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Ontario's Energy Mess

It's pretty surprising to read Terence Corcoran and find yourself agreeing with him, but that's what happened to me last night as I read his column about the mess that is Ontario's electricity situation.

He begins with an analogy that's meant to show how silly the current situation is... the province's agency is importing electricity at market prices, but selling it to us at lower, fixed prices. The low price that we all pay for electricity is the factor that prevents many of us from taking conservation requests seriously, and it is also the factor that prevents new power sources (including green sources) from coming online.

The feedback mechanism of prices is what we're missing here. It is not entirely absent, however. It's just horribly delayed, as explained in the Globe and Mail today:

"Bottom line: Customers are not paying anything like the real cost of power," said Tom Adams, executive director of Energy Probe, a Toronto-based energy watchdog.

That is expected to change April 1, when the Ontario Energy Board unveils its new price plan.

The agency tracks the difference between what the province is paying for electricity and what it collects in revenue in a so-called variance account. As of June 30, the account had accumulated a shortfall of $42-million over three months, up from $6-million in May.

Mr. Adams says the shortfall between the government's revenue and costs could climb to $160-million by the end of the summer, a level that would allow the OEB to trigger a price increase for consumers before April.

There is an awful lot of potential for us to conserve or adjust our behaviour. Timeshifting is one way. Take a look at the graph of market demand that is shown on the Independent Electricity System Operator's website. The first thing I notice is that there's a big difference between our early morning demand and our peak demand. Shifting usage into the 9pm to 6am range would reduce our peak demand and therefore help to eliminate the need to import electricty when we exceed local supply.

Of course, there is nothing stopping us from doing this shift right now. But most of us are not sufficiently motivated to do it. It's a collective action problem. The benefit to yourself and to society is small to nil if you and only you decide to do your laundry at 11pm. But if there is a price incentive, you get a proportional personal benefit. At the same time, you can reasonably expect that others are joining you in conservation.

If, at 3pm today, you knew that Ontario was importing electricity at 30 cents a kilowatt hour, and that that's the price you were paying instead of a flat 5.0 cents per kilowatt hour, wouldn't this affect your behaviour?

We don't have the technology for this in place yet, but the Ontario government is working on it. All electricity users should have smart meters by the end of 2010. That's one thing that Corcoran gets wrong -- the province is working on this problem and is making some slow progress as we evolve to a better system.

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