The Ontario government’s about face

September 21, 2016

Recent events in Ontario present an interesting way of looking at things. First was a request from the Ontario government (It looks like a petition) aimed at getting voters “to support lower hydro bills for Ontarians.”  The request is also being supported by letters written by Liberal MPPs addressed to “Dear friends” followed by, “I am pleased to share with you that our government has announced important action to reduce the cost of electricity bills for families and businesses, in addition to reducing northern, rural and remote bills even more.”

The immediate reaction is, hey, weren’t you the energy ministers, and their leaders Dalton McGuinty and Kathleen Wynne the ones that increased the rates in the first place? And didn’t you do this via the Green Energy Act (GEA)? Didn’t you issue more than 100 directives to the Ontario Power Authority (now merged with IESO), the OEB, Hydro One, IESO and OPG telling them what to do?

So why the about face? Unless it is meant to place the blame on all those foregoing entities when the truth is, oppressive management and the GEA decreed how the bureaucrats should behave while removing democratic rights from municipalities.

The second event that caught my attention was the proroguing of the Legislature so Premier Wynne could present her case for how to resolve the energy “crisis.” (Never mind her recently appointed Energy Minister Glenn Thibeault denied it was a crisis in a recent interview with Shirlee Engel of Global TV.)

Minister Glenn Thibeault’s current behavior is interesting. Several years ago when he was Executive Director of the United Way of Sudbury he said this about poverty in Ontario:  “Every year, right before school starts, our phone at the United Way office starts ringing off the hook.We have mothers and fathers calling us, some crying, as they need to decide whether to buy food or buy a backpack and school supplies for their child. That isn’t right and I’m glad our donors and many of our community partners have stepped up to the plate so we can help a few hundred children.”

Now here we are with families having to choose whether to buy food or heat their homes, and former NDP, former United Way exec Thibeault is the Minister of Energy. I’m sure he has heard cries from mothers, fathers and seniors about energy unaffordability since he commenced drinking from the “fire-hose” he suggested is the Ministry of Energy portfolio during his interview with Global TV.

So why is he not speaking up now for the poor?

Parker Gallant

How to reduce Ontario electricity bills with a minimum of pain

Much has been written recently about what’s wrong with Ontario’s electricity sector and the rising costs of a “necessity of life” to most Ontarians.   The pundits have generally failed, however, to offer a solution. The criticisms correctly point out the mistakes that have been made, including the Green Energy Act and the goal to cleanse Ontario of coal power generation. The result has taken a toll on our pocketbooks and Ontario’s attractiveness as a place to invest in. We now see a sizable increase in people living in “energy poverty.”

I will offer the Ontario Liberal government options that could alleviate rising electricity bills, with little impact on the budget deficit. As some of my suggestions/recommendations impact ministries other than Energy, it may be important for the government to review ministerial responsibilities.

