Multi-million-dollar power contracts IESO style

Or, how the IESO could have saved Ontario ratepayers more than $400 million by cancelling one wind power project, but didn’t 

Surplus power in Ontario: why not get out of a contract if you could?[Photo: IESO]
February 6, 2018

On March 10, 2016 the Independent Electricity System Operator or IESO announced the outcome of the “Competitive Bids for Large Renewable Projects” via a news release which, among other issues claimed, they said they would award “five wind contracts totalling 299.5 MW, with a weighted average price of 8.59 cents/kWh”. The news release also described the contracting process: “The LRP process was administered by the IESO and overseen by an external fairness advisor. Robust and transparent public procurement practices were followed throughout the process, and each proposal was carefully evaluated for compliance against a list of specific mandatory requirements and rated criteria.”

Fast forward to October 26, 2017 and the release of Energy Minister Glenn Thibeault’s “Long-Term Energy Plan 2017 Delivering Fairness and Choice,” which offers some context for power contracts currently.

“Due to the substantial decline in the cost of wind and solar technologies over the last decade, renewables are increasingly competitive with conventional energy sources and will continue to play a key role in helping Ontario meet its climate change goals.”

and

“Ontario is Canada’s leader in installed wind and solar power.”

Economics of power procurement

Further on in the Plan are examples of how the Ministry, via the institutions under it, is working with communities. This one suggests the IESO is cognizant of the costs affecting ratepayers: “Ontario Power Generation (OPG) and Gull Bay First Nation (GBFN) are in the early stages of building an advanced renewable microgrid on the GBFN reserve on the western shore of Lake Nipigon. GBFN has an on-reserve population of 300 people and is one of the four remote First Nation communities that the IESO has determined to be economically unfeasible to connect to the provincial grid at this time.”

IESO recently issued their 18-Month Outlook for the period January 2018 to June 2019 and this report also noted the situation in respect to surplus power: “Conditions for surplus baseload generation (SBG) will continue over the Outlook period. It is expected that SBG will continue to be managed effectively through existing market mechanisms, which include intertie scheduling, the dispatch of grid-connected renewable resources and nuclear manoeuvres or shutdowns.”

Those manoeuvres or shutdowns in 2017 caused over 10 TWh (terawatt hours) to be wasted, but their costs were added to ratepayers’ bills and included 3.3 TWh of curtailed wind.

So, the province has a surplus of power, and the costs of wind and solar have become more competitive. Why would the IESO then not seize upon the opportunity to deal with a high-cost industrial-scale wind power project, when they had the ability to cancel it due to non-compliance with the original contract? At the very least shouldn’t they have renegotiated the contract to reduce the impact on ratepayers?

They did neither.

The White Pines story is a curious exercise in contract law, to be sure. A successful appeal* to the Environmental Review Tribunal by the community group the Alliance to Protect Prince Edward County** resulted in the project being reduced from 59.45 MW to 18.45 MW last fall. IESO could have simply canceled it because it was clearly unable to meet a condition requiring delivery of 75% of the capacity agreed to in the contract. At the very least, IESO could have renegotiated the terms of the contract to fulfill the Energy Minister’s claim that “renewables are increasingly competitive”.

But the IESO amended the contract for the reduced project, and granted waivers to the original conditions of performance, it was learned in a Belleville courtroom recently.

Cancelling would save millions

If IESO had canceled the contract, the Ministry could have claimed they reduced future rate increases saving ratepayers $21 million annually or $420 million over the full 20-year term. Even if IESO had only renegotiated the contract to the 8.59 cents/kWh achieved via the competitive bidding process instead of the 13.5 cents/kWh of the original contract, the Ministry could have claimed savings of about $5 million over the full term of the contract based on the currently approved 18.45 MW of capacity.

Has the IESO forgotten this line in in its Mission Statement ?

