Ontario Energy Board looked the other way on rising electricity bills

After seven years, the Ontario Energy Board has determined that a move by the McGuinty government to shift the burden of electricity costs to smaller ratepayers was “complicated and non-transparent.” What took them so long to find out that out, when it cost Ontario citizens billions?

Where your money went [Shutterstock photo]
Back in 2011, the Dalton McGuinty government introduced the Industrial Conservation Initiative (ICI) with the idea of changing the way Global Adjustment (GA) costs were allocated to different classes of consumers. “The stated purpose of the ICI is to provide large consumers with an incentive to reduce consumption at critical peak demand times. The resulting reductions in peak demand were expected to reduce the need to invest in new peaking generation and imports of electricity from coal-reliant jurisdictions.”

The government had been lobbied hard by the Association of Major Power Consumers of Ontario (AMPCO) who had been feeling the effects of climbing power rates brought on by the Green Energy Act (GEA) and the resulting FIT (feed-in-tariff) contracts for renewable energy (wind and solar).

Needless to say, the Liberal government caved, the ICI was born and officially started September 2011.

Just over a week ago the Ontario Energy Board released a report titled: The Industrial Conservation Initiative: Evaluating its Impact and Potential Alternative Approaches. What struck me immediately was this sentence in the Executive Summary: “In the Panel’s view, the ICI as presently structured is a complicated and non-transparent means of recovering costs, with limited efficiency benefits.”

It took the OEB seven years to come to this conclusion. And they are supposed to be the regulators for the energy sector. Their vision is: “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.”

So, it took seven years to determine the ICI wasn’t delivering value?

The ICI was created via a change in the Regulations* and was posted August 27, 2010 on the Environmental Registry with this statement:  “As a result of the consultation, there was general agreement that the proposed changes would result in a net benefit to electricity consumers, the electricity system and the broader Ontario economy.”

The new OEB report noted the Class B to Class A shift commencing in 2011 “has shifted nearly $5 billion in electricity costs from larger consumers to smaller ones. In 2017, the ICI shifted $1.2 billion in electricity costs to households and small businesses—nearly four times greater than the amount in 2011.”

Wondering what 2018 would bring in respect to the B to A shift and, knowing IESO now posts both consumption and costs of the GA by customer class on their website, it was worth an exercise to determine if the $1.2 billion shift of 2017 would increase or decrease.  Using IESO’s data it appears the subsidy for the first 11 months was about $35.4 million per TWh (terawatt hour).  Based on 36.9 TWh consumed by Class A ratepayers the cost shift is $1.306 billion.  The 4,665,000 residential ratepayers who use 9 MW of electricity annually will absorb approximately 30% of those costs — in other words, it represents an annual subsidy to Class A customers of almost $100 from each ratepayer.

Small and medium sized businesses will pay a lot more absorbing the remaining 70%, or about $900 million!

Now you know why the price of that hamburger and everything else went up!

Electricity price increases have hit all classes of ratepayers in the province and now that we see the shift of costs, it is helpful to look at the cause!

Renewable energy in the form of wind and solar** power generation has played a big part in rising electricity bills, so it is an interesting exercise to do a simple calculation to determine what wind generation and curtailment have cost in the first 11 months of 2018.   My friend, Scott Luft posts actual wind generation and curtailment for grid-connected (TX) and distributor-connected (DX)*** wind.  Calculating the TX, wind generated (9.655 TWh) and curtailed (1.940 TWh) for the 11 months indicates costs were $1.305 billion for grid-accepted generation and $230 million for curtailed (paid for but not used) wind.

That brings total costs of intermittent and unreliable wind to more than $1.5 billion. ****

What this simple exercise really does of course is demonstrate how our costs would be much less without intermittent wind power generation, which is produced out-of-phase with demand in Ontario. Considering first-to-the-grid rights for wind power operators means it also results in spillage or waste of hydro (5.9 TWh in 2017) and nuclear steam-off (1 TWh in 2017) and must be backed up with gas generation — all of which we pay for — wind power simply increases our electricity bills without any significant benefit to the environment or power system.

If solar costs were also included in these calculations, we would be in the $3 to 4 billion range.

Short story: Without all that waste, all classes of Ontario ratepayers would have reasonable and cost-competitive electricity rates.

Conclusion                                                                                                                                       The OEB should have stood up for consumers a lot sooner and called out the government for NOT delivering the “outcomes and innovation that deliver[d] value for all Ontario energy consumers.”  Instead, the OEB simply watched while billions of dollars were removed from ratepayers’ pockets for foreign-owned wind power developments and stood by for seven years while residential, small and medium sized businesses provided increasing subsidies to large industrial companies for a program “with limited efficiency benefits.”

