Rick Conway of the Wellington Times in his editorial of August 16th has done a great job at highlighting the way the current government of the province have messed up the electricity sector and how they are trying to increase the mess.
He points out how we are exporting our surplus power, in part due to the unreliability of wind and solar generation.
He has kindly referenced yours truly in the article and it is much appreciated.
August 5 2017 was an interesting day: the wind was blowing and the sun was shining, in part of Ontario, anyway.
Unfortunately for Ontario ratepayers that weather will cost them a lot of money.
Why? The cost stems from the fact Ontario’s demand for electricity on that day was only 317,000 megawatts (MWh),* according to the IESO Daily Market Summary, probably due to conservation efforts and mild temperatures. Low demand doesn’t save money: in fact, it will cost Ontario ratepayers millions of dollars due to bad management of the electricity sector by the current government.
I was curious about this windy, sunny day, which led me to contact Scott Luft, a master at using IESO data to give us a real picture of market demand and its costs. Scott occasionally produces “Daily Ontario Supply Estimates” which provide a picture of both our demand and generated sources, what it cost, how much was exported, how much was curtailed/spilled (wasted), etc., and even how much of the costs were picked up by Class B ratepayers versus Class A.
Scott also estimates curtailed wind, spilled hydro, etc., using a conservative approach; they are generally confirmed months later by IESO.
Scott’s daily estimate for August 5, 2017 confirmed my suspicions! Emissions-free nuclear and hydro generators alone supplied the 340,000 MWh of power Ontario needed easily, even exceeding Ontario demand by 23,000 MWh. The cost of that generation was $21.1 million. After allowing for the value of the surplus 23,000 MWh as exports at the average hourly Ontario energy price (HOEP) of $4.94/MWh the cost per MWh comes to $66.34/MWh or 6.6 cents/kWh.**
Double the cost — and you’re paying it
Part of Scott’s daily estimate includes additional costs in the form of all the other generation sources, plus curtailed wind and solar, spilled hydro, biofuel and idling costs of gas plants. When those are added to the $21.1 million of nuclear and hydro, the price billed to ratepayers for the day jumps to $37.8 million — $119.24/MWh or 11.9 cents/kWh. The Class A to Class B subsidy results in the cost per kWh for the “B” Class (that’s you and me) jumping to $131.10/MWh or 13.1 cents/kWh.
The other generation sources on Scott’s August 5 daily estimates include transmission (TX) and distributor (DX) connected generation, along with curtailed/idled, etc. costs with gas at 9,123 MWh (cost $4.1 million), wind at 49,088 MWh (cost $6.3 million), solar at 13,002 MWh (cost $6.1 million), biofuel at 701 MWh (cost $368,000) and imports of 8,563 MWh (cost $52,000).
The costs to you are mounting
Are you with me so far? What this means is, those other generation sources (including curtailed wind, etc.) of 85,000 MWh cost $16.7 million — $196.47/MWh or 19.5 cents/kWh) and are billed to … you, Ontario’s ratepayers.
Approximately $8.1 million of the day’s costs will be allocated to the Fair Hydro Plan and wind up on future electricity bills. If August 5 was a typical day, the amount kicked down the road for the next four years by the Premier Wynne-led government will amount to $3 billion annually (plus interest). (The $8.1 million estimate for this day comes from the use of what is referred to as the “Global Adjustment Modifier” set by the OEB at $32.90/MWh from July 1, 2017 to April 30, 2018 and will be reset at the later date. The $8.1 million was obtained by simply multiplying Class B consumption — 246,000 MWh — by the $32.90 “Modifier”.)
Mismanagement of the energy portfolio by the Wynne-led government on August 5 generated a cost for Class B ratepayers that was excessive. It will continue, and lead to an explosion of households living in “energy poverty”*** when the Fair Hydro Plan comes to an end in four years.
The Minister of Energy needs to recognize the problems caused by intermittent and unreliable renewable energy! Once he understands the latter he should immediately cancel any wind and solar contracted projects that have not commenced construction, along with any in the early planning stages.
Kicking the can down the road via the Fair Hydro Act is anything but fair. Paying twice for non-emitting clean energy simply amplifies the bad management this portfolio has received from our government.
August 11, 2017
* Some of the above MWh references are rounded to the nearest thousand.