“Planning for and competitively procuring the resources that meet Ontario’s electricity needs today and tomorrow”

Cancelling just this one project*** would have helped to reduce surplus baseload and therefore the costs kicked down the road under the Fair Hydro Plan to be paid for in the future.

 

 

*The appeal was one on the grounds that the project would cause serious and irreversible harm to wildlife

**Disclosure: I am a member of the community group

*** The IESO has five contracts for more wind power projects totaling $3 billion, for power Ontario does not need.

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IESO: pick a number, any number

February 4, 2018

The Independent Electricity System Operator seems have different ideas about its power statistics, which raises questions about how it manages contracts

The IESO’s 2017–2019 business plan (February 1, 2017) opened with this statement: “The Independent Electricity System Operator (IESO) operates within a complex and changing energy sector environment. Its broad mandate includes real-time operations of Ontario’s bulk power system, province-wide and regional planning, conservation, resource development and contract management.”

Further on in the business plan is this: “Over the next five years, 27 per cent of the IESO managerial staff and 12 per cent of the senior professional level staff will be eligible for retirement with unreduced pensions. Well over half of these staff are in Information and Technology Services and Market and System Operations.”

With more than 75% of all of IESO’s staff appearing on the 2016 “Sunshine List,” one would hope they were competent and able to provide reliable information, particularly when it comes to “contract management” and knowing what the capacity level is for that contracted generation!

However, some recent events suggest that may not be the case.

Contracted capacity of “embedded generation” (DX) is…?

Recent information from IESO suggests they don’t know how much they have contracted for distribution-connected (DX) capacity.  Here are three recent examples:

First we have the 18 Month Outlook for the period: January 2018 to June 2019 dated December 12, 2017 that stated: “By the end of the Outlook period, [June 2019] embedded wind capacity will exceed 600 MW and embedded solar will surpass 2,200 MW. Overall contracted embedded capacity will reach 3,300 MW over the Outlook horizon.”

Second this speech by IESO’s President and CEO, Peter Gregg on January 19, 2018 to the Ontario Energy Network upped the “Outlook” number by 1,000 MW as per this excerpt: “We now have over 4,300 MW of distributed energy resources in Ontario, over half of which is solar. This makes up roughly 12% of our total installed resource capacity.”

Finally, four days after the CEO’s speech, IESO’s Vice President Terry Young delivered a speech to ROMA, the Rural Ontario Municipal Association with yet another DX claim: “At the end of 2017, there were more than 3,800 MW of embedded generation within local distribution systems, a 25-percent increase over the previous year. These generators supply electricity to local distribution systems, which in turn reduces demand on the transmission grid.”

What they don’t know may hurt you

One of the issues troubling to those assessing IESO is their apparent inability to provide annual DX generation as a result of the embedded capacity. IESO are required to settle (pay) monthly to local distribution companies for DX generated electricity.  That being the case, why is the generation from those contracted DX entities not readily available?

That raises other questions such as:

IESO reported grid connected consumption dropped in 2017 by 3.6% (4.9 TWh), but did it?  Did DX generation increase more than grid-connected consumption dropped?  If the latter is true, then  consumption is still increasing, despite spending $400 million annually on conservation initiatives.

Almost eight years ago, IESO made it known they were developing a “smart grid” at a cost of $1.6 billion to utilize “smart meter” data. Ratepayers have been paying a monthly fee via the regulatory line on their bills to cover that cost since then yet for some reason IESO seem unable to deliver basic information.   Is this yet another example of wasted spending?

And, another disturbing issue surrounding the unknown amount of contracted and installed DX generation is this: IESO is obligated to follow directives issued by Energy Ministers telling them how much “renewable” energy is to be contracted. How is the general public to know if IESO has acquired too much or too little if three claims of DX generation may be out by as much as 1,000 MW?

If the contract management function is in such disarray that two senior officers of IESO are in serious conflict with a regular quarterly report issued by their staff, you have to wonder how well IESO is managing not only those contracts, but also “Ontario’s bulk power system, province-wide and regional planning, conservation, resource development”?