  1. Reduce the Water Fuel Tax imposed on OPG’s hydroelectric units. This fuel tax is applied to both hydro generation and to spilled water (i.e., water not run through turbines). Reducing the tax would generate increased earnings by OPG mitigating further applications for increased revenue via Ontario Energy Board application for rate increases and should generate additional PIL (payments in lieu of taxes). It should reflect itself as a “net-zero” cost to the treasury but mitigate rate increases.   I recommend the fuel charge be reduced by 50% or approximately $170 million annually, based on 2015 fuel charges levied on OPG of $345 million. If applied to residential ratepayers their bills should drop about $40 annually for the average ratepayer.
  2. Move the Ontario Electricity Support Program or OESP: this was created to support low income households and commenced January 1, 2016. The estimated cost of the program was in the $200-million range and required both a staffing increase and advertising budget that will partially consume the budget. The program is funded by other ratepayers via the Global Adjustment pot, reflecting in increasing electricity costs. The program rightly belongs with the Ontario Ministry of Community and Social Services who have existing relationships with funding agencies such as the United Way and could easily accommodate the program as they do for LEAP (low-income energy assistance program). That would help reduce administration costs and place the program where it would be more effective. Cost savings for ratepayers would be $200 million, but would presumably increase the budget of the Ministry of Community and Social Services by only $180 million. Moving this program to where it belongs would drop the average residential bill by approximately $44 annually
  3. As noted in my letter of August 16, 2016 to Energy Minister Glen Thibeault I suggested a tax on wind generation due to two factors: wind turbines frequently provide electricity at times when it’s not needed and developers are paid above market rates and also for curtailment.   Taxing wind is a concept that could generate $150/$200 million annually (based on generation for the first six months of 2016 and a tax levied per megawatt hour [MWh]). The proposed tax could cost the owners of the wind developments $200 million or more, and reduce annual residential bills by $45.
  4. One of the easiest ways to mitigate future rate increases would be to cancel all of the 400 MW of older wind power contracts that have passed their key contract dates. That would save future rate increases over 20 years, from the addition of $3 billion to hydro bills. Future increases would be reduced by $35 annually
  5. Cancel the LRP II (large renewable procurement) immediately: the 600 MW of wind it seeks is not needed and would add annual costs (estimated) of $200 million and almost $4 billion to future electricity bills. The 300 MW of contracts handed out under LRP I should also be canceled and would save ratepayers another $100 million (estimated) per annum and $2 billion over 20 years.   Cancelling the 900 MW would mitigate future rate increases on the average residential bill by about $65 annually.
  6. Cancel 1,300 MW of wind power (600 MW of new + 300 MW from LRP 1 + 400 MW of projects past their key contract dates) would result in less steaming off of power from Bruce Nuclear.  IESO reported this occurred 472 times in 2015 and represented 897 GWh at a cost of about $60 million. Avoiding that would have meant an annual saving per average residential ratepayer of $15.
  7. Cut back surplus power generation: Cancelling the 1,300 MW of wind capacity would considerably slow the generation of “surplus” power meaning less water spillage of hydro (3.4 TWh) by OPG which cost ratepayers about $150 million in 2015, and resulted in an annual cost per average residential ratepayer of about $30.
  8. Should surplus generation flatten or reduce because of the cancellation of the 1,300 MW of wind capacity it would affect the market price (Hourly Ontario Energy Price or HOEP) favourably reducing subsidies. If the HOEP price increased, say, $20/MWh, it would reduce subsidies and generate additional revenue of $450 million (based on 2015 exports) and reduce average residential electricity bills annually by $100.
  9. Cancel spending on conservation: save more than $400 million a year on TV ads and mailers. Most ratepayers know if we conserve more it causes electricity bills to rise as happened with the recent rate increase announced by the OEB in April 2016. A halt in conservation spending would translate to annual savings per ratepayer of almost $90.
  10. Negotiating “Net Zero” wage settlements provided the Power Workers Union and the Society of Energy Professionals at Hydro One and OPG a wage settlement handing them a lump sum payment for the first two years of their contracts and annual awards of Hydro One shares equal to 2.7% of their wages. The annual awards of Hydro One shares alone will extract the value from their sale that should have gone to the province for “infrastructure” spending or deficit reduction. The value of the “Net Zero” contracts was approximately $250 million. The next contract should be “Zero” and would annually save residential ratepayer about $55.

TOTAL potential savings for the “average” Ontario electricity ratepayer? $519 per year

If the Wynne government undertook these actions, immediate ratepayer relief would be approximately $265.00 annually, and mitigate future rate increases by $220.00 annually.   The PST could have been left on ratepayers’ electricity bills reducing the immediate relief to $135.00. The foregoing would have a marginal effect on annual Provincial revenue reducing the borrowing needs from $1.3 billion to less than $300 million to cover the costs of the OESP shift to the Ministry of Community and Social Services and the marginal drop in the water tax payments from OPG.

Why hasn’t the government done these things? Maybe it’s just easier to transfer $1.3 billion in costs to Ontario’s taxpayers. Or maybe promises were made to those who lobbied the Premier and some of her ministers at special access fund-raising events.

Time will tell.

Parker Gallant

September 18, 2016

 

 

Wynne government ‘rebate’ just a finger in the dike for electricity costs

September 14, 2016

Global TV News reported how Ontario Premier Wynne heard the cries from rural communities about the high cost of electricity and how they affect people’s living standards. Premier Wynne said: “One of the things that we heard most consistently was hydro rates. I heard about electricity rates in the north. It is not something that is isolated in one riding in Toronto. This is a concern across the province. I recognize that.” 

