Ontario ratepayers and taxpayers pay up for Hydro One’s Niagara transmission line

The 76-kilometre Niagara transmission line, meant to strengthen power ties between New York State and Ontario, with a capacity to import/export as much as 800 megawatts of electricity has finally been completed.

Recently, information submitted to the OEB (EB-2018-0275) in a rate application stated: “The Project was originally approved by the Ontario Energy Board on July 8, 2005 pursuant to EB-2004-0476 but construction was halted in 2006 until earlier this year due to a third-party land dispute.

The Niagara transmission line was finally completed August 30, 2019, or over 14 years after construction started. It’s been a long road!

The decision and order from the OEB blessed the application (they generally do for Hydro One) noting; “Niagara Reinforcement Limited Partnership’s (NRLP) interim 2020 revenue requirement request of $9,389,914 is approved.”

The approval for NRLP rather than Hydro One is a reflection of well over a decade of negotiations to satisfy the Six Nations of the Grand River and, the Mississaugas of the Credit First Nation.  Contained in a note in the 3rd Quarter financial results of Hydro One, indicates a portion of the Niagara line was sold to them in the entity now referenced as NRLP. The pertinent part of the audit note stated:  “Hydro One Networks sold to the Six Nations of the Grand River Development Corporation and, through a trust, to the Mississaugas of the Credit First Nation a 25.0% and 0.1% equity interest in NRLP partnership units, respectively, for total consideration of $12 million, representing the fair value of the equity interest acquired.”  The Mississaugas also hold an option to purchase another 20%. NRLP was created for the sole purpose of allowing that to happen.

On November 5, 2015 an article headlined “Powerline to nowhere” on CTV, noted the cost of the line to that point was $100 million plus $54.5 million in interest payments (including $5 million in interest payments for 2016).  If one adds another $10 million in interest payments for 2017 and 2018 it appears the total cost of the Niagara line was in the neighbourhood of $165 million at a minimum.  In NRLP’s submission to the OEB the actual costs of the line were claimed to be $120 million, but it’s unclear if that included any interest. Either way the cost of the line was north of $165 million yet 25% of it was sold for $12 million which seems like a pretty good deal.  Details on the Mississaugas option were not disclosed.

It should be noted Hydro One had to seek an injunction in July 2019, after repeated attempts were made to block work on the transmission project.  They stated; “Work stopped again in January when members of the Haudenosaunee Confederacy Chiefs Council (HCCC) blocked access to the construction sites and issued a “cease and desist” order.  The CBC reported; “Hydro One’s statement of claim says the defendants “have a long history of organizing blockades, causing public disruption, breaching court orders” and interfering with land development and utilities as a tactic to negotiate compensation and other benefits to members of the Confederacy.”  The article also said: “The Six Nations and Mississaugas will have 45 per cent ownership* of the project, said Hydro One, and the project will create jobs and economic benefits.”  The injunction was granted by the judge in that appeal and as noted the line was completed August 30, 2019

The estimated cost of the line (north of $165 million) mentioned above has now been passed on to Ontario ratepayers via the OEB decision.  There were lots of other costs picked up by taxpayers in Ontario** and the rest of Canada as suggested in the partial list of material contained in the Chronology of Events at Caledonia in the former Federal Indigenous and Northern Affairs Canada Ministry website suggesting the other activities associated with the happenings in Caledonia also may have cost the Canadian taxpayers as much or more than the $165 million associated with the Niagara transmission line but that is for someone else to determine.

Conclusion

Perhaps we in Ontario should be grateful for the delay in completing the transmission line as it prevented the sale of even more of our surplus power from wind and solar etc. to New York for pennies on the dollar. The delay may have accidentally saved us ratepayers hundreds of millions of dollars due to the 14 years it took to complete.

*Acquisition details related to the Mississaugas’ 20% purchase option are not available but are believed to expire quickly.

** The Ontario government agreed to pay $20 million to residents and business owners of Caledonia who suffered through the native protest at a housing development in Caledonia.