** The 6.6 cent rate, coincidentally, is close to our new off-peak rate of 6.5 cents/kWh (previously 8.7 cents/kWh) which came into effect July 1, 2017. The lower rate is a result of the “Fair Hydro Plan” instituted by the Premier Wynne that kicked 25% of the costs down the road for four years. The Off-Peak rate back on May 1, 2007 was 3.2 cents/kWh so even after the recent reduction it is still up over 103% in the last 10 years.
*** Energy poverty is generally defined as utilizing 10% or more of a household’s disposal income to pay for their electricity and heating needs.
Parker Gallant: Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it
By Parker Gallant
On March 28th, a few weeks after Ontario Premier Kathleen Wynne and Energy Minister Glenn Thibeault held their press conference about the “Fair Hydro Plan,” Andrea Horwath, leader of the NDP, delivered a motion to the Ontario legislature calling for a buy-back of Hydro One. The motion failed and later resulted in Thibeault calling the NDP motion “short on details and long on hollow promises.” He noted that many of the NDP’s proposals “rely on a vague and yet-to-be-determined ‘expert panel’ that will be convened in the future.” Buying back $4 billion in Hydro One shares is costly, the energy minister added, and “will not take one cent off electricity bills. What it will do is send billions to the stock market instead of making much needed infrastructure investments in communities across Ontario.”
Fast forward to July 19th, when Thibeault was beside himself with excitement because Hydro One will be paying US$5.3 billion ($6.7 billion) to purchase Avista, a much smaller electricity and natural gas utility headquartered in Spokane, Wash., 3,200 kilometres from Toronto. Hydro One offered a 24-per-cent premium on the traded value of the stock price over its July 18th closing and, based on Avista’s 2016 annual profit, it will take Hydro One 38 years to recoup the $6.7-billion price tag. Thibeault’s press release announcing the takeover carried this obtuse claim: “It is to the shared benefit of Hydro One’s customers, employees and shareholders to see the company strengthened and growing.” He also stated that, “In particular, we welcome the fact that this proposed acquisition will not impact the rates that Ontario customers pay. Neither will it have any impact on local jobs.”
The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet
Based on that press release, and the requirement to get shareholder approval, we must assume Thibeault gave his blessings to the acquisition and dilution of the province’s holdings, which will decline from 49 per cent to 44 per cent. He presumably also blessed Hydro One’s borrowing program, which will add US$2.6 billion ($3.7 billion) in new debt, not including another $1.4 billion via a convertible debenture paying 12 per cent per annum in interest prior to its conversion to common shares.
Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion, as the NDP suggested, to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it. The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet.
So, is the acquisition all that Thibeault and Hydro One’s CEO, Mayo Schmidt, claim it is or is the spin meant to distract ratepayers into believing the takeover will lessen pressure on future rate increases? Let’s examine a few facts:
— The acquisition of Avista will result in Hydro One’s debt (short and long term) increasing by 46 per cent, or $5.1 billion, to reach in excess of $16 billion. Should interest rates increase Hydro One will submit an application to the Ontario Energy Board (OEB) for a rate increase, an accepted OEB process.
— Hydro One’s 2017 first-quarter report notes it currently has five rate applications awaiting approval by the OEB and plans to file another nine rate applications over the next four years.
— Washington, where Avista’s electricity ratepayers are located, pays the second-lowest rates of any state on average, with all-in residential rates of 9.43 cents/kWh as of April 2017. Only Louisiana can claim lower rates at an average of 9.35 cents/kWh (U.S. rates expressed in U.S. currency).
— Based on the information in Avista’s 2016 annual report, it appears the all-in cost of a kilowatt-hour delivered to its ratepayers was 8.68 cents/kWh.
— Hydro One, on the other hand, has the highest rates in Canada and in most of North America. It is difficult to see how Washington ratepayers will see any benefit from this acquisition. Based on the data supplied by Hydro One to the OEB for 2015, its average cost of a kilowatt-hour was almost double Avista’s at 17 cents/kWh.
It is difficult to believe several of the claims in Hydro One’s news release
It is difficult to believe several of the claims in Hydro One’s July 19th news release. As an example, it states the acquisition of Avista “will be accretive to earnings per share in the mid-single digits in the first full year of operation.” Politicians and regulators in Washington may be tougher than those in Ontario when Hydro One seeks a rate increase! It gains increases in Ontario from the OEB and via political tampering, which recently resulted in a requirement that taxpayers pick up a part of Hydro One’s bad debt allocations via the Ontario Electricity Support Program.