“It’s an urgent issue for the minister of energy,” the premier also said, adding that her government will look at “further mitigationsto offset the high cost of electricity in the province. 

The Throne Speech of September 12, 2016 disclosed what those “further mitigations” are to be — they are a “finger in the dike” approach to stopping climbing electricity rates.

Specifically what the Throne Speech suggested was: the provincial portion of the HST on all residential electricity bills will be rescinded and a direct credit will appear on electricity bills each month advising us what the credit was. This action was described in a press release from Energy Minister Glenn Thibeault as: “Reducing Ontario residential electricity bills by 8 per cent on the amount before tax, an average savings of about $130 annually or $11 each month”.

The next major action proposed in the press release indicated rural customers experiencing well above “average” electricity bills will be helped by a 20% “on-bill” monthly savings credit: “Providing eligible rural ratepayers with additional relief, decreasing total electricity bills by an average of $540 a year or $45 each month”. No mention of when that might occur. And, no definition of what an “eligible” rural ratepayer is.

The third action says “commercial and industrial” customers will benefit from lower electricity costs via a reduction in qualifications to enter the “Class A” rate class. This is suggested to reflect in substantial rate decreases of as much as 34%: “Empowering businesses to reduce their bill by up to 34 per cent through the expansion of the Industrial Conservation Initiative”.

Presumably the above three actions are supposed to comfort Ontario’s ratepayers in the knowledge that Premier Wynne and her Energy Minister have not only recognized the problems created by rising electricity prices, but will do something about stopping it.

Let’s see.

  1. Provincial Sales Tax Rebate: moving the burden around The first action of removing the Provincial Sales Tax portion of the bill was originally placed there by the Ontario Liberal Party (OLP) in 2010. Later they offset it by granting ratepayers a 10% credit via the Ontario Clean Energy Benefit (OCEB) so those two actions reduced the bill by 2% temporarily; the OCEB ended January 1, 2016.   Now they claim the rebate of 8% will save the average residential ratepayer $11.00 per month commencing January 1, 2017 which, coincidentally, is when the new tax for the cap and trade plan will kick in and hit the average ratepayer heating with gas with a $5.00 monthly tax. In short, the net gain will be $6.00 per month. Note the two most recent rate increases (Nov. 1, 2015 & May 1, 2016) hit the “average” ratepayer $8.00 per month for the electricity line only.
  2. Rural ratepayer relief; who gets it? Who pays? The second action they suggest will occur will supposedly “relieve eligible rural ratepayers” of $45.00 each month but the press release does not define “eligible”. We should suspect that to be eligible the rural ratepayer will have to qualify for the rebate and the inference is that it will be related to household income under the Ontario Electricity Support Program or OESP. If that is what is planned the Ontario Energy Board’s estimated cost of the OESP will easily surpass their estimate of $200 million per annum. The OESP is a part of the GA (Global Adjustment) bill all of the non-eligible ratepayers pay for, so any increase via the “rural relief” proffered in the Throne Speech will increase hydro bills. Logically their funding should be from the Ministry of Community and Social Services budget.
  3. Class B to Class A transfer: more energy poverty will resultThe ICI (Industrial Conservation Initiative) was initially established in 2011and transfers a portion of the GA from Class A to Class B ratepayer subject to the Class A ratepayers agreement to curtail their demand during peak hours. In the first six months of 2016 the extra portion of the GA picked up by Class B ratepayers was $495 million or about 3.6 cents per kilowatt hour of the 13.83 TWh (terawatts) consumed by Class A ratepayers. Increasing the number of Class A eligible clients will increase the amount being absorbed by the remaining Class B ratepayers. It will simply create more energy poverty. Once again neither the Throne Speech or the press release notes when the implementation of this will occur.

The end results of the “mitigations”

What the Wynne government plan likely means is that rate relief for residential ratepayers will be short lived, if at all, as the cap and trade costs and the increased costs of the OESP and the Class B to Class A transfers click in. The “finger in the dike” announcement from the Throne Speech will be short lived and residential ratepayers should expect the flood of rate increases to reappear in the very near future.

Parker Gallant                                                                                                                                        

NEXT: Some of the ways the government could immediately reduce the current costs of electricity and also reduce any future rate increases.