November 2019 a reflection on the cost of reducing emissions in Ontario’s electricity system

IESO finally released the November 2019 Monthly Market Report in early January and compared with November 2018 overall costs (GA + HOEP) for Class B ratepayers was down slightly from $123.69/MWh to $120.54MWh (12 cents/kWh) or 2.8%. Falling exports of 975,600 MWh (down by 151,200 MWh or 13.4%) from 2018 resulted in Ontario experiencing a drop in overall costs despite the GA being slightly higher (98 cents/MWh) in 2019*.  The drop in exports resulted in ratepayer costs of $97.1 million versus $111 million in November 2018. Ontario ratepayers are obliged to pick up the GA costs**.

Intrigued by the marginal good news for November 2019 and the arrival of 2020, nostalgia overtook my brain waves!  A decade ago, I started my quest to explore the electricity sector in Ontario. My quest coincided with a high electricity bill and the passage of the Green Energy and Green Economy Act (GEA) in 2009.  The GEA passage led to the OPA (Ontario Power Authority) receiving directives from various Energy Ministers in the McGuinty/Wynne led Liberal provincial governments telling the bureaucratic experts how to run the system.  It was meant to signal the world; Ontario was a beacon in emission reductions.1 The ministerial directives were aimed at contracting for renewable energy (principally in the form of industrial wind turbines [IWT] and solar panels) and closing two coal power plants.  Due to above market rates offered to (mainly foreign) companies and the lack of a cost/benefit analysis rates skyrocketed as projects were commissioned.  The consequence of creating the highest electricity rates in Canada and the US resulted in total defeat of the Ontario Liberal Party in 2018.

Based on the “nostalgia” it is perhaps worth going back a decade to November 2009 and compare it with the one just passed.

All-in Generation Costs for November 2009:

The IESO Monthly Market Report for November 2009 indicated the weather over the month was warmer than normal whereas in November 2019 is was colder than normal and as one might expect the latter resulted in higher Ontario demand coming in at a daily average of 375,178 MWh versus 370,578 MWh in 2009.  The extra 138,000 MWh we consumed in 2019 would translate into higher costs even if the cost of generation had remained the same. The weighed average cost (GA +HOEP) for November 2009 was $68.39 MWh so the additional 138,000 MWh Ontario ratepayers consumed should have added approximately $9.4 million.  It is worth noting back in 2009 there was only one ratepayer class so the $9.4 million would have added 84 cents for each additional MWh consumed. The average household back then was consuming 800 kWh monthly.  The total consumption of 11.117 TWh (terawatt hours) by Ontario ratepayers in November 2009 had a cost of $760.4 million.

All-in Generation Costs for November 2019:

 So, ten years later in November 2019 the 11.255 TWh consumed by Ontario ratepayers cost considerably more than the $760.4 million suggested above.  The weighted average cost for this recent November came in at $120.24 for Class B ratepayers; an increase of $51.85/MWh or 75.8% for the 8.106 TWh they consumed.  For Class A ratepayers the ten-year increase was only $3.59/MWh or 5.2% for the 3.384 TWh they consumed.  Putting the foregoing in perspective if Class B ratepayers consumed 8.106 TWh in 2009 the cost would have been $554.4 million and in 2019 it was $974.7 million or $420.3 million more for just November!   For Class A ratepayers the increase would have been a much lower amount of only $12.1 million costing them $243.6 million versus $231.4 in 2009.

As one can deduce from the foregoing the $760.4 million all-in costs for one month of electricity generation in 2009 jumped to $1.218 billion (up $457.9 million) in the decade.  The jump of $457.9 million impacted Class B ratepayers (residential and small and medium sized businesses) to a much greater extent than Class A businesses and is only representative of one month.

What caused the jump?

The increased costs drove our average rate of 6.84 cents/kWh in November 2009 to 12.02 cents/kWh (UP 75.7%) in November 2019.  That increase is about four times the inflation rate and there are several reasons for the jump in costs.

One of the major causes of the increase was the addition of industrial wind generation and solar to our grid(s) over the decade.  Their intermittent and unreliable ability to generate electricity when needed meant back-up capacity (principally gas plants including the $1 billion to move two of them) was required. To top things off the intermittency of wind generation caused the market price (HOEP) to fall and the GA to increase.  The GA is not included in the sale of surplus electricity to our neighbours so we earn less for our exports to NY, Michigan, etc. but Ontario ratepayers must absorb the difference (the GA) in the contracted value and the HOEP market price.

