Thursday, April 24, 2014

Wynne bungles elimination of debt retirement charge

Toronto's inept Premier has bungled the simple task of eliminating a billion dollar charge concurrent with halting a billion dollar credit.
Ontario intends to take the Debt Retirement Charge (DRC) off residential electricity bills, saving the typical homeowner $5.60 per month, after Dec. 31, 2015.
...The DRC would remain on all other electricity users’ bills, including large industrial users, until the residual stranded debt is retired.    
[Ministry of Energy news release]
There's a great deal of trickery here as pre-electioneering results, again, in terrible electricity policy.

The Ministry of Energy news release notes the debt retirement charge (DRC) changes will occur as the, "Ontario Clean Energy Benefit (OCEB) ... is set to expire."

Some figures to explain the machinations:
  • The DRC collects just under $1 billion a year, and the OCEB costs just over $1billion a year [1]
  • The debt retirement charge (DRC) is 7/10ths of a cent on each kWh consumed in Ontario.
  • Using a recent estimate of 17.25 cents/kWh, the DRC is 4% of all charges
  • The OCEB is 10% of all charges (delivery, regulatory, etc.), but not on all kWh consumed
  • The OCEB applies to residential, farm, and small business (less than 50kW average monthly peak) [source]
  • more than half of all consumption is by large consumers/businesses not receiving the OCEB.
  • With the end of the DRC and OCEB, voters' bills will go up for 2016, about 6% more than they otherwise would
  • Expenditures on the Ontario Clean Energy Benefit will be reduced near 0
  • Revenues from the Debt Retirement Charge (DRC) will be reduced by less than half, with the full burden of ongoing payments placed on the province's businesses.
The burdening of business with the debt retirement charge is particularly odious if we trust the government's primitive accounting of the Residual Stranded Debt (the portion of the debt which the Debt Retirement Charge was intended to service), in which it appears that the freezing of residential rates by 2002's Progressive Conservative government of Ernie Eves is responsible for all remaining residual stranded debt.

The accounting of the residual stranded debt wasn't made for nearly a decade after it is now shown to have escalated.
It is plausible that Eves' actions throttled profitability at OPG enough to reduce anticipated revenues from the public generator and strand more debt.
It is deplorable the burden of servicing that debt is to fall on businesses instead of the residential voters.

The Ministry of Energy has scheduled an event, at a Giant Tiger; Making Electricity More Affordable for Businesses.  The announcement is likely to expand a program allowing business to evade global adjustment charges by curtailing usage during the 5 highest daily peak demand hours.  The success of that program, in transferring costs to the consumer classes for whom the DRC is being eliminated, requires market pricing to recover far less than the actual contracted costs of supply.

I guess the goal is to transfer the equivalent value of the annual $500+ million in debt retirment charges, or more, to customers just exempted from paying debt retirement charges.

This is what passes as planning in, and for, an environment of institutionalized incompetence.

1. OCEB figures from Table 2.25 of 2013 Ontario Budget; DRC figures from table 2.23.

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