 

 

Hydro bill assistance programs not enough

Here is a link to an interview I did with CBC radio host and journalist Jason Turnbull on “Up North.” This interview followed Jason’s interview with Ontario Energy Minister Glenn Thibeault in which the minister, among other not quite accurate statements, said that government assistance programs should help people cope with Ontario’s rising electricity bills.

Listen here.

Hydro One says: use less power! We still make money!

hydroshame

Hydro One, in keeping with the directives from former Energy Minister Bob Chiarelli and the Long Term Energy Plan, “Conservation First” tells us: use less electricity.  If I were a Hydro One shareholder I would be struggling to understand why the company would want their customers (all captive) to use less of the product(s) they distribute. Wouldn’t that affect revenue and profitability?

Before privatization of Hydro One we were told by the Premier’s Advisory Council head Ed Clark that “The Council’s main preoccupation relative to unlocking value from its interest in Hydro One is how best to obtain maximum financial value from a transaction while also maximizing protection for taxpayers and ratepayers.”

So, privatization of Hydro One was undertaken because the Ontario Liberal government wanted to unlock the value of Hydro One. Ontario still holds controlling interest in Hydro One so via the Ontario Energy Board (OEB), the Wynne government can ensure revenue and bottom line profitability grow, despite instructions to tell their rate-paying clients to use less!

Hydro One is doing this in two ways.

First is to keep raising distribution rates with the full blessing of the OEB; and second is, issue “shaming letters” labeled as a Home Energy Report.

The Home Energy report tells people, “You used more than average” and then compares our power use to “Efficient Neighbours” and “All Neighbours”.  The reports are sent even to people who live year-round in a tourist area where seasonal homes (cottages and weekend retreats) are located.  Those permanent residents, some of whom have to heat their homes with electricity,  may be suffering from “energy poverty” due to the extremely high distribution rates levied by Hydro One.

An example of climbing distribution rates can be found by reviewing the recent 2nd Quarter 2016 financial report of Hydro One.  Using the information available one can calculate the “average” distribution revenue per kilowatt (kWh) versus the comparable 2nd Quarter in 2015.   First, note the amount of distributed kWh dropped by 7.5% versus 2015, signaling either “shaming letters” are working or people are reducing usage because they want to buy food or pay their mortgage.

Second, you can see Distribution Revenue (net of the “Cost of Power”) is up modestly by less than 1%.

Third, by using figure for terawatts (TWh) distributed in the quarter (6.2 TWh) you can calculate the “average” distribution cost per kWh was 5.63 cents/kWh — an increase from the 2015 comparable quarter by 8.7%.

That’s not the whole story, however.

If you visit the OEB “electricity calculator” Web page you can quickly see distribution rates for the three categories of low, medium and urban “average” ratepayers are respectively: 12.5 cents/kWh, 9.3 cents/kWh and 6.6 cents/kWh.  There is the promise of increased distribution revenue for Hydro One’s shareholders compared to the 2nd Quarter; the OEB approved high distribution costs for the three residential classes, driving up the revenue base to higher levels than the 2nd Quarter average of 5.63 cents.

Hydro One shouldn’t be surprised if that also drives up their “residential arrears” levels at the same time.

It is hard to see how privatization of Hydro One has fulfilled the goal of maximizing maximized “protection for taxpayers and ratepayers.”

Parker Gallant

September 7, 2016

Michigan outperforms Ontario. And why not? They have our cheap power

Boating - St. Joseph. Courtesy of SW Michgan Tourist Council

Across the lake: cheap cheap power. [Photo Michigan Outdoors]

The state of Michigan is outperforming Ontario. That’s according to a recent study by the Fraser Institute. Since the end of the “’Great Recession” Michigan has out performed Ontario, increasing their GDP in 2013 by 2.8% versus Ontario’s growth of only 1.3%.  Unemployment levels in Michigan are currently at 4.6% versus Ontario’s 6.4%. Those are two very important  economic indicators.

That news plus the fact Ontario has become a “have not” province in Canada, it seems policies adopted by the Ontario Liberal government to “build Ontario up” is having the opposite effect.

One of those policies resulted in Ontario’s electricity sector focusing on acquisition of renewable energy from industrial-scale wind turbines, solar panels and biomass. The passing of the Green Energy Act (GEA) in 2009 resulted in adding intermittent and unreliable renewable energy that is unresponsive to demand (wind power is produced out-of-phase with demand in Ontario).   This had the effect of driving down the price of electricity.

