Ontario FAO misleads on electricity costs

Peter Harrison, the Chief Financial Analyst at the Financial Accountability Office Of Ontario (FAO), wrote a commentary on Home Energy Costs in Ontario.

Hours later, the Toronto Star blissfully titled its requisite sorta reporting on a sorta positive for the ruling Liberal party with, “Ontario hydro cheaper…”

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The headline is false – and I should, and will, explain why. However, the bigger questions for me are; does the commentary fit with the intended role of the financial accountability officer and, if it does not, was this work intended to mislead people in exactly the way the poor Torstar headline writer indicates?

Mandate

Established by the Financial Accountability Officer Act, 2013 (the Act), the Financial Accountability Office (FAO) provides independent analysis on the state of the Province’s finances, trends in the provincial economy and related matters important to the Legislative Assembly of Ontario.

FAO Analysis, in the case of the “Energy Costs” paper, is manipulating data found in Statistics Canada’s CANSIM Table 203-0021: Survey of household spending (SHS) – which, as described, is data extrapolated from sampling a section of the population for a portion of the year. Here’s a slightly different version of Figure 1 in the FAO post, using the same data source

image (60)

From this SHS data (for 2014) the FAO notes differences “across Canada in part reflect the availability and adoption of different energy sources such as electricity, natural gas and other fuels…” I see provinces with natural gas being cheaper than provinces without – and provinces with abundant hydro (Manitoba, Quebec and British Columbia), and natural gas, as the lowest cost household energy provinces.

Is this one source of data, from a survey, reliable?

It does seem better than Statistics Canada’s reporting on electricity generation, which I’ve been quoted as rating “awful”, but the Ontario figure seems too low. According to the Ontario Energy Board (OEB) 2014 yearbook of electricity distributors (.xlsx) the average  residential customer in Ontario consumed 8,915 kilowatt-hours (kWh) of electricity in 2014 (down from 9,414 in 2010’s OEB yearbook data); as the SHS claims a $1,336 average household cost, the average rate would be 15 cents/kWh based on OEB yearbook consumer numbers.  While the yearbook would exclude multi-unit buildings not metered separately by distribution companies, it’s unlikely that would account for the full difference between 15 cents/kWh, the 18 plus I know paid, and the 17.1 cents/kWh for 2014 documentation for the 2013 Long-Term Energy Plan (LTEP) anticipated. I expect the SHS understates 2014 Ontario electricity costs by  up to 14% – but as I have no comparison for other provinces, I won’t dwell on this.

Another graphic shown by the FAO is Change in Average Household Home Energy Cost, 2010-2014. While these years are undoubtedly chosen due to them being the first and last years of the single data source – a survey – the FAO mandated to provide “independent analysis on the state of the Province’s finances” should be aware of changes in the sector over the period. Particularly the Ontario Clean Energy Benefit (OCEB), introduced for the start of 2011, discounting Ontario residential electricity bills 10%. If the Financial Accountability Office has reviewed Ontario’s finances, they may have noted the OCEB added more than a billion dollars to expenses in the 2014-2015 year.

In 2010 Ontario residents were paying their full electricity bill: in 2011 (and 2014) current, and future, taxpayers were paying a portion of it.

While the FAO displays the 2010-2014 change in household electricity costs for the combined total of electricity, natural gas and other fuels, I’ll show the increase in electricity separately – with and without the portion of costs to be picked up, eventually, by taxpayers.

image (61)

Without accounting for the OCEB, Ontario’s residential consumers are reported, by the household survey and subsequently the FAO, to be paying 15.6% more for electricity in 2014 than in 2010. This is essentially impossible as the significant electricity commodity portion of most bills is set by the Ontario Energy Board, and that average regulated summer rate rose 33.3% (from 6.94 cents/kWh in 2010 to to 9.25 cents/kWh in 2014).  Even with consumption down, it’s impossible for the FAO/SHS reporting to be capturing the full increase in electricity costs.

Including the share of costs paid/borrowed by the province to finance the OCEB, the increase in electricity costs was 27.1%, and that is the largest increase in the country.

The OCEB detail may seem irrelevant to those not considering it was ended for 2016 – but if reporting is being done in 2016 to reflect the scope of changes impacting consumers in 2016, it is extremely relevant.

Ontarians have reacted to higher rates by reducing consumption, and by switching energy sources. My own switch to natural gas for much of my home’s energy is hinted at being not uncommon in the SHS data. While electricity spending increased in all provinces between 2010 and 2014, spending on natural gas increased significantly in only two:

image (62)

These are the trends I find:

  • highest percentage increase in the cost of residential electricity
  • second highest switch of household energy to natural gas

That price trend is painfully obvious in Statistics Canada’s Consumer Price Index data:

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There has been a great deal of concern recently about increasing electricity costs. The concern is particularly acute in rural regions of the province not serviced by natural gas – and therefore already sentenced to the higher energy costs shown by the household survey for all provinces lacking widespread access to natural gas.

It’s important to realize, in reporting on average consumers, that most consumers aren’t average. The FAO’s analysis is poor – and that’s particularly bad because there are a great many households in the province struggling with the high costs this FAO work would excuse- as is clearly the intent of the Toronto Star’s report on the work.

It’s not obvious to me that the Financial Accountability Office reported on anything related to their mandate in writing on the Survey of Household spending data. Most significantly, they avoided noting the impact on the province’s finances, in the OCEB, which led them to totally misrepresent the scope of the trend to higher rates.

Why?

 

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