Another quote is also a stretch: “Efficiencies through enhanced scale, innovation, shared IT systems and increased purchasing power provides cost savings for customers and better customer service, complementing both organization’s commitment to excellence.” This claim comes from the company that had the distinction of being singled out by Ontario’s ombudsman for issuing over 100,000 faulty hydro bills. Moreover, last October Global TV found Hydro One had almost 226,000 clients in arrears, which represented 20 per cent of all its residential clients and 40 per cent of all ratepayers in arrears in the province.
Ratepayers and taxpayers should view the Hydro One takeover of Avista as negative. To re-purpose Thibeault’s comment to the NDP leader, this action “will not take one cent off electricity bills.”
Parker Gallant is a retired bank executive who looked at his power bill and didn’t like what he saw.
Electricity bill-payers are subsidizing business to the tune of over $1 billion, every year
In early 2010, then Minister of Energy Brad Duguid issued a directive to the OPA (Ontario Power Authority) instructing them to create and deliver an “industrial energy efficiency program” specifically for large transmission connected (TX) ratepayers.
That directive led to the creation of the two classes of ratepayers that now exist in Ontario.
Originally, Class A ratepayers were only the largest industrial clients (TX) whose peak hourly demand was 5 megawatts (MW) per hour, or higher. Since the launch of the new distinction in January 2011, Class A clients have evolved further under Energy Ministers Chiarelli and Thibeault, to allow those with peak demand exceeding 500 kilowatts (kW) per hour.
That move leave the great unwashed “B” Class – you and me — to pick up the subsidy costs for Ontario’s larger employers. The concern was (is) that those companies without subsidies might exit the province and take their jobs with them.
The algorithm that determines what a Class A customer pays is related to how successful they are at picking the top five hours of Ontario’s peak demand. The “A” class companies who fire up their own generators (usually natural gas) or close their plants/operations down and reduce demand on Ontario’s generation sources during the five highest peak-demand hours over the 12 months, will get the biggest discount.
The focus on “conservation” during those hours carries the political hope of achieving “peak” demand reduction. The theory is the reduction should result in reduced need for new generation.*
While that goal may have been the intent, at the same time Ministers Duguid, Chiarelli and Thibeault were (are!) giving orders to contract for more and more renewable wind and solar contracts to the point where the “market price” or HOEP (Hourly Ontario Electricity price) continued a slow descent due to surplus generation. The HOEP in May 2017 achieved a new low of $3.17 per MWh or 32/100th of 1 cent/kWh. In June 2008, it was $62.30/MWh.
Both classes of ratepayer equally pick up the full cost of the HOEP on a per kWh basis!
With the focus on the cost shift of the ratepayer classes tied to the GA (Global Adjustment), the higher the latter the greater the cost shift. The addition of so many more businesses to the Class A group simply amplified the cross-class subsidy!
For an example of the growth in the dollar value of that shift, let’s look at some June numbers, now that IESO has released the June 2017 summary report.
The first year the B to A shift happened was in 2011: for June of that year the GA was $423.1 million and Class A ratepayers picked up $46 million of that cost. Unfortunately, IESO did not start disclosing the consumption by ratepayer class until 2015, so it is not possible to determine what percentage of the GA was being paid by Class A versus Class B ratepayers.
The June 2015 IESO webpage discloses consumption of 11.004 terawatt hours** (TWh) with Class A consumption of 2.061 TWh (23%), and GA paid by Class A ratepayers of $90.4 million. That’s 9.6% out of total GA costs of $943.1 million. So, Class B ratepayers picked up $126.5 million to subsidize Class A ratepayers that month. That translates to a GA cost per kWh for Class A of 4.4 cents versus 9.5 cents for Class B ratepayers. HOEP for June 2015 was $15.31/MWh!
IESO discloses total consumption of 11.509 TWh for June 2016 with Class A consumption of 2.308 TWh (20.05%). The GA for Class A was $121.6 million out of GA costs of $995.3 million. Had the GA been allocated on the 20.05% Class A consumption, they would have paid $200.4 million meaning Class B ratepayers subsidies were $78.8 million for the month. HOEP for that month was $20.17.
June 2017 total consumption was 11.617 TWh, of which 2.482 TWh (21.36%) was for Class A ratepayers. The Class A GA totaled $137.9 million, but if they had been allocated the 21.36% of their consumption on the GA of $1.208.8 billion instead of the 11.4%, they would have paid $258.2 million. Class B ratepayers provided a subsidy of $120.3 million.
