Hydro One: can it deliver on its dividend promise?

The headline on the Hydro One February 10 press release was:  “Hydro One Reports Positive Fourth Quarter Revenue and Operating Cost Trends.” Annual “revenues, net of purchased power” came in at $3,125 million, an increase of $37 million (.4%) over 2015, while Net Income rose from $714 million to $746 million, and “adjusted” earnings per share increased to $1.21/share up from $1.16/share.

If you believe the reporting by Hydro One, you are led to believe a small increase in revenue translated to an almost identical increase in after-tax income.

A closer look is necessary to determine how that happened. As it turns out, transmission revenue was up $48 million and distribution revenue was down $11 million, accounting for the revenue increase. Regulatory assets1. climbed $130 million while operations, maintenance and administration (OMA) apparently fell by $66 million. It is not clear how many millions of OMA expenses were placed into “regulatory assets,” but we should assume a portion of salaries, pensions and benefits were.

As a result, it is impossible to determine whether Hydro One has become more or less efficient, despite this claim in the press release: “Our fourth quarter results demonstrate favourable revenue growth and operating cost control.” We can quickly see “favourable revenue growth” was small potatoes!

There are ways of using information in that press release and annual report to allow for calculations. One area that affects ratepayers is “delivery” costs which is reflected in Hydro One’s “distribution” business line. The annual report indicates the amount of electricity distributed to their 1.3 million residential and business customers fell 8.6% from 28,763 gigawatts (GWh) to 26,289 GWh while distribution revenue fell by $11 million from $1,499 million to $1,488 million. Using simple division one is able to calculate the cost of distribution per megawatt (MWh) increased from $52.05/MWh to $56.60/MWh for an increase of 8.7% or $4.55/MWh.

Everyone pays

Not all of that increase was paid for by Hydro One customers, however, as Hydro One receives revenue from all of Ontario’s