How Kathleen Wynne could have avoided public outcry over electricity costs

Former energy minister Thibeault and former premier Kathleen Wynne: no opinions wanted, thank you

Or, how she might have benefitted from listening to opinions (and saved Ontario millions)…

The following tweet from TVO reporter John Michael McGrath reflects the attitude of former Premier Kathleen Wynne to a question she was asked about an estimate of energy costs from yours truly:

 “John Michael McGrath‏ @jm_mcgrath                                                                                                           Tories introduce an estimate of energy costs from Parker Gallant, Wynne declines to comment on “one person’s opinion, one person’s research.”      10:20 AM – 3 Dec 2018”

The Select Committee on Financial Transparency questioning Wynne is/was attempting to determine the actual reason (e.g., hide debt and push the current cost of energy generation into the future) behind the creation of the Fair Hydro Plan (FHP) by the former Ontario Premier and her Cabinet.

Ontario is now one and a half years into the FHP which provides an opportunity to review the estimated costs of the 10 years of deferral by the Financial Accountability Office (FAO) of Ontario and see what has actually happened so far.

The FAO’s forecast estimated the deferral would cost $18.4 billion over 10 years plus another $21 billion for interest. The average monthly deferral (before interest costs) would therefore average $153 million.  Since the FHP first kicked in, IESO has posted monthly, what they call; the “Global Adjustment Modifier” (GAM) so, it is a relatively simple task to determine how the FAO’s estimates have played out, versus actual deferrals.

So far GAM deferrals (without interest costs) are $3,843 million for the 18 months — that’s about $770 per ratepayer. What that indicates is, the monthly average, so far, has been $214 million for the 17% of the GAM deferral versus the estimated $153 million in the FA0 forecast.  Should those averages continue for the next 10 years the deferred amount will be $25.7 billion or $5,140 per Class B ratepayer without interest costs. The additional $7.3 billion of the GAM deferral would also drive up interest costs to approximately $29 billion adding another $5,800 per ratepayer that would need to be repaid.

What that means is, future ratepayers could be on the hook for as much as $54.7 billion!

How could that $54.7 billion transfer to future ratepayers have been avoided?

The numbers are up in IESO’s website reflecting how much grid-connected wind power generation has been delivered for the first 9 months of the current year. My friend Scott Luft has provided the estimate of curtailed wind: the collective 8.98 TWh (terawatt hours)** translate to costs of $1,190.7 million. If one extrapolates the first nine months to a full year, the estimate of costs are $1,587.6 million for wind power.  IESO does not publish solar output (except for grid-connected) as most of solar is embedded within the distribution system.  Despite the lack of data, one can assume solar will have generated 15% of its capacity (380MW are grid-connected [TX] and 2,081 are distribution connected [DX]) meaning the 2,461 MW of capacity should generate approximately 3.23 TWh annually at an average cost of $448/MWh. That adds about $1,450 million to renewable’s costs.  Wind and solar together will therefore add $3.038 billion (rounded) annually to electricity costs assuming their capacity levels and annual generation remain at current levels.

As you can see, the estimated cost of wind and solar at $3.038 billion exceeds the adjusted annual GAM costs of $2.562 billion (18-month costs of $3,843 million/18 months X 12 months = $2,562 million) by $476 million.   At the same time TX- and DX-accepted wind (7.52 TWh) and solar (3.23 TWh) is assumed to come in at 10.75 TWh which presumably would need replacement.  In that regard the Ontario Power Generation 2018 3rd Quarter report indicates they spilled 2.4 TWh in the first nine months, which will probably transition to 3.2 TWh for the full year (ratepayers pay for spilled hydro so no additional costs) leaving a shortfall of just 7.55 TWh to be supplied to replace ALL wind and solar generation!

Without knowing, at this point, if nuclear generation had been steamed-off or exports could have been reduced, the question becomes: could gas plants*** have provided the 7.55 TWh (net after allowing for spilled hydro) wind and solar will probably provide for 2018?

Gas plants for the first nine months of 2018 generated 7.89 TWh; If extrapolated to 12 months, gas could generate 9.22 TWh and represent about 12.4% of its total capacity (8,500 MW). Adding another 7.55 TWh of generation would mean they would be required to operate at 22.5% of capacity so they could have easily replaced wind and solar generation.   The additional costs of that generation would be fuel costs plus a small mark-up.  Even if fuel costs and the mark-up were as much as $50/MWh the costs of the 7.55 TWh would amount to slightly less than $400 million.

What the foregoing suggests is that with no wind and solar generation, the costs of generation could have been reduced by $2,638 million (wind and solar costs of $3.038 billion less $400 million for additional gas generation of 7.55 TWh).

Coincidentally, the cost reduction of $2.638 billion per annum is remarkably close to the above noted GAM costs of $2.562 billion that will accumulate in the OPG Trust every year for the next 10 years along with the interest on that debt.

So, without wind and solar, former Premier Wynne might have avoided the public outcry about electricity costs and her party might have been re-elected.

Just “one person’s opinion, one person’s research”!


*Based on 5 million ratepaying households and Class B business consumers.                                                                   **Grid accepted: 7.52 TWh plus curtailed of 1.46 TWh = 8.98 TWh at a cost of $135/MWh for grid accepted and $120/MWh for curtailed.                                                                                                                             ***Gas plants are paid to idle at a rate as low as $4,200/MW per month (Lennox) to over $15,000/MW per month.




Author: parkergallantenergyperspectivesblog

Retired international banker.

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