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”.

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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

 

The “great day for Canada”

The recent headline on the website North American Windpower read, “CanWEA Applauds New Carbon Pricing: ‘A Great Day For Canada’ “!

The article below the headline, as one would expect, had a cheering section from Robert Hornung, the President of CanWEA as follows:

“This measure sends a clear signal to investors,” comments Robert Hornung, president of CanWEA. “Ensuring that new natural gas-fired electricity generation will have all emissions exposed to the price on carbon by 2030 means that more carbon-free options like wind energy and solar energy will be deployed instead of fossil-fueled electricity generation, creating thousands of jobs and bringing investments into Canadian communities while protecting our climate. This is a great day for Canada.”

Instead of luring investors with the hope of riches in the wind, one might hope that Hornung’s diatribe sends a clear message to politicians and those responsible for managing the electricity grid (in the provinces affected) that they shouldn’t buy into the rhetoric! The reason most provinces have gas plants is to ensure there is power available when the wind doesn’t blow and those turbines sit idle (those forced to live close to the noisy machines love when that happens).

Ontario has seen high demand in recent days as temperatures rose and air conditioners were fired up to cool homes and businesses.   On July 2, total demand was 463,656 MWh and wind generation delivered to the grid from the approximately 4,500 MW of wind capacity in Ontario was 4,054 MWh over 24 hours or — that’s less than 1% of total demand.

While wind turbines were sleeping on that day, gas generators were required to fill in for them and supplied almost 34,000 MWh (7.3% of total demand).

In my view, all ratepayers (industrial, commercial and residential) should lobby the federal and (affected) provincial governments to alter regulations in respect to the “carbon tax” charge. The regulations should require both the wind and solar generators to produce power when required and if they are unable to do so, the applicable “carbon tax” should be charged to them during hours when producing power surplus to demand.

Presently that surplus generation is disposed of by either exporting it or curtailing it. Both of those actions currently come at a substantial cost to ratepayers. The regulation change would direct revenue from the charge applied to offset the additional cost ratepayers would be picking up from the carbon tax charge on gas generators when wind and solar are not generating needed power and they are called on to fill the gap.

To paraphrase CanWEA’s president, then a carbon pricing announcement wouldsend a clear signal” to the intermittent and unreliable wind and solar power generators that ratepayers are fed up with electricity rates that have soared in part due to costly and intermittent renewable wind.

That “carbon-free option” touted by Robert Hornung has cost ratepayers in Canada billions, to the benefit of mainly foreign owned companies.

It is time to reverse the trend!

Ontario’s lavish, expensive electricity weekend

Enjoy the weekend and the balmy weather? Good: you paid millions for it.

Live it up, baby

Ontarians waited a while for Mother Nature to bless them with a good weekend and it finally happened. June 8th and 9th were beautiful days filled with sunshine and temperatures that were warm but not hot.   A nice breeze added to the two spring days.

So, while Mother Nature treated us nicely, that meant people were out enjoying the weather and electricity consumption was, as it usually is during the Spring and Fall, low. Consumption at its lowest (Ontario demand) point over the weekend was 10,564 MW during one hour, and average Ontario demand over the 48 hours was a very low 12,975 MW*.

The combination of nice weather and low electricity consumption however, created an expensive weekend for Ontario ratepayers. Those breezes were generating surplus wind power from industrial wind turbines and water was flowing through our rivers and through and over our dams. The combination cost Ontario ratepayers lots!

For example, wind which delivered 39,870 MWh but the IESO (Independent Electricity System Operator) was, at the same time, getting IWT to curtail wind — that amounted to 58,870 MWh**. Those wind power operators were paid $120.00/MWh for curtailed wind and $135.00/MWh for grid-accepted wind.

Wind at 3.7 cents a kilowatt hour? How about 31?

So, collectively over the two days, wind generation and its curtailment alone cost ratepayer $12.448 million or over $312.00/MWh (31.2 cents/KWh).

Over those same two days our net exports (exports minus imports) were 123,960 MWh and most of it was sold at negative prices.   Those 123,960 exported MWh cost Ontario’s ratepayers an average price in excess of $115/MWH, so that was another $14.3 million added to the weekend’s expenses!

It also appears IESO were spilling quite a bit of hydro as well. Scott Luft estimates hydro spillage was somewhere around 50,000 MWh** which would add a further $2.3 million to our expensive weekend.

As if these costs weren’t enough, we also shut one nuclear plant down early Saturday morning and steamed-off nuclear power at Bruce Nuclear — that resulted in another waste of around 43,700 MWh at a cost of $2.884 million which Ontario’s ratepayers are obliged to pay.

And just to put some icing on the cake, our 7,925 MW of gas plants (backing up renewable intermittent wind and solar generation) were idling all weekend at a cost (estimated) of $10,000 per MW of capacity per month. That cost ratepayers about $5.2 million for those two days.