A rough calculation of the additional losses on our exports in November 2019 versus November 2009 indicate it represents about $68 million of added costs.  Thanks to Scott Luft’s wind generation and curtailment files I was also able to calculate IWT generation costs which increased considerably from November 2009 adding $178 million to the increase. Those two additional costs of about $246 million represent about 54% of the $457.9 million increase. The balance of increased costs can be attributed to payment for additions in; solar generation, gas plants (idling costs), biomass, and some of OPG’s expenditures on Big Becky ($1.5 billion) and the Lower Mattagami ($2.6 billion) hydro projects.

If November’s comparison becomes a measure of how the GEA harmed our electricity sector by driving our electricity rates up almost 76% in the last decade we will be looking at total additional costs of around $5.5 billion in 2019 versus 2009. The $457.9 million is but one month of comparison out of the 120 months since the start of 2009 so the final number for the decade will probably be in the tens of billions of dollars to achieve those emission reductions sought by the governing Ontario Liberals.

*The GA or Global Adjustment rate for Class B ratepayers has been higher in 10 of 11 months in 2019 compared to 2018.                                                                                                    **Exports are sold at the HOEP (hourly Ontario electricity price) price via the market to traders who buy/sell our surplus energy to Michigan, New York, Quebec and other grid connected markets.

  1. The Ontario Energy Quarterly shows our CO2 emissions fell from 20 megatonnes at the start of 2010 to 2 megatonnes at the end of the 2019 second quarter.

More of CanWEA’s wind spin

Wind energy is “reliable and cost-competitive

Shortly after Ontario’s Ministry of the Environment Conservation and Parks revoked the REA (Renewal Energy Approval) for the North Stormont, Nation Rise wind turbine project, CanWEA (Canadian Wind Energy Association) reacted. They issued an apoplectic press release which beyond suggesting; the sky is falling, made the claim, wind energy is both “reliable and cost-competitive”!

Anyone who has taken the time to read any of my rants over the past 10 years will know I have pointed out the fallacies of CanWEA’s claims on numerous occasions with two recent ones pointing out wind’s tendency in Ontario to generate energy when it’s not needed.  That bad habit creates surplus generation that must be curtailed (and paid for) or accepted into the grid and then causes the HOEP (hourly Ontario electricity price) to fall. One should suspect those surplus MWh (megawatt hours) it generates causes IESO to sell off unneeded power to our neighbours in NY, Michigan, etc. at rock bottom prices.

Those two recent articles mentioned above highlighted five December days of additional costs of almost $40 million caused by wind generation.  That generation brought absolutely no benefit to Ontario ratepayers but we were obliged to pay the costs due to the generous contracts awarded after the GEA (Green Energy Act) was passed in 2009 by the previous Ontario led Liberal government.

Three more days of unreliable and costly wind energy:

The existing TX (grid connected) industrial wind turbines (IWT) operating in Ontario over December 30th and 31st along with January 1, 2020 were humming and collectively generated 155,228 MWh of grid accepted energy and their owners were also paid for 81,250 MWh (rounded) for curtailed generation.  The costs of the foregoing at $120/MWh for curtailed wind and $135/MWh for TX connected generation produced income of approximately $30.7 million for the owners over the three days or about 20 cents per kilowatt hour (kWh) accepted into the grid.  One should also assume OPG were obliged to spill water and were paid for doing so and the gas plants were paid to idle to back up both intermittent wind and solar. None of those costs are included in the 20 cents/kWh we ratepayers were forced to absorb.

Three days of exporting surplus for pennies:

The reference to selling our surplus generation for pennies is not an exaggeration as the average sales price over the three days was .39 cents a MWh.  Remember there are 1000 kWh in just one MWh!

IESO sold off 201,936 MWh* in three days for pennies while Ontario ratepayers picked up the costs of wind energy (grid accepted and curtailed) of 236,478 MWh.  Its not a stretch to note, without wind energy net exports would have been less and the HOEP would have been much higher than the average it achieved for those three days. The $78,755.00 at .39/MWh earned by IESO from the export of those 201,936 MWh fell very short of the cost to generate them! Using the all-in average Ontario commodity rate for 2019 of $111.80 MWh as estimated by my friend Scott Luft those exports cost us Ontario ratepayers in excess of $22.5 million.