The free market trading (HOEP) of electricity has resulted in Ontario exporting a rising percentage of our generation to buyers in Quebec, NY and Michigan, with the latter the biggest buyer.   In 2015 Michigan purchased 10,248 gigawatts (GWh) or enough to power1.1 million “average” Ontario residential households. We sold it at an average of 2.36 cents per kilowatt hour (kWh) and were paid $242 million, but it cost Ontario’s ratepayers just over $1 billion.

Michigan doesn’t have to pay the Global Adjustment. You do.

Michigan appears delighted to be able to purchase our cheap subsidized electricity. Now they are seeking further transmission links to Ontario with an eye on the grid out of Sault Ste Marie.  Hydro One earlier this year announced they “entered into a purchase agreement to acquire Great Lakes Power Transmission LP from Brookfield Infrastructure for $222 million in cash plus the assumption of approximately $151 million in outstanding indebtedness.” One has to wonder, did Hydro One know about this, and see it as an opportunity to increase transmission revenue? 

This new transmission line could send both cheap hydro and expensive bio-mass generation to Michigan.

Ontario Power Generation (OPG) operates 11 hydro stations with 680 MW of capacity and also two bio-mass facilities (Atikokan and Thunder Bay) converted from burning coal and now using wood pellets with a combined capacity of 358 MW in the region.   The latter two facilities were focused on by the Auditor General (AG) in her November 2015 report. In the case of Thunder Bay, the report indicated the cost of generation was “$1,600/MWh—25 times higher than the average cost at other biomass facilities in Ontario.”  For Atikokan the AG had this to say: “The plant is expected to generate 140,000 MWh for $74 million per year, putting the cost of electricity from this facility at $528/MWh—about eight times higher than the average cost of existing biomass from other facilities in Ontario.” Industrial wind turbines have also invaded the beautiful landscapes painted by the Group of Seven.

For the sake of Ontario ratepayers, one hopes Michigan will not access electricity from either of the two biomass plants as it will fall on us ratepayers to pick up the costs in excess of the HOEP price. In the case of Thunder Bay the cost to ratepayers could approach $1.60/kWh and for Atikokan it would be 55 cents/kWh.

Maybe the Ontario government staffers in communications should change their PR Slogan to “Building Michigan up”!

Parker Gallant

September 5, 2016

In the billions: the cost of closing Ontario’s coal power plants

The annual cost of closing Ontario’s coal plants 

The first article in respect to Ontario’s decision to close our coal plants examined the MW (megawatt) capacity and the type of generating capacity added to our electricity grid since 2011. The added capacity replaced the 4,484 MW of coal-fired generation at the end of 2011 in anticipation of increasing demand.

What I’ve done is approximate the costs of the added capacity versus the 4.1 TWh generated by the 4,484 MW of coal-fired plants, which cost only $135 million (3.3 cents/kWh) in 2011. 

Nuclear instead of wind and solar

As an example, the 1,532 MW of emissions-free Bruce Nuclear refurbished generation, at a capacity factor of 90% supplying 12.08 TWh, easily covered the loss of 4.1 TWh of coal-fired generation and left 8.7 TWh for added demand due to its flexibility to steam off or bypass the turbines. The 12.08 TWh could have supplied most of the 2015 solar generation of 3.04 TWh and the 10.2 TWh of wind, which proved to be unneeded.   The latter two alone in 2015 added an additional $2.7 billion to generation costs before curtailment (wind) costs of $88 million.

Bruce Power supplies from the 1,532 MW would have cost ratepayers $800 million, reducing the ratepayer burden by almost $2 billion annually.  Additionally “nuclear maneuvers” (reductions),  of 897 gigawatt hours added about $60 million during surplus baseload periods, caused mainly by (unreliable) intermittent power generation from wind.

Too much gas? 