So add up the waste of the two days for curtailed wind of 58,870 MWh, steamed-off nuclear of 50,000 MWh, spilled hydro of 43,700 MWh and net exports of 123,960 MWh you will see Ontario’s ratepayers will pay for 276,530 MWh of unneeded power, or 44.4% of what was actually consumed.

That’s almost $26 million. For one weekend.

If one includes idling gas plants, total costs were north of $31 million to be paid for, but provided absolutely no benefit to Ontario ratepayers!

PARKER GALLANT

*Nuclear power alone could have supplied about 85% of total consumption over the 48 hours.

**Thanks to Scott Luft for this information.

Why warm breezy spring days are horrible for Ontario

but New York and Michigan think they’re great. 

The Victoria Day weekend often brings nice weather and the recent weekend was no exception in Ontario.  Sunday was a beautiful day in most of the province, with temperatures in the high teens to low twenties.

Pleasant, but if you are an electricity customer? Horrible.

As a direct result of that really nice day on May 19, Ontario’s demand for electricity was low — according to IESO’s daily summary demand was just under 296,000 MWh.   Ontario’s nuclear plants combined with a little bit of hydro could easily have supplied all our electricity needs that day.

But, the wind was blowing and according to IESO’s forecast was expected to generate over 59,200 MWh of power or about 20% of Ontario’s demand.  Even though wind generation gets “first-to-the-grid” rights (because of the contracts the wind industry negotiated) the IESO only accepted 40% (23,700 MWh) of the forecast amount, presumably at standard contracted price of $135/MWh (plus cost of living increases since contract signing).

IESO curtailed the balance of 35,500 MWh and paid the CanWEA-negotiated price of $120/MWH.

So the total cost of power generation from wind was almost $7.5 million or about $315/MWH — about 31.5 cents/kWh.

As if that wasn’t bad enough, IESO were busy selling off surplus generation to our neighbours. Cheap.

Our net exports (exports minus imports) averaged 2,860/MWh for 24 hours, meaning net exports for the day were just over 68,600 MWh.  As a reminder, exports are sold at the market price or what is referred to as HOEP (Hourly Ontario Energy Price) and that averaged -$2.16 (negative) for the day, meaning it cost us about $150,000 to just get rid of our surplus power on top of paying for the HOEP and the GA (Global Adjustment).

The IESO in their April 2019 monthly summary said the combined HOEP and GA cost averaged $116.77/MWh* up to that date.  A quick calculation on this indicates Ontario’s ratepayers picked up costs of $8,150,000 for power shipped off (via transmission lines we pay for too) to New York (31,160 MWh), Michigan (19,180), Quebec, etc. That helps them to keep their costs down.

In summary, Ontario’s ratepayers picked up the costs for wind generation and curtailment of $7.5 million together with the cost of exports of $8.150 million without inclusion of solar, hydro spillage and nuclear steam-off costs. While we may have been outside enjoying a nice sunny spring day, Ontario’s ratepayers were being treated as scapegoats for the mess that permeates the electricity system.

The total damage was $15,650,000 for just one day.

This waste is offensive to both ratepayers and taxpayers — the time has come to stop.

PARKER GALLANT

*Scott Luft reported April set a new record for Class B ratepayers which IESO said was $138.90/MWH

Hydro One customers take it on the chin–again

Delivery charges ballooning, according to recent financial report

Hydro One released their first Quarter results on May 9, 2019: reported revenue was up 15.4 % ($183million) compared to the first Quarter of 2018.  The higher revenues were “driven by higher distribution revenues [up 30.5% from the comparable quarter] primarily due to OEB’s decision on the 2018 and 2019 distribution rates.”

With that in mind and, as a Hydro One customer who just received the monthly bill, I checked the relative percentage costs of their “delivery” charge. It was 45% of the bill (before taxes). Another quick calculation by simply dividing the delivery costs by the monthly consumption indicated a cost of 7.31cents/kWh for Hydro One’s delivery charges.   Electricity costs were 52% of the bill (8.5cents/kWh) and “regulatory charges” represented the balance.

Intrigued with these findings, I then calculated Hydro One’s comparative delivery costs for the same quarters in 2018 and 2019 to determine how the two rate increases granted by the OEB for their distribution business affected the same calculation—cost per kilowatt hour! Hydro One’s quarterly report provides the details on both GWh (gigawatt hours) distributed and the cost of “Purchased Power” so the basic calculation is the same as that for my bill.

For the first Quarter of 2018, Hydro One reported their distribution was 7,406 GWh which produced gross revenue of $1,145 million, and the cost of Purchased Power (PP) was $751 million, meaning “Distribution Revenue” net of PP was $394 million. Dividing that $394 million by the 7,406 GWh distributed indicates the average distribution cost was 5.32 cents/kWh.