Without the unneeded wind energy and its cost of $30.7 million, Ontario’s nuclear plants, running at their current capability level could have provided 834,000 MWh over three days. Hydro running at only 50% of its capacity could have provided a minimum of 282.000 MWh which collectively would have been more (1,116,000 MWh) than Ontario’s demand (1,052,000 MWh) over those three days.

The time has come for CanWEA to do an about face and admit:  wind energy is both “unreliable and costly”!

*What 2.7 million average Ontario households would consume in three days.

October, another month with climbing electricity costs

IESO just released their October 2019 Monthly Market Report and it contained more bad news for taxpayers and ratepayers in the province.  The all-in cost to Class B ratepayers, without inclusion of delivery and regulatory charges, produced a “weighted average” cost of $144.05/MWh or 14.41 cents/kWh for the “Electricity” line on your bill. The HOEP was $7.25MWh and the GA $136.80/MWh.

Consumption by Ontario ratepayers dropped by 366 GWh (gigawatt hours) or 3.2% compared to October 2018 but the cost per kWh jumped 1.03 cents/kWh (up 4.7%). Net Exports, compared to October 2018 were almost flat and totaled 1,405 GWh versus 1,381 GWh!  Our net exports in 2019 however cost us quite a bit more as the HOEP price was 7.25/MWh versus $13.84/MWh in 2018 and the cost to Ontario Class B ratepayers, reflected in the GA, came in at $136.80/MWh in 2019 versus $120.59/MWh in 2018.  The differences added about $26 million to the monthly costs raising our losses on net exports to $192.3 million in October 2019 versus $$166.5 million a year ago.

As if the foregoing wasn’t enough, wind generation, from both TX (transmission connected) and DX (distributor connected) sources and its curtailment for the month totaled 1,457 GWh as reported by my friend Scott Luft.  That means it was slightly more than our net exports.  At a price of $135/MWh for accepted generation and $120/MWh for curtailed generation the bill to ratepayers was $189.6 million and the dollar amount is very close to what we lost on our exports.  Ontario’s ratepayers were forced to accept those costs which for October generated an average of $192/MWh or 19.2 cents kWh. If one were to include costs for spilled hydro, steamed off nuclear along with gas plant backup, industrial wind generation costs would be even higher.

Now what was somewhat surprising for the month was not so much, the amount of the total GA of $1,209.6 million (it appears to be the 3rd highest since the GA was created) but the amount moved to the Variance Account (Ontario Fair Hydro Plan).  The amount moved to the Variance Account was only $159.1 and the lowest so far in 2019.  In September the GA was $1,082.9 million but IESO moved $493.2 million to the Variance Account.

There appears to be something amiss in the data used by IESO when executing the transfer to the Variance Account and it would be useful if they disclosed exactly where and how they messed up.

Transparency is something Ontario ratepayers and taxpayers should expect!

OPG 3rd Quarter 2019 results best since 2010

OPG released their 3rd Quarter results November 12, 2019 and no one noticed!

They had the best 3rd Quarter results since 2010, generating net income of $323 million up $48 million or 17.2% over 2018.  Generation was up modestly by .8 TWh (terawatt hours) or 4.4% with nuclear generation up 1 TWh to 11.6 TWh and hydro down by .2 TWh from 7 TWh to 6.8 TWh.  In the latter case the report notes “foregone” (spilled hydro) increased to .7 TWh in the 3rd Quarter (up from .4 TWh in 2018). The .7 TWh “foregone” could have supplied 300,000 average Ontario households in the quarter.

Revenue was up year over year by $138 million or 9.8% and the principal reason was the blessing from the OEB (Ontario Energy Board) to start the recovery process on the Darlington nuclear refurbishment process. It’s now in the third year of the 10-year plan.  As a result, just over $100 million of the increase in revenue came from increased prices on nuclear generation.  Comments in the report state: “The Darlington Refurbishment project, the execution of which began in 2016, continues to track on schedule overall and to the $12.8 billion budget.”  Let’s hope that continues! The rest of the increase came from the hydro sector and perhaps from the acquisitions made in the US by OPG.