The 5,055,000 (2015 OEB Yearbook of distributors) Class B ratepayers in the province each picked up an average of $23.80 of subsidy costs for June 2017.
If that becomes the norm, those ratepayers will pony up around $1.4 billion annually.
Back before former Energy Minister Duguid issued his directive, the Association of Major Power Consumers of Ontario, the Ontario Chamber of Commerce, and the Canadian Federation of Independent Business were lamenting the rising costs of electricity in Ontario. Some companies left the province due to costs, so it was inevitable the Ontario Liberal government would finally hear their pleas for relief. The result? The creation of the two rate classes.
In effect, the creation of the two rate classes and the subsidy shift from Class B to Class A ratepayers should be labeled “employment insurance” as it was needed to simply retain jobs in jeopardy because many companies were threatening to leave the province due to high uncompetitive electricity rates.
Why can’t our Energy Ministers come to the realization they should cease contracting for new, unreliable and intermittent wind and solar generation that produces power out of phase with demand?
* The claim by the government is that by not contracting for new capital investment in generation, we ratepayers save future rate increases
A few days ago (July 11, 2017) Ontario’s Minister of Health and Long-Term Care Dr. Eric Hoskins issued a press release saying 131 hospitals would receive $175 million for “repairs and upgrades”. That’s an average of $1.3 million per hospital to be doled out, apparently because the Wynne government finally produced a “balanced budget”.
The press release states: “Funding from the province allows hospitals to make critical improvements to their facilities, including upgrades or replacements to roofs, windows, heating and air conditioning systems, fire alarms and back-up generators.”
One wonders if Minister Hoskins ever chats with Minister of Energy Glenn Thibeault who doles out money to industrial wind turbine (IWT) developments at a pace that would make his $1.3 million per hospital look like small potatoes! In the first six months of 2017, the bill to Ontario ratepayers was approximately $1.089 billion for accepted and curtailed industrial wind. That works out to approximately $475,000 per turbine … for six months! (That assumes there are about 2300 turbines with an average capacity of 2 MW or megawatts currently operating in the province.)
Also in the first six months of 2017, grid-connected and distributor-connected IWT collectively generated 6,143,000 MWh and curtailed 1,906,000 MWh* according to IESO data and curtailed estimates by Scott Luft. That means the cost per grid-accepted MWh was about $177 or 17.7 cents/kWh! If the next six months are similar to the first six, each average 2-MW wind turbine will cost $950,000** generating or curtailing the intermittent and unreliable power they are famous for.
Those wind turbines require back-up by gas plants and frequently cause the spilling of hydro power and the steam-off of nuclear plants. The costs of these grid managing activities to ratepayers easily drive the costs per turbine well past the hospital repair allocations.
Kicking the can down the road under the Fair Hydro Act will see the foregoing incredible waste of ratepayer dollars accumulate within OPG, and result in rate increases as high as those we have experienced over the past 10 years, once 2021 arrives.
Try to imagine how much better our health care system would be with that estimated annual waste of $2 billion ($40 billion over the 20-year terms of the contracts) allocated towards health care instead of handing it over to mainly foreign industrial wind developers.
The time has come to stop signing those contracts!
* The average curtailed wind for the first 6 months of 2017 was 23.6% and for May was 43.8%.
** This assumes accepted generation is paid $140/MWh and curtailed wind is paid $120/MWh.
The “Fair Hydro” plan ushered in by the Wynne government is setting up ratepayers for higher bills as soon as 2021 arrives. When the hiatus ends, limiting increases to ratepayer bills to no more than the “cost of living” (COL) over the next four years, the cumulative debt acquired by OPG to “refinance” the reported $50 billion of electricity assets will have to be repaid.
Early indications suggest the costs will be higher than the $2.5 billion being set aside for the next three years by Premier Wynne and Energy Minister, Glenn Thibeault.
Evidence? A look at May 2017 compared to May 2016 indicates the increase in the Global Adjustment (GA) costs for Class B ratepayers was 7.9% higher than 2016 and well above the May COL index of 1.4%. Any increase in costs above the inflation rate will be added to the $2.5 billion being refinanced and become the responsibility of ratepayers to pay when the hiatus ends.
