Futulity of Giving Advice

Blog, Crown Corporations, Energy, Manitoba, Publius Tacitus (historic), Regulation, Role of Government, Uncategorized, Winnipeg (historic)

Recently, the Minister Responsible for Manitoba Hydro, former Finance Minister Stan Struthers, issued an invitation to Manitobans to provide their views regarding Manitoba Hydro’s Power Smart programs.

Briefly, Publius considered responding to the invitation, before rejecting the notion after recalling the futility that has greeted numerous past efforts by many knowledgeable persons to bring about a reconsideration of Hydro’s development plans by the provincial government.

The Power Smart programs of Manitoba Hydro are designed to reduce the electricity demand of its customers through enhancing energy efficiency, thus allowing those customers to reduce their otherwise bills. Reducing demand allows the Utility to defer the construction of new generation and transmission, and/or export the ‘saved’ power (the latter attractive when wholesale electricity prices are higher than the what would be otherwise realized from domestic customers).

Deferring the construction of new infrastructure allows for a lower unit cost of electricity to the Utility’s domestic customers, as new infrastructure comes with a much higher price tag than that derived from old highly amortized infrastructure.

Manitoba Hydro already knows that demand is a function of price, albeit not a one to one relationship. Yet, it does not employ ‘price’ as a means to either reduce demand or, when the demand is strong enough to overcome concern over the price, to obtain higher prices for its power. Higher prices received from a customer or group of customers reduce the revenue required from the rest of the overall customer base.

In many advanced jurisdictions, time of use rates, higher rates in peak times and seasons, provide an incentive to consumers to ‘move’ power needs into the off-peak hours, reducing demand in the peak hours and seasons.  

And at a time when the Utility and the government are arguing new infrastructure must be added, knowing that the unit cost of production from that new infrastructure will be twice or more the current unit cost, the Utility still allows new large industrial customers, or current large industrial customers undertaking significant expansion, to be charged the rates large industrial consumers consuming power at normal historical levels. Selling ‘new levels’ of power at less than 4 cents per kilowatt hour when the marginal cost of power transmitted from new generation needed to provide that new level is ten cents or more doesn’t seem to make a lot of sense.

Finally, noting that Manitoba Hydro indicated an intention to reduce its Power Smart expenditures at its latest rate hearing, despite other utilities in other jurisdictions increasing their commitment to energy efficiency.

Publius concludes that providing advice to the Minister is a waste of time, as it is apparent the government and its Utility are seeking ways to increase demand rather than reducing it. Why? Because the government has had its Utility expend a couple of billion dollars (with a forecast overall cost of $34-billion of capital expenditures over twenty years) and enter into commitments with both construction partners and importers of power based on the premise that the Manitoba market needs more generation.

The Minister and Hydro know what could be done to increase energy efficiency and reduce domestic demand, but chooses not to act, so giving advice seems a futile exercise.