The report notes, OPG generation in the quarter represented 50.4% of total generation (including net exports) in the province as reported by IESO up from 48.7% in the comparable 2018 quarter.

One disturbing find in the report marked as: Environmental and Sustainability went on to note:

Under the federal Greenhouse Gas Pollution Pricing Act (GGPPA), an Output-Based Pricing System (OBPS) for industrial facilities took effect on January 1, 2019 and a fuel charge came into effect on April 1, 2019 in Ontario. On July 10, 2019, OBPS regulations were published, including fuel-specific performance standards for electricity generation that apply retroactively beginning January 1, 2019. OPG has implemented processes to comply with the federal requirements and recover associated carbon costs to the extent possible.”

With the recent announcement OPG will acquire TC Energy’s (formerly TransCanada Corporation) portfolio of Ontario gas plants for $2.87 billion, one would assume under the GGPPA the Federal Government will seek increased fuel charges. The increased charges will result in OPG’s application for a rate increase to the OEB so that those costs will further increase the cost of electricity in Ontario.

The demise of the Wynne/McGuinty government who were responsible for Ontario’s electricity rates more than doubling during their term in office is over. Ontario ratepayers hoped to see a slowdown in those increases.  Now it looks to be taken over by the Feds who will impose their concept on how to generate our electricity.

There appears to be no end in sight to cleaning up the electricity mess in the province!

Hydro One’s 3rd Quarter 2019 results will make shareholders happy and distribution customers unhappy

Hydro one just released their 3rd Quarter results and net income after taxes increased from $194 million to $241 million or 29.4%.  Net income increased by only $14 million or 6.2% after adjusting the 2018 results upwards for the costs associated with the failed Avista acquisition.

Let’s look at those results by Hydro One’s client base of transmission (generators and local distribution companies or LDC) and distribution (ratepayers).

Transmission Revenue and Income Down                                                                                    What is interesting about their results is it shows transmission revenue decreased by $50 million (down 10.1%) as “peak demand” keeps falling.  Year over year the latter fell by 1,805 GWh (gigawatt hours) or 7.9%.  As a result, net income (before financing and taxes) from the transmission business dropped by $55 million or 19.2% from $287 million to $232 million.

Distribution Revenue and Income Up                                                                                       On the other side of their business Hydro One’s distribution revenue (net of purchased power) was up from $370 million to $403 million for a $33 million (+ 8.9%) gain and the revenue growth translated to a $33 million jump in net income (before financing and taxes).  The latter increased from $120 million to $153 million (+27.5%) year over year.

The jump in distribution income occurred despite the fact Hydro One’s 1.4 million customers reduced their consumption from 6,817 GWh to 6,627 GWh for a decline 190 GWh or 2.8%.  The forgoing means the average delivery cost per kWh increased from 5.43 cents/kWh to 6.08 cents/kWh year over year and amounts to a jump of 12%.   The 12% increase is co-incidentally what we were promised to see as a reduction in our rates by the Ford government.

Summary                                                                                                                                                 While all customers are billed for both delivery and transmission costs, the latter tends to represent a very small charge whereas delivery costs represent (on average) about 30% of your monthly bill.  Hydro One’s delivery costs however, are closer to 40% so it is disappointing to see that portion of the bill for their 1.4 million customers keeps climbing at rates well above inflation.

Getting rid of the $6 million man did nothing to reduce Hydro One’s delivery costs!

Rising costs of electricity generation not stopping in Ontario

Ontario’s six-month electricity summary shows that the new government’s promise of cutting costs is going to be tough to achieve. Is it impossible?

IESO finally released their June “Monthly Summary Report” allowing one to determine if Ontario ratepayers consumed more or less electricity in the first six months of 2019 compared to 2018.  As it turns out, grid-connected (TX) consumption was down by 270,000 megawatt hours (MWh), dropping from 66,847 GWh (gigawatt hours) to 66,577 GWh.