PARKER GALLANT

* Class A was limited to very large consumers with an average monthly peak demand of more than 5 MW (primarily large industrial consumers). Since then, the government has expanded eligibility such that Class A now includes all consumers with an average monthly peak demand of more than 1 MW, as well as consumers in certain manufacturing, industrial and agricultural sectors with an average monthly peak demand of more than 0.5 MW.

**IESO do not disclose solar generation until early the following year                                                                                                                                                      ***Estimated for grid connected but generally very close to actual generation.

****Generated wind at $135/MWH and curtailed at $120/MWh.

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Author: parkergallantenergyperspectivesblog

Retired international banker.

9 thoughts on “Ontario Energy Board looked the other way on rising electricity bills”

  1. Is it time for new executives at both the OEB and the IESO?
    This new government is asking for our input on whether the existing wind contracts should be ‘grandfathered in’ or cancelled. Some of these projects have another decade and a half or more to go.
    What will happen to the health of the innocent men. women and children being forced to live with turbines surrounding their homes over the course of these 20 year contracts?
    Already we have people experiencing irreversible harm from infrasound and willing to provide their relevant medical evidence to prove that their cardiac instability has been caused by the turbines that were sited too close to their homes.
    With all of the egregious aspects of these contracts, residents of Ontario will only become further demoralized if this new government does not take decisive action and rescue this province swiftly. They must end this ‘morally unconscionable’ situation now.
    Thank you Parker, for consistently speaking out and trying to educate people.

    Liked by 1 person

  2. Tell me again how wind power has something to do with the ICI? Are the large users running their “industrial wind turbines” to shave peak and reduce their energy costs? No, of course not. They are in fact using gas turbines to chase the critical peak periods (and, increasingly, they will use storage).

    As you know, Parker, I’m not shy about criticizing the OEB, including even this week (https://jayshepherdwriting.wordpress.com/2018/12/24/energy-25-innovation/ ). On this one, it’s probably less fair to get on the OEB for this. The ICI was a government decision, which happened with zero input sought or allowed from the OEB. The expansion of the ICI was also a government initiative. Until 2017, it was not realistic for the OEB market surveillance panel to look at the ICI, because the ICI was so narrowly circumscribed. Now, with the expansion, they have looked at it on their own initiative, and given their honest assessment. We might disagree on their analysis and conclusions, but to accuse them of sitting on their hands is not really fair.

    And as for wind? Well, we disagree on wind, but surely even you must agree that the OEB has no role in the policies encouraging and supporting wind energy. That is just not part of their legal mandate. The government makes decisions; the OEB implements them.

    There are lots of things to bash the OEB about. This does not appear to be one of them.

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    1. Jay, Simple really! If we hadn’t connected wind and solar panels to the grid which has cost billions, I suspect our electricity rates wouldn’t have climbed the way they did. AMPCO wouldn’t have been looking for a subsidy do to the high rates and the continuing debate about the GEA and the FIT contracts would never have occurred.

      So, what you are suggesting is the OEB’s role is simply to bless everything the governing party decrees without any push-back. So, we don’t really need a regulator!

      If the various commissioners appointed by the government are free to criticize them, why not regulators who have mandates specific to what they are regulating. If the OEB has the task to review the Energy East Pipeline and present their findings to the government, what prevents them from doing the same thing in respect to that other regulatory responsibility—the electricity sector. Nary a peep from them to align their views with the mandate, vision, etc. they purportedly stand by and support!

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  3. The OEB reviewed the High5 methodology as applied to transmission rates (where High5 is at least arguable) and decided that it wasn’t in the public interest. The McGoo gov’t then went and applied the same methodology to commodity rates, where the High5 methodology created (very predictably) massive distortions, some of which are documented in the MSP report for the OEB. The OEB disgraced itself on this file, like it has on so many files (unused smart meters, conservation programs during times of surplus power, etc. etc.)

    Liked by 1 person

  4. Electricity rates in Ontario proved to me many politicians white collar criminals, masquerading as “public servants”. Allowed to run a legalized extortion racket on the small electricity customer. My (once) pride as a Ontarian gone. Nor sure anymore either being Canadian. (Before someone pulls out the tired old bromide: “then leave”, I should not have had to. I don’t like being screwed. Especially so when blameless.

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  5. Most jurisdictions have an industrial rate for power set somewhat lower than the residential rate. It’s not a matter of subsidy but of competitiveness. Factories often have high voltage lines coming into their own transformer, all naturally making for a lower cost for power. We are using the ICI program at work to effectively get our cost down to about 9 cents/kWh all-in cost, which is competitive with the US average all-in cost for industrial power. We need to convert the ICI program into an outright industrial rate for power. Either Ontario has this, or more business will leave.

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  6. Small business needs to have the option of a flat rate for power, as they often can’t shift consumption to the off-peak hours. Secondly, the IESO needs to charge the Global Adjustment on export sales.

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