For the first Quarter of 2019, Hydro One reported their distribution was 7,738 GWh (+4.5%) producing gross revenue of $1,321 million (+15.4%) and the cost of PP was $807 million (+7.5%) producing net Distribution Revenue of $514 million (+30.5%). Dividing that $514 million by the 7,738 GWh distributed indicate the average distribution cost was 6.64 cents/kWh.

So, based on these calculations, what do we get? Average delivery costs for Hydro One customers increased from 5.32 cents/kWh in 2018 to 6.64 cents/kWh in the comparable 2019 quarter which equates to a 24.8% increase year over year. That far outpaces the cost of living increase year over year!

Despite the 15.4% ($183 million) increase in revenue compared to the first Quarter of 2018, Hydro One’s net income fell from $222 million to $171 million as operations, maintenance and administration (OMA)  costs jumped by $146 million.  Interestingly enough, of the $146 million OMA increase, the financial statements attribute $140 million of it to the cost of the failed Avista acquisition.  In an attempt perhaps to appease shareholders, the quarterly financial statements suggest “Adjusted net income attributable to common shareholders” was $311 million.  If they earned that for the ensuing three quarters, net income would be $1.244 billion.  If one measured that income on an equity base of $9,622 million (Hydro One’s year-end equity December 31, 2018) it would represent a 12.9% ROE (return on equity).

The current OEB (Ontario Energy Board) allowed ROE is 8.98% which suggests the OEB either treats Hydro One as “special” or sets the ROE without enforcement. The first point under the OEB’s “Mandate” is “Establishing rates and prices that are reasonable to consumers and that allow utilities to invest in the system.”

Perhaps it’s time for the OEB to follow their mandate, as a 12.9% ROE exceeds the current allowed ROE by a wide margin. All ratepayers should be aware Hydro One has five distribution rate applications outstanding with the OEB according to their latest quarterly report!

Let’s all hope the OEB has a serious look at those applications and actually allows rates to be set that are “reasonable to consumers”!

PARKER GALLANT

Another spring day, more big bucks for wind power operators

Mild spring weather, breezy days are money-making combo for wind power corporations

Wind turbine beside MIlford, in Prince Edward County: wind power not needed to meet demand

As very recently pointed out, utility-scale wind power operators love the spring because it brings nice breezes that result in lots of generation for which they are paid.  The bad news for Ontario electricity customers is that the power produced is generally not needed, but due to the wind power industry’s negotiated “first-to-the grid” rights, they must be paid regardless.

That was the case on May 8 and again the following day.

May 9 was another low demand day in Ontario as reported by IESO with only 337,700 MWh required to supply all of the province’s needs for electricity.  IESO’s forecast for power generation from wind was about 79,400 MWh, which would have represented 23.5 % of total demand.  However, a large part of it was forecast for low demand hours; no doubt that meant power from other relatively cheap sources of generation were dispatched off.

Low demand on a low demand day caused IESO to curtail 29,400 MWh (37.1%) of the forecast output and to sell off surplus generation to our grid-connected neighbours in New York, Michigan, Quebec, etc. The net exports of 41,600 MWh (rounded) sold to those buyers represented 83% of the accepted “output” of wind power.

In other words, Ontario didn’t really need any wind power!

The net exports were worth $3.70 per MWh (average of the Hourly Ontario Electricity Price or HOEP for the day) meaning they produced total revenue for Ontario of approximately $154,000.

So, you might ask, how much wind generation cost Ontario ratepayers for the day?

The 29,400 curtailed MWh at the $120/MWh IWT operators get paid was $3.528,000 and adding in the cost of the 50,000 MWh actually accepted at $135/MWh adds another $6,750,000 to the cost of wind. That brings the total cost of wind for that spring day to $10,124,000 if we deduct the $154,000 generated by the sales of our net exports.

Ten million paid, $150,000 recouped–makes sense doesn’t it?

So, wind power on May 9 cost Ontario ratepayers $202.48/MWh or 20.2 cents/kWh. That doesn’t include any of the other costs its generation may have caused such as spilling cheap hydro or steaming off cheap nuclear. To top it off, most of the day’s wind power generation, if exported, at an average price of $3.70/MWh means a loss of $198.78 for every megawatt hour sold.

The “average” Ontario ratepayer would love to be able to buy the 9 MWh they consume in a year at those bargain basement prices of $3.70/MWh. Imagine: it would cost them $33.30 for a full year’s electricity needs.  I’m confident our small and medium-sized businesses would also love the opportunity to pick up some of that cheap electricity, instead of being forced to pay for expensive, intermittent and unreliable wind and solar generation!

It’s time to sort out the mess created by the McGuinty/Wynne governments in respect to the electricity file.

If it isn’t, Ontario will continue to be stuck with climbing above-market electricity prices until the wind and solar contracts finally end.

PARKER GALLANT