It also begs the question, why has IESO not audited contracted DX nor used its regulatory power to cancel contracts for power projects that have not yet broken ground or have failed to meet agreed milestones?

Perhaps the time has come for Ontario’s Auditor General to audit IESO.

Numbers don’t lie: intermittent wind and solar surplus to Ontario’s energy needs

The IESO (Independent Electricity System Operator) released 2017 data for grid-connected* generation and consumption and, surprise! The data reveal that power from wind and solar is surplus to Ontario’s  energy needs.

IESO reported Ontario’s consumption/demand fell 4.9 TWh (terawatt hours) in 2017 to 132.1 TWh. That’s a drop equivalent to 3.6% from the prior year.

Nuclear (90.6 TWh) and hydro (37.7 TWh) power generation was 128.3 TWh, making up 97.1% of Ontario’s total demand (without including dispatched power from either nuclear or hydro). The cost to Ontario ratepayers for the 128.3 TWh was approximately $7.6 billion or 5.9 cents/kWh.

Spilled hydro (paid for by Ontario’s ratepayers but not used) reported by Ontario Power Generation or OPG was 4.5 TWh for the first nine months of 2017. Out that together with 511 nuclear manoeuvres and the number is 959.2 GWh (gigawatt hours) wasted but paid for by Ontario’s ratepayers. Add in three nuclear shutdowns and it means Ontario’s nuclear and hydro generation alone could have easily supplied more than 136 TWh of power or over 103% of demand.

That doesn’t include spilled hydro in the last quarter of 2017 which will probably exceed at least one TWh.

Nuclear and hydro does it all

Nuclear and hydro could also have supplied a large portion of net exports (exports less imports) had all the generation potential actually been delivered to the grid. Net exports totaled 12.5 TWh in 2017.  Grid connected wind (9.2 TWh) and solar (0.5 TWh) in 2017 supplied 9.7 TWh and their back-up generation: from gas plants, supplied 5.9 TWh.  In all, the latter three sources delivered 15.6 TWh or 124.8% of net exports.  Net exports were sold well below the average cost of generation. Exports brought in revenue of about $400 million, but here’s the kicker: that surplus power cost Ontario’s ratepayers $1.4 billion, which is really a loss of $1 billion.

Grid-connected wind, solar and gas generation collectively cost approximately $3.5 billion for the 15.6 TWh they delivered to the grid, included curtailed (paid for but not used) wind power generation of 3.3 TWh. The cost of the wind power was more than $220 million per TWh, or 22 cents/kWh. That’s almost double the Class B average rate of 11.55 cents/kWh cited in IESO’s 2017 year-end results.

The 9.7 TWh generated by wind and solar was unneeded. If it had been required, it could have been replaced by gas power generation at a cost of only around two cents per kWh. Why? Gas generators are guaranteed payment of  about $10K per MW (average) of their capacity per month to be at the ready and if called on to generate power are paid fuel costs plus a small markup.

Price tag: $2 billion

In other words, if no grid-connected wind or solar generation existed in Ontario in 2017 the bill to ratepayers would have been about $2 billion** less! Grid-connected wind generation (including curtailed) cost ratepayers in excess of $1.7 billion and grid-connected solar added another $250 million!

That $2 billion, coincidentally, is about the same cost estimate of the annual amount to be deferred, and paid by future rate increases via the Fair Hydro Plan! In other words the current government could have easily saved future generations the estimated $40 billion plus cost of the Fair Hydro Plan by having never contracted for wind and solar generation!

The IESO results for 2017 sure makes me wonder: why hasn’t the Ontario Ministry of Energy canceled all the wind power projects that have not yet broken ground?

 

*   Distributor connected solar (2,200 MW) and wind (600 MW) added over $1.4 billion to the GA.

