Ontario electricity records smashed in June

And no, that didn’t make your life better

The month of June came and went and while several records were set, the media paid no attention.

Let’s start with why it took IESO until early August to release their Monthly Market Summary for June with the rest to follow!

IESO reporting: The IESO webpage where one accesses the daily and monthly summaries states the following: “The monthly report follows the Settlement Calendar for the release of Preliminary statements, generally in the middle of the following month.” While this may not be a record for late reporting it certainly doesn’t live up to their claim. They might want to edit that statement.

Ontario ratepayers’ consumption: The IESO Monthly Market Summary disclosed Ontario’s consumption was less than 10.6 TWh (terawatt hours) and, looking back over the past ten years (since passage of the GEA) June 2019’s TX (transmission-connected), consumption was the lowest. Possibly a record low.

 Curtailed wind: While the amount of curtailed wind (paid for but not generated) wasn’t the highest ever, the percentage of curtailed wind was a new record according to my friend Scott Luft who does an excellent job every month at estimating it, and provides data well before it is made available by IESO.  In June, Scott estimated 390,567 MWh of DX connected wind was curtailed versus 381,946 MWh grid-accepted. The curtailed wind represented 50.6% of what they could have generated and cost ratepayers $46.868 million via the Global Adjustment (GA) pot.

Grid-accepted wind power’s value: Scott also keeps track of the HOEP rate when wind is added to the grid and for June, he noted the HOEP valued wind at 0.17 cents/MWh.  We ratepayers pay wind generation companies an average of $135.00/MWH while the electricity trading market, i.e., HOEP valued their generation for pennies.  This is a record since Scott commenced tracking IESO data. Grid-accepted wind was HOEP valued at $65,000.

Global Adjustment sets a record: On Page 22 of IESO’s Monthly Market Summary they provide the Arithmetic and Weighted Average of both the GA and the HOEP and as it turned out, the GA hit a new record high for both at $140.96/MWh and $142.11MWh respectively.  This record high GA signals a high transfer to the Fair Hydro Plan (FHP) instituted by the Wynne government to reduce residential ratepayer’s electricity bills.

Monthly transfer to the FHP sets a record: The FHP transfer is referred to as the “GA Modifier” and it set a record for June coming in at $329.8 million, or 32.3% of the June GA cost ($1,018.2 million) for Class B ratepayers. Both the amount of the transfer and the percentage established new records.

HOEP sets a new record low: IESO’s “Monthly Market Summary” page 22 also contains the monthly Arithmetic and Weighted Average of the month’s HOEP value and they were respectively $3.68/MWh and $4.83/MWh and both were new lows.

Contribution by ratepayers to net exports sets a record:  As sales of surplus electricity to our neighbours doesn’t include the GA costs our net exports (surplus grid generation) for the month were adversely affected by the low HOEP.  Net exports for the month were 1.7 TWh (enough to power 2.2 million average residential households for the month) and generated approximately $8.2 million at $4.83/MWh but cost ratepayers about $241.6 million at $137.28/MWh meaning the loss for the month of $233.4 million was added to the GA pot.

Conclusion                                                                                                                                      What all this demonstrates is that there is something severely wrong with our electricity system in Ontario.

While wind and solar clearly played a significant role in driving up our electricity costs as it turns out, for June, a large portion of the record costs came about as OEB approved rate riders for OPG. Some of those are related to OPG’s nuclear refurbishment whereas other increases are due to OPG rate applications that were before the OEB for several years.  The latter are related to variance accounts including pension and other post-employment benefits in the hundreds of millions of dollars.  The OEB said no to the original applications but legal action by OPG took the issue all the way to the Supreme Court of Canada and the OEB lost!  As a result, those rate applications were allowed and their effect is to add hundreds of millions annually to OPG’s revenue base at a cost to ratepayers.  Scott Luft lays out the impacts of the foregoing in a recent posting on his site.

The revenue spurt OPG is now experiencing may well be the reason they suddenly announced the planned acquisition of 1,808 MW of gas plants from TransCanada and its affiliates for $2.87 billion. OPG suggested it was to replace the Pickering Nuclear generation capacity that will be winding down over the next several years, but it adds nothing to the province’s electricity capacity.

Ratepayers and taxpayers will continue to pay the price for political directions/interference and their exercise of control over the electricity sector.

The Green Energy Act passed by the McGuinty government is simply one example. It remains to be seen if the current government can untangle the mess.

PARKER GALLANT

 

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Author: parkergallantenergyperspectivesblog

Retired international banker.

8 thoughts on “Ontario electricity records smashed in June”

  1. Why are the actuaries not figuring this out and advising this government on these matters?
    This is precisely why having a team of experts in the relevant fields within the energy sector is needed. This needs to be an election issue, but now we can’t wait for the next election in Ontario to sort this out.
    Why are ratepayers so oblivious?
    And what will happen when more and more projects are derated because of non-compliant audible noise, as is the case for more than half of the turbines in the largest project in Ontario.
    Permanent derating came into effect in early July for this project.

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  2. Ummm….the OEB won before the Supreme Court. Also the Pension/OPEB DVAs have nothing to do with the issue anyways. The large build up in the DVA was due to the OEB clearing the large balance that had accumulated due to the implementation of new Board policy regarding regulatory accounting treatment. Short story: OEB had previously decided as an interim measure to recover pension/OPEB costs on a cash basis and book the difference btw cash and accrual in the account until they resolved the on-going policy consultation. The policy was released which determined that the costs should be set on a accrual basis and so the DVA with its large balance was cleared into the riders beginning in 2019.

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    1. You suggest the “Pension/OPEA DVAs have nothing to do with the issue”, Huh? Perhaps they were working to capture the accumulation of those future liabilities as noted in an article I wrote in March 2015 commenting on 2014 results: “OPG’s unfunded liabilities for pension and future benefits increased $1.2 billion from $5.2 to $6.4 billion. The bulk of those liabilities are captured in OPG’s regulatory assets (future allocations to ratepayers) which increased $1.8 billion to $7.2 billion from 2013.” Article here: https://business.financialpost.com/opinion/parker-gallant-how-do-you-sell-ratepayers-future-liabilities

      OPG capitalize in excess of 50% of pension benefits as I also noted in a July 2013 article: “In fact it is not unusual for both OPG and Hydro One to capitalize as much as 50% of their required pension contributions along with actual labour costs associated with their build-out of infrastructure. Those capital expenditures allow them to apply for a rate hike from the OEB and it eventually shows up on ratepayers electricity bills as either electricity or delivery costs.” The link to that article is here: https://business.financialpost.com/opinion/ontarios-power-trip-retirement-deficit-coming-to-your-hydro-bill

      Examining the rate applications submitted by OPG and Hydro One will confirm the above.

      Liked by 1 person

  3. July and August according to Sygration’s Rodan Marketing Dashboard are not much better than June. The first week of August see the >2800 Wind Turbines in Ontario had troubles producing over 1,000 Megawatts When we see them producing from 11 MW to 150 MW in a day, why is some one not urging our government to put a stop to them coming into areas like North Stormont which do not have enough consistent wind to sustain the monstrosities which are being put up in this area??????????

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