Let’s look at the gas plant addition of 602 MW:  In 2011 the 9,549 MW of gas generation produced 22 TWh,  operating at a capacity factor of 26.3%.  Fast forward to 2015: the 10,151 MW generated 15.5 TWh  operating at a capacity factor of 17.5%.  Gas plants are quite capable of operating at a capacity factor of 40% to 60% (combined or single cycle).  In either case, they are regarded as peaking plants and for that reason investors know they will be called on when needed. Their contracts pay them for simply being “at the ready.”  Those costs vary but generally payments are $7,000 to $15,000 per MW per month.  The additional 602 MW of gas added about $100 million annually to the costs.  With gas generation falling from 22 TWh in 2011 to 15.5 TWh in 2015, ratepayers were burdened with the costs of the drop of 6.5 TWh at a cost of approximately $100 million per TWh, raising the cost of gas generation by $750 million since 2011.

Adding costly hydro

The bulk of the 754 MW added to the grid since 2011 came from the Niagara tunnel, (“Big Becky”) with a promise of 150 MW, and the Mattagami expansion added 438 MW of run-of-river hydro. Both of these projects by OPG were hugely expensive, costing ratepayers $4.1 billion plus interest on the money borrowed to fund the projects. If one amortizes those costs over 50 years it adds about $80 annually to ratepayer bills and the interest costs annually add about $120 million at 3% per annum. So that is $200 million for those two projects, without adding their OMA (operations, management and administration) costs.

As well, OPG is frequently forced to “spill” water under SBG (surplus baseload generation) periods mainly due to excessive intermittent wind and solar generation. In 2015 the latter was 3.4 TWh which cost ratepayers $150 million.  The other event affecting hydro costs was an amendment to change “unregulated” hydro to regulated pricing.  This change added $474 million to ratepayers’ bills for 2015 for the 30.4 TWh generated by OPG versus 2011.  So hydro costs in the four years from 2011 jumped from a cost of $37.7 million/TWh to $53.3/TWh.  The total additional costs of hydro (OPG only) in 2015 was therefore over $800 million.

Coal conversion 

The Ontario Energy ministers also issued directives instructing conversion of the 200-MW Atikokan and the 300-MW Thunder Bay coal plants operated by OPG.  A 2005 directive from Dwight Duncan was the first and told OPG to convert Thunder Bay “to operate using a fuel source other than coal”.  Later on when Brad Duguid sat in the energy chair he ordered it converted to gas but in the end it became a shareholder direction from Bob Chiarelli, ordering it to be converted to “advanced biomass” and agreed to cover the annual $30 million operating costs.  As disclosed by the Auditor General, if Thunder Bay produces any power, it will cost $1,500 per megawatt hour (MWh).  In respect to the conversion of Atikokan it may produce cheaper power in the 20 cents/kWh range but will probably operate at 10% of capacity and generate an annual cost of about $35 million.  So collectively, both of these conversions will produce almost no power but will add approximately $65 million annually to ratepayers’ bills.

Conservation is expensive 

The long-term conservation budget for 2015-2020 is $2.6 billion, meaning IESO will allocate spending of $433 million annually to local distribution companies (LDC) to reduce consumption by 7 TWh.   Should the LDC be successful, their delivery revenue will drop.  Assuming the delivery charge represents about 35% (on average) the revenue drop for all LDC would be approximately $300 million.  Then the LDC will be entitled to apply for a rate increase based on the drop in revenue, meaning the $300 million may be fully recovered.  Adding that to the monies spent annually convincing us to reduce our electricity consumption via the “conservation budget” adds another $483 million annually ($433 million + [$300/6 years = $50 million] = $483 million).

$4 billion … a year

So the cost of replacing the 4.1 TWh of coal generated at a cost of about $135 million in 2011 is in excess of $4 billion annually.

Confirmation of the foregoing cost can be simply calculated. If one reviews the “average” cost of a kWh on the OEB “Historical Electricity Prices” as of November 1, 2011 was 7.57 cents/kWh versus 10.70 cents/kWh on November 1, 2015.  The increase of 3.13 cents/kWh (+41.3%) translates to an increase of $31.3 million per TWh and applied to the 143.6 TWh consumed in 2015 provides an annual cost increase of $4.5 billion to ratepayers since 2011.

The cost blows away the purported healthcare costs supposedly caused by coal generation.   At the same time, it removes about $1,000 of after-tax money from the pockets of the 4.5 million ratepayers in the province every year.

This is a sad commentary on what the Ontario Liberal government has done to Ontarians.

Parker Gallant,

August 29, 2016