** The first 6 months of the variance account under the Fair Hydro Plan in 2017 was $1,378.4 million.

 

Ontario’s Fair Hydro Plan set to be less fair than ever

My latest, published in today’s Financial Post, here.

An excerpt:

When the province of Ontario in October announced its Fair Hydro Plan, which lowered electricity rates to current ratepayers by 25 per cent — by passing on costs to future ratepayers — the Association of Major Power Consumers of Ontario (AMPCO) had a problem. The group, representing companies in the province that consume significant energy in their production, took issue with a claim in the province’s revised Long-Term Energy Plan (LTEP) that stated: “Currently, the electricity price for industrial electricity consumers in Ontario is lower than the average price in the Great Lakes region as reported by the U.S. Energy Information Administration.”

Objected AMPCO at the time: “That statement sends the message that Ontario industrial prices are already competitive with surrounding jurisdictions. That is simply not the case.”

AMPCO had lobbied long and hard for special treatment under Ontario’s rising power rates. It got that several years ago when the provincial energy minister directed the Ontario Power Authority to develop and deliver a program that would bring relief to large industrial companies. The program — which required that the large industrial “Class A” ratepayers drive down peak demand — commenced in 2011 and has grown since then as more and more industrial clients were allowed to qualify with lower and lower consumption limits. Joining the Class A ratepayers can result in substantial savings, achieved on the backs of the rest of Ontario’s ratepayers who are the “Class B” group, made up of households and smaller businesses. …

Hydro One’s new electricity bills: so pretty, so empty

The Ontario government was recently questioned about advertising in electricity bills and got this response from the Energy Minister: “Hydro One has a pilot project under way in which they’re doing a new bill redesign, helping customers right across the province who are Hydro One customers understand their bills and some of the complexity of the bills. Knowing that they’re getting a 25% reduction on their bills is important.”

The Minister’s added, “It is important that all rate-payers in the province know what is on their bills”. 

The “pilot project” referred to by the Minister was the $15-million spend by Hydro One to design their new bill. This has recently received a lot of media attention with an emphasis on how Hydro One used “behavioural science”* in its design. The government has previously said it uses behavioural science research to “improve services and outcomes.” (See it here)

I’ve already noted the planned spending of $15 million by Hydro One last December in an article: “According to Hydro One they will have ‘A fresh new look to serve you better’. Hydro One appears to be in the process of spending $15 million dollars to make that happen, as explained on page 2032 of one of the dozens of documents filed with the OEB seeking several rate increases.”

The media reported that so far, Hydro One has spent $9 million reinventing their bill and are fully intent on spending the balance of $6 million. So the question is, do the changes add value, make our bills more easily understandable and tell us where all the money is being spent?

If you are curious as to what the new bills look like, Hydro One posted a sample bill (two pages) on their website. Compare your old bill to the new one — developed with the assistance of “behavioural science” — you will immediately notice it is much more colourful!   But finding new or meaningful information is virtually impossible unless you think the box on the right hand side of page one telling you how much Ontario’s Fair Hydro Plan saved you is important, even though it is already shown and highlighted on existing bills.

What’s not there? Plenty: the new bills don’t disclose your “service type” which has a significant bearing on what you pay for “delivery” costs, nor do they tell you your average daily consumption over the previous five months.  They don’t disclose the cost of subsidization of Class A ratepayers, how much it cost for curtailed wind or spilled hydro, or how much it cost to sell our surplus energy to our neighbours in New York, Michigan and Quebec, etc.  New understanding of the bills’ “complexity” as suggested by the government is sadly lacking.

Essentially what the new electricity bills demonstrate is “bad behaviour” on the part of Hydro One and the government by spending $15 million for colourful bills!

Parker Gallant

January 17, 2018

 

* “behavioural science” is defined by Merriam Webster as “A science that deals with human action and seeks to generalize about human behaviour in society”

 

Energy irony in Ontario

Anyone in Ontario who receives an electricity bill has seen the line 8% Provincial Rebate which appears just above “Total of your electricity charges” and refers to the provincial portion of HST charges.

There are millions of households in Ontario, however, that are not entitled to that rebate. In fact, 3.3 million households* depend on natural gas, oil or propane for heating or cooking are exempt.

Those households are not even told how much the “cap and trade” tax is. The latter is only available should you visit your supplier’s website where they may, or may not, offer you the opportunity to calculate what that tax is.  If you do the calculations you discover the cap and trade tax represents about 8.8% of your bill so that, together with the 13% HST (including the 8% provincial portion), total taxes on your heating bill are 21.8%!

What that means: if your annual heating bill is $1,000 you pay $218 in tax but if you heat with electricity for the same annual cost, you only pay 5% or $50.

If the 8% rebate granted to electricity ratepayers was aimed at reducing energy poverty, why weren’t households heating with natural gas, oil or propane accorded the same treatment?

Getting off fossil fuels might help combat climate change, but switching to electric heat the cost would suddenly zoom to well over $2,000!   A sure-fire way to reduce emissions while increasing energy poverty.

On December 12, 2017 Ontario’s energy minister responded to a question in the legislature from the leader of the third party about the Fair Hydro Act. He said:

“Again, some of them don’t have a choice between natural gas or electricity, so they’re using electricity. We’re working on that with the Minister of Infrastructure, rolling out a plan to get natural gas to these communities as well.”

More gas means more taxes, doesn’t it?

But I am confused about the direction the government wants us to take. Is climate change now on the back burner as they push to contain the deficit by getting us to pay more taxes by consuming more fossil fuels?

Ironic, isn’t it?

Parker Gallant,

 

 

* Based on a StatsCan 2013 report (census of 2011)

New info: energy poverty still deep in Ontario

It apparently took the Ontario Energy Board (OEB) a long time to put together the report on the low-income energy assistance program (LEAP) as the 2016 report was not posted until January 11, 2018.

(It was late:  OEB reporting regulations state “A distributor shall provide in the form and manner required by the Board, annually, by April 30, the following information related to the provision of LEAP emergency financial assistance in the preceding calendar year.”)

Actually, I looked for the reports for both the LEAP program and the OESP (Ontario Electricity Support Program) back in mid-December 2017, and still have not received a response.  Busy times at the OEB? Or is the release of the OESP report being delayed for some reason?

The LEAP report is just what we have come to expect. The leader by a wide margin in terms of the program, was Hydro One, which represented 52.4% of all recipients, despite only having about 25% of all residential ratepayers as clients. The dollar values from Hydro One also represented 57.4% of total available funds and 60.7% of total grants disbursed.   Hydro One’s budget was only $1,845,000 (41% of the CEO’s annual remuneration), but it had to be supplemented via donations of $2,250,000 from numerous corporate donors and social agencies.

Thirty-nine (39) LDC depleted their funds in 2016 and 12 more had less than the average grant amount available at year-end. Almost half of the LDC had run out of funds by the time summer arrived in June 2016.

Funds disbursed under the LEAP and Winter Warmth programs compared to 2015 increased in 2016 by $1,318,700 to $7,776,600 (up 20%) despite the fact the OESP (Ontario Electricity Support Program) started January 1, 2016 and offered significant relief to hundreds of thousands of low-income Ontarians. The OESP was estimated by the OEB to cost other ratepayers as much as $200 million annually.

It certainly appears “energy poverty” continues to increase in the province despite the recent claim by the Minister of Economic Development and Growth that “Ontario has now created more than 800,000 net new jobs since the depths of the recession.”

The assumption must be, those 800,000 jobs are all at the low end of the pay scale — otherwise there would have been no need to kick $25 billion (plus the interest [$15 billion]on the borrowed funds) of ratepayer bills down the road for future generation to pay.

Parker Gallant