Demand drops but the cost goes UP
The IESO May 2017 Monthly Market Report indicates Ontario Class B ratepayers consumed 344,000 megawatt hours (MWh) less than they did in May 2016, which represents a 4% drop. That’s about the same as 460,000 average households would consume for the month. The Global Adjustment (GA) costs on the reduced amount of electricity consumed, however, increased by $82.7 million from $931.2 million in 2016 to $1,013.9 million in 2017. Many will recall in May 2016, lower consumption during the prior six months caused the OEB to raise rates!
So, what caused the 7.9% spike ($82.7 million) in GA costs? It appears there were two principal causes with one of them related to Ontario’s “Net Exports”.*
In 2017, net exports averaged 600 MW per hour higher than 2016, meaning they increased by 446,400 MWh (600MWh X 24 hours X 31 days) in May 2017 (enough to power almost 600,000 average households for the month). The buyers in New York, Michigan, Quebec, etc., paid only the Hourly Ontario Electricity Price (HOEP) of $3.17/MWh, while Ontario’s ratepayers were required to pay the GA costs of $54.8 million or $122.89/MWh.
The other major cause of the GA spike appears related to power generation from wind and its record curtailment in May 2017. My friend Scott Luft posts both the generation from TX (transmission connected) and DX (distributor connected) industrial wind turbines (IWT), and also conservatively estimates “curtailment”. In May 2016 TX and DX connected IWT generated 699,371 MWh, not including 130,000 MWh of curtailed generation.
Combined: wind power in May 2016 cost ratepayers about $113 million or $162/MWh. May 2017 saw 669,011 MWh of wind power delivered either to the grid (TX) or to local distribution companies (DX). Curtailed wind in May 2017 was a record as Scott estimated almost 524,000 MWh (enough to power almost 700,000 average households for the month) were curtailed. The cost for generated and curtailed wind increased to slightly more than $158 million for the month, which raised the cost of accepted wind generation to $236/MWh.
$100 million added … for just one month
What this means is, wind-generated and curtailed costs in May 2017 were $45 million higher. Coupled with the increase in net exports of surplus generation and related costs, $100 million was added to the GA … for just one month. If May 2017 is in any way representative of the four years of the rate freeze (tied to the COL index), the costs of refinancing those assets will be much more than the March 2, 2017 press release suggested it would be: “These new measures will cost the government up to $2.5 billion over the next three years.”
Based on past forecasts by the Ontario’s Liberal government, keeping the costs at $2.5 billion over the next three years may be a “stretch goal”!
*“Net Exports” are total exports less total imports.
Ontario news in May focused on record rainfalls in many areas of the province, records were being set elsewhere, too: in Ontario’s our electricity sector.
While one of those records occurred on May 27 when the 4,500 MW capacity of industrial wind turbines generated a record low of one (1) megawatt hour, there were others. They won’t make you proud.
Highest “B” Class GA per MWh ever @ $123.07/MWH – What the $123.07 represents is a Global Adjustment cost to all Class B ratepayers of 12.3 cents /kWh without including the HOEP (Hourly Ontario Electricity Price) at a time when Premier Wynne has told us her government is reducing our electricity bills by 25%* so the difference between what the cost of electricity was in May and other months and the TOU rates (to be announced) will be “kicked down the road” to be paid at a future date.
Highest “B” Class total dollar GA cost ever @ $1,013.9 million – The Class “B” ratepayers got stung badly in May 2017 as their portion of the GA reached record levels.
Highest OPA contracted GA monthly cost ever @ $838.3 million – The Ontario Power Authority (since merged with IESO) was created by Dwight Duncan when Minister of Energy and contracted for all new power contracts, including those above market ones for renewable energy (wind, solar and biomass). Those contracted generation sources set a new record for contribution to the GA representing 73.2% of the total amount as noted under # 5. below.
Lowest “B” Class consumption for May (in evidence) @ 8.310 TWh – It would appear that Class “B” ratepayers did their best to reduce consumption and based on data on the IESO website consumption levels set a record low in May 2017.
Highest overall total GA costs ever @ $1,144.5 million – The total GA costs for May 2017 for the combination of Class B and A ratepayers achieved this record level since the GA was first created.
Based on what happened in May, it would appear that holding future rate increases in the next four years to the inflation index will result in huge increases when the hold-back (financed by taxpayers via the OPG) is slated for recovery.
That could make the Debt Retirement Charge look like chump change!
* The OEB has not yet announced the TOU rates that will apply effective July 1, 2017 as a result of the passing of the “Fair Hydro Plan” Act in the Ontario Legislature.