Wednesday, June 15, 2011

Parkinson's Law and the Innumerate Mr. Miller

Elements of Parkinson's Law:
  • Work Expands so as to fill the time available for its completion
  • An official wants to multiply subordinates, not rivals
  • Officials make work for each other.

Gord Miller was in the press yesterday, a lot, following the release of Managing a Complex Energy System: Annual Energy conservation Progress Report -2010 (Volume One), with most of the attention going to his description of the Ontario Clean Energy Benefit (OCEB) as “a perverse incentive that undermines conservation efforts.” Mr. Miller's report continued “One estimate of its effect is to increase overall electricity consumption by more than one per cent. This would negate about one-third of the savings that conservation programs are expected to provide between 2011 and 2014.” I'll return to Mr. Miller's interesting use of statistics shortly, but first ...

The report contains a number of simple truths, such as, the LTEP is an energy plan in name but is an electricity plan in reality. Ontario needs an energy plan and, as the ECO recommended in 2009, the province needs a multi-fuel conservation strategy that addresses all energy sources.” In 2009 Ontario GHG emissions from electricity generation were reported as 15 Mt CO2eq, while total emissions were at 165 Mt CO2eq1 The first 5 months of 2011 likely have emissions, from electricity, down about 25% from 2009 levels, so when we are talking about emissions, electricity is now around 7% of the total2. This is great in comparison to the vast majority of jurisdictions on the planet, so it is refreshing to see the obvious stated. An electricity policy is a poor substitute for an energy policy.

The price reduction Mr. Miller implies will harm conservation targets is based on a 2008 report by the Electric Power Research Institute (EPRI) which concluded the elasticity of demand from residential usage at -0.3 and -0.2 for smaller commercial/farms.3  That study (of studies) didn't agree with my research on demand elasticity, and in fact the same EPRI has another estimate, late in 2010 which concluded, “The findings reflect reasonably consistent patterns of price response. At the national level, electricity price elasticity of -0.13 in the short run and -0.42 in the long run have been estimated.” So, to be clear, Mr. Miller's stating, whether or not it is a restatement, isn't based on best estimates or commonly agreed upon figures. Similarly, it's important to note the EPRI's definition of 'short run' is 1-5 years, and there have been indications the relationship is the opposite, within a regulatory cycle; demand falls so the utility applies for, and is granted, a price hike. It isn't certain the drop in demand does not precede the price hike.

Regardless, if Mr. Miller believed the statistic he cited, the massive machinery of Conservation and Demand Response that has been built at the OPA and is now spreading, like a cancer, to the LDC's have, mathematically, accomplished less than nothing.

The price hikes, with his quoted elasticities of demand, would have reduced demand more than demand has been reduced!

Aldyen Donnelly recently wrote; “The older textbooks (from back when I was young and Jesus was a baby too!), suggest that for a tax/price increase to effectively and efficiently impact consumer demand, the tax/price impact has to be revealed to/experienced by the consumer at a point of a “primary” consumption decision, not a “secondary” or derived consumption decision.” That struck a chord with me for a couple of reasons, one of which was Vaclav Smil's recent lecture at the Equinox Summit where he noted two very simple actions we could take to greatly reduce emissions within 10 years (furnace standards, and car purchase programs to encourage more fuel efficient car purchase choices). If you view the first 7 minutes of that lecture you'll catch a comment describing Toronto's airport transportation options as 'medievil.”  The recent consultation sessions for the IPSP were recently held at a hotel just outside of that airport. The traffic congestion was noted - the misallocation of resources, in emphasizing electricity usage reduction beyond the simple, and affordable, “point of a primary consumption decision”, was not.

The OCEB doesn't apply to Ontario's largest electricity customers, who pay the Wholesale rate which contains the HOEP (market price) plus the global adjustment (the difference between the cost of the contracted rate, and the market price). The Wholesale rate for electricity will be announced shortly for May 2011, and it will be in the area of $75.83/MWh, up from May 2010's $64.73/MWh. 
Reduced demand (over 9% down), drove up the price (17%).4

A 17% year-over-year increases for our businesses - as demand is declining.

Is that great?

1 Canada—National Inventory Report 1990–2009—Part 3.
2 My estimates from daily figures and transposition of past monthly graphing from the IESO - Coal usage reduced to 1.2     TWh from 5.6, and natural gas increased to 9.4 from 6.7 (est. at .85MT/MWh for coal, and .5 for gas)
3 The end note in Miller's report references this document, which in turn references this one.
4 I explored how this relationship is working here

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