## Saturday, March 18, 2017

### ON electricity pricing 1: retail math and green tales

It's not uncommon to hear a claim made that green energy can't be responsible for the steep increase in Ontario residential electricity rates because it's only around 10% of the total bill. This post could demonstrate calculations using 10%, but it is nearer reality to start with 15% in demonstrating why the argument deceives.

I disputed some claims by Environmental Defence a month ago, but I've used their figures in calculating 15% of the total bill. I did this by simply adding "conservation" in the calculations - while the report I criticized underestimated the cost of solar and (less so) wind, it overestimated the cost of conservation. Together these 3 would have been about 0% of bills a decade ago (2006), and in 2016 they were about 30% of the global adjustment, 28% of all Ontario supply costs (by the ED reports numbers), and since ED has that supply cost as 54% of a residential bill, they claim about 15% of the bill.

Let's ease into some primitive math using figures we already know. How much does 54% of your bill need to increase for the total to move up 15%?
0.15 divided by 0.54 = .28.
There's the 28% increase in supply cost I noted in ED's figures. There's an assumption, probably incorrect, that supply was always 54% of the bill, but I'll keep things as simple as possible: a 15% increase in the total bill, all other things being equal, required a 28% increase in costs.

As wind, solar and conservation added negligible cost a decade ago, it's worthwhile asking how much spending in these areas increased overall electricity generation cost (ignoring the rest of the bill). It's not 28%:
1 divided by 0.72 (which is 1-.28) = 1.38888....
Costs are increased by 39% when adding new spending that then equals 28% of the new total.
All other things being equal, this analysis shows that to become 15% of a higher residential electricity bill spending on generation would need to increase 39%.

All other things are not equal.

Total Ontario electricity supply of Watt-hours, including imports, was very similar in 2016 and 2006.
In 2006 there was a single rate in Ontario, and the average value of exports (measured with the Hourly Ontario Energy Price) was not vastly different than the value within the province (more than 80% of average value).
In 2016 there were three distinct consumer classes: Class A (large industry) rates were up only 26% from 2006, but exports (which had nearly doubled in volume) were seeing far lower rates. Without muddling up this post with too many numbers, it's clear not all market segments could, or did, bear the increases. The burden of the 39% increase in system costs fell on the 70% of the market comprised of Class B consumers, a segment of which are Regulated Price Plan consumers (residential).
.39 divided by .7 equals .557
Once we account for consumer segments the impact is nearly 56%. A 56% increase in the segment's electricity supply cost equates to a 30% increase in the bill (when electricity supply comprises 54% of the total charge).

There are many assumptions made here to keep the math simple, but theoretically, if one simply added 39% to spending on electricity generation/supply without having any other impacts, and that increase could only be passed on to 70% of consumers, the increase to those consumers, if supply was always 54% of the total bill, would be 30%.

If the increase was 30%, few would believe it - because that increase would only comprise 23% of the new total, and cabal of profiteers and kooks would be ridiculing the numerate who dared to note it added 30%.