be about $8.1 billion annually by 2014.

But as McCarter points out, the premium on renewable power only accounts for a fraction of the global adjustment, perhaps a third of the total by 2014.

McCarter doesn’t delve into the other elements of the global adjustment, but lots of non-renewable power producers have above-market pricing deals. Privately operated nuclear operator Bruce Power has one as well.

Their above-market rates also push up the global adjustment.

A bunch of other fees and charges, like the obscurely named “contingency support” payments made to Ontario Power Generation add to the problem. No one but the most hopeless policy wonk knows what they are, but they’ve cost ratepayers $259 million so far this year, to keep some of OPG’s coal plants available for service if needed.

When you add it all up, consumers on the regulated price plan are currently paying less than 3 cents a kilowatt hour for power on their hydro bill. (That excludes the delivery and regulatory costs) But their global adjustment is about 4.5 cents.

Consumers may not have a chance of understanding the global adjustment. But they’re still required to pay it.

Consumers aren’t the only ones who struggle with the opaque system.

Local hydro companies – the ones who own the wires that serve your home, and the firms that send you your bill – are regulated by the Ontario Energy Board.

They apply every few years to renew their rates. But the board’s requirements are so onerous, says McCarter, that small hydro companies are spending 50 cents to prepare their applications for every dollar they hope to raise in revenue.

(This brings up another issue that McCarter doesn’t raise: Does Ontario really need 80 hydro utilities scattered across its landscape – some of them tiny – or should they be consolidated into, say, half a dozen regional ones?)

And then there are the energy retailers.

The retailers, who sell fixed-price electricity contracts, were supposed to offer customers some stability when the power market was thrown open to competition.

Much as some homeowners prefer to lock in a mortgage rate for several years so they’ll know what their payments are, some householders like to lock in a fixed electricity price for several years.

Except, says McCarter, they’re not paying a small premium for the security of fixed prices. They’re paying a whacking great big one.

The auditor-general studied contract and regulated prices over a five-year period. A typical consumer who signed a five-year contract with an electricity retailer paid about $2,000 more than one on the regulated price system, he figured. That’s a premium of 35 to 65 per cent.

Moreover, retailers raked in the money at little or no risk, because it’s the local utility that does the billing. If a customer doesn’t pay his or her bill, the utility still has to pay the retailer, and it’s the utility who bears the risk and expense of collecting overdue accounts.

Fingers are being pointed in the Legislature about whose fault it is. The truth is all three parties have had a hand in building up the current structure that has been patched together to satisfy the lobbying of every special interest group in the province, except the customer.

Origin
Source: Toronto Star 

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