Monday, March 26, 2012

Energy Industry Speech Emphasizes Public Concerns on Pricing are Well-founded

Jim Burpee, the President and CEO of the Canadian Electricity Association, delivered a speech on March 20th, 2012.  I was browsing through it when I read they had commissioned reports from the Conference Board of Canada - and it occurred to me in my extensive critique of the first of those reports I had failed to notice who paid for it.  Now I understand why that post is among the most read on my original content blog.

Some quotes from the speech - that support my position that there was no value proposition made in the CBC reporting:

When I look back at the two Conference Board reports, they reflect an industry view, not a public view. The need for investment is known within the industry, but not understood by the public at large. While we have started in some regions to talk about the risk of not renewing aging infrastructure, we do struggle to explain the benefits in terms of long term price and environmental performance of a smarter grid.
But even as we do get this message out, we have a fundamental communication challenge. If we viewed these decisions from a commercial perspective and calculated it as a Net Present Value, we would reflect an upfront investment cost followed by years of benefits. As the benefits accrue in the later years, they are discounted, and the impact on NPV depends upon the discount rate used.
If you now look at this from an individual perspective, or as my wife always tells me, Joe Public (her term), the calculation is no longer simple. That is because as individuals, when we look at the impact on us of a price increase today versus benefits over many years into the future, we all use different discount rates. And our personal discount rate is subject to a number of intangibles, including our own value system.
So the problem is public ignorance - the ignorance, particularly, of people like me.

... or maybe not.

Mr. Burpee later speaks of long-term outlooks and the capital stock value of electricity infrastructure.
The renewal of our electricity infrastructure is vital to Canada’s prosperity and quality of life. The current economic downturn, while potentially causing a reduction in power consumption in some provinces in the short-term, is not expected to substantially affect long-term requirements. We need to remember that the economy will ebb and flow, but that electricity infrastructure is long-lived capital stock. Building and renewing the needed infrastructure is not just an Ontario issue, but a national one. We need a long-term vision and plan, and we need to stick to it.
Please read my my extensive critique of the first of those reports if you have not done so - I believe the evidence is overwhelming that the industry is attempting to devalue the existing capital stock, while inflating the value of the proposed replacements.
Specific to Ontario, my original content blog includes a brief overview of our history of overbuilding capacity - but the demand trends in states adjacent to Ontario are similar.

In short, the industry can claim it has problems with the ignorance of the public, but it's problem is the increasing number of us who realize they have no value proposition in their sales pitch.

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