Ontario’s gross exports also dropped nominally from 9,791 GWh to 9,718 GWh, but the cost to Ontario ratepayers (due to a higher GA [global adjustment])* in 2019 is approximately $1 billion, and in 2018 up to the end of June, the cost was less at approximately $920 million. The combined average as at June 30th of the HOEP and the GA jumped by $7.14 per MWh for Class B ratepayers from 2018, meaning it added about $346 million in additional costs in the six months.  While most of those increased costs won’t suddenly show up in November when rates are reset by the OEB, it will accumulate in the “Global Adjustment Modifier”** and will hit ratepayers and taxpayers in the future.

Hydro One’s six-month results:                                                                            Comparing the consumption drop IESO reported to Hydro One’s six-month report is interesting: they noted “Electricity distributed to Hydro One customers” actually increased by 294 GWh from 13,517 GWh to 13,811 GWh or 2.2%.  Revenue (net of purchased power) from Hydro One’s local distribution customers however was up by $134 million*** or an impressive 17.7% mainly due to rate increases granted by the OEB.  Transmission revenue was down $49 million (5.8%) as Hydro One stated: “due to cooler weather in the 2nd Quarter” and “lower peak demand”. Despite the overall $85 million revenue jump, Hydro One’s net income was down $96 million as they took the hit for the aborted Avista acquisition along with increases in financing charges and higher OMA costs.

The net income drop meant Hydro One paid out 84.2% ($282 million) of their net income via dividends to shareholders. This was in excess of their targeted payout rate of 70% – 80%. Ratepayers should hope the OEB takes this into account during present and future rate application reviews as, to the best of my knowledge, municipally owned LDC (local distribution companies) payout ratios are in the 50%-60% range! Toronto Hydro, as one example earned $167.3 million in 2018 and paid out $93.9 million in dividends to the City of Toronto for a 56.1% dividend rate. Retaining equity helps keep rates down!

OPG’s six-month results:

Ontario Power Generation just released their financial results for the first six months of 2019 and it looks like they are back in business, generating more electricity and big profits.  For the first six months of the current year they generated 39.3 TWh versus 36 TWh in 2018 increasing their percentage of TX generation consumed by Ontario ratepayers from 53.9% to 59%.  As well, “Income before interest and income taxes” for the “Electricity generating business segments” was up by 44.4%  to $715 million from $496 million.  While some of the increase was due to increased generation, most of it was due to the fact that the OEB granted substantial increases for both nuclear (increased to 8.1 cents/kWh from 7.5 cents/kWh [+8%]) and hydro (increased to 4.5 cents/kWh from 4.2 cents/kWh [+7.1%]) having sat on the rate application approvals**** for a considerable time.  Additionally, OPG were paid for 2.2 TWh of spilled hydro in 2019 versus 2 TWh in 2018 adding $15 million to revenue; however, the real shocker in the reported results was the fact they show OMA costs dropped $35 million.

Industrial wind turbines six-month results:   Thanks to Scott Luft’s data, wind power’s contribution (if one can call it that) for the six months for 2019 was up all-in (TX and DX [distribution connected] plus curtailed) slightly to 7.3 TWh versus 6.9 TWh in 2018. The overall cost however, was higher jumping from approximately $955 million to $1.079 billion.  Coincidently, the 7.3 TWh of 2019 is 83% of gross exports versus 80.9% of 2018’s gross exports.  That simply demonstrates the fact that wind turbines do nothing more than add to the costs of generating electricity in Ontario.  We could have easily done without their generation and their added costs!  Many people who have experienced health problems caused by the audible and inaudible noises produced by the turbines would also welcome their demise.

Conclusion:                                                                                                                                     One can determine from all this that the rising cost of electricity generation in Ontario has not slowed or stopped despite the change of government just over one year ago.

The damage caused through implementation of the Green Energy and Green Economy Act in 2009 continues and it is difficult to see how the current government will reverse the harm the GEA caused.

PARKER GALLANT        

*The GA pot only affects Ontario ratepayers as the market price (HOEP) is the price surplus electricity is sold at in the export market.                                                                                                                                                **The Ontario Minister of Energy announced future rate increases would be held to the rate of inflation.                                                                                                                                             ***In the 6-month comparison Hydro One’s average “Delivery” charge increased from 5.59 cents/kWh to 6.44 cents/kWh or 15.3% for their 1.3 million customers.                                                                                                                                        ****This was noted by the Energy Minister when passing the “Fixing the Hydro Mess Act”.