How to reduce Ontario electricity bills with a minimum of pain

Much has been written recently about what’s wrong with Ontario’s electricity sector and the rising costs of a “necessity of life” to most Ontarians.   The pundits have generally failed, however, to offer a solution. The criticisms correctly point out the mistakes that have been made, including the Green Energy Act and the goal to cleanse Ontario of coal power generation. The result has taken a toll on our pocketbooks and Ontario’s attractiveness as a place to invest in. We now see a sizable increase in people living in “energy poverty.”

I will offer the Ontario Liberal government options that could alleviate rising electricity bills, with little impact on the budget deficit. As some of my suggestions/recommendations impact ministries other than Energy, it may be important for the government to review ministerial responsibilities.

  1. Reduce the Water Fuel Tax imposed on OPG’s hydroelectric units. This fuel tax is applied to both hydro generation and to spilled water (i.e., water not run through turbines). Reducing the tax would generate increased earnings by OPG mitigating further applications for increased revenue via Ontario Energy Board application for rate increases and should generate additional PIL (payments in lieu of taxes). It should reflect itself as a “net-zero” cost to the treasury but mitigate rate increases.   I recommend the fuel charge be reduced by 50% or approximately $170 million annually, based on 2015 fuel charges levied on OPG of $345 million. If applied to residential ratepayers their bills should drop about $40 annually for the average ratepayer.
  2. Move the Ontario Electricity Support Program or OESP: this was created to support low income households and commenced January 1, 2016. The estimated cost of the program was in the $200-million range and required both a staffing increase and advertising budget that will partially consume the budget. The program is funded by other ratepayers via the Global Adjustment pot, reflecting in increasing electricity costs. The program rightly belongs with the Ontario Ministry of Community and Social Services who have existing relationships with funding agencies such as the United Way and could easily accommodate the program as they do for LEAP (low-income energy assistance program). That would help reduce administration costs and place the program where it would be more effective. Cost savings for ratepayers would be $200 million, but would presumably increase the budget of the Ministry of Community and Social Services by only $180 million. Moving this program to where it belongs would drop the average residential bill by approximately $44 annually
  3. As noted in my letter of August 16, 2016 to Energy Minister Glen Thibeault I suggested a tax on wind generation due to two factors: wind turbines frequently provide electricity at times when it’s not needed and developers are paid above market rates and also for curtailment.   Taxing wind is a concept that could generate $150/$200 million annually (based on generation for the first six months of 2016 and a tax levied per megawatt hour [MWh]). The proposed tax could cost the owners of the wind developments $200 million or more, and reduce annual residential bills by $45.
  4. One of the easiest ways to mitigate future rate increases would be to cancel all of the 400 MW of older wind power contracts that have passed their key contract dates. That would save future rate increases over 20 years, from the addition of $3 billion to hydro bills. Future increases would be reduced by $35 annually
  5. Cancel the LRP II (large renewable procurement) immediately: the 600 MW of wind it seeks is not needed and would add annual costs (estimated) of $200 million and almost $4 billion to future electricity bills. The 300 MW of contracts handed out under LRP I should also be canceled and would save ratepayers another $100 million (estimated) per annum and $2 billion over 20 years.   Cancelling the 900 MW would mitigate future rate increases on the average residential bill by about $65 annually.
  6. Cancel 1,300 MW of wind power (600 MW of new + 300 MW from LRP 1 + 400 MW of projects past their key contract dates) would result in less steaming off of power from Bruce Nuclear.  IESO reported this occurred 472 times in 2015 and represented 897 GWh at a cost of about $60 million. Avoiding that would have meant an annual saving per average residential ratepayer of $15.
  7. Cut back surplus power generation: Cancelling the 1,300 MW of wind capacity would considerably slow the generation of “surplus” power meaning less water spillage of hydro (3.4 TWh) by OPG which cost ratepayers about $150 million in 2015, and resulted in an annual cost per average residential ratepayer of about $30.
  8. Should surplus generation flatten or reduce because of the cancellation of the 1,300 MW of wind capacity it would affect the market price (Hourly Ontario Energy Price or HOEP) favourably reducing subsidies. If the HOEP price increased, say, $20/MWh, it would reduce subsidies and generate additional revenue of $450 million (based on 2015 exports) and reduce average residential electricity bills annually by $100.
  9. Cancel spending on conservation: save more than $400 million a year on TV ads and mailers. Most ratepayers know if we conserve more it causes electricity bills to rise as happened with the recent rate increase announced by the OEB in April 2016. A halt in conservation spending would translate to annual savings per ratepayer of almost $90.
  10. Negotiating “Net Zero” wage settlements provided the Power Workers Union and the Society of Energy Professionals at Hydro One and OPG a wage settlement handing them a lump sum payment for the first two years of their contracts and annual awards of Hydro One shares equal to 2.7% of their wages. The annual awards of Hydro One shares alone will extract the value from their sale that should have gone to the province for “infrastructure” spending or deficit reduction. The value of the “Net Zero” contracts was approximately $250 million. The next contract should be “Zero” and would annually save residential ratepayer about $55.

TOTAL potential savings for the “average” Ontario electricity ratepayer? $519 per year

If the Wynne government undertook these actions, immediate ratepayer relief would be approximately $265.00 annually, and mitigate future rate increases by $220.00 annually.   The PST could have been left on ratepayers’ electricity bills reducing the immediate relief to $135.00. The foregoing would have a marginal effect on annual Provincial revenue reducing the borrowing needs from $1.3 billion to less than $300 million to cover the costs of the OESP shift to the Ministry of Community and Social Services and the marginal drop in the water tax payments from OPG.

Why hasn’t the government done these things? Maybe it’s just easier to transfer $1.3 billion in costs to Ontario’s taxpayers. Or maybe promises were made to those who lobbied the Premier and some of her ministers at special access fund-raising events.

Time will tell.

Parker Gallant

September 18, 2016

 

 

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4 thoughts on “How to reduce Ontario electricity bills with a minimum of pain”

  1. Mr. Gallant, I think the last sentence of the last paragraph gives us the real cause of many, many problems in Ontario.
    Keep up the good work please.

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  2. These are very useful suggestions that could be implemented without altering the basic structure of the Ontario electricity system. Of course, the largest savings could be accomplished by cutting the roots, not trimming the branches. One could do that by taking “radical” but sensible actions. Privatize completely the Independent Electricity Systems Operator, Ontario Power Generation and Hydro One. Require Hydro One to sell all of its distribution businesses, ideally to private operators. Encourage competition in all areas of electricity production and sales where it is possible to do so. Change the mandate of the Ontario Energy Board so that it regains its power and obligation to protect consumer interests. Further require the OEB to regulate utility rates so that utilities must demonstrate that they have purchased the lowest cost generation and transmission facilities consistent with assuring reliability of supply (disallow the passthrough to consumers of any costs that do not meet this criterium). Repeal the Green Energy and Green Economy Act, thereby ending the authorization to make FIT payments and to give high-cost renewable energy generation “first-to-the-grid: rights. This would also return to local governments the right to subject renewable energy projects to the jurisdiction of local land use planning authorities. Severely restrict the authority of the Minister of Energy to give mandates to the electrical utilities. Return to the practice of preparing professional energy plans for the province and sticking to them. Make, and announce publically, a provincial policy commitment to stop using the electric energy system as a political football and instrument for aiding certain politically-favoured industries.

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  3. The question I keep asking is why are there not people who have the kind of experiential background as you do, Parker, participating as part of a team of experts managing the energy portfolio in this province? Do we know the qualifications of the people who have caused the mess we’re in? Why is this not an election issue? Affordable, safe energy supply is absolutely crucial to Ontario’s residents as well as to the business investors in this province. We need to take this very, very seriously going forward.
    Thank you Parker for your consistent effort and thanks to all who offer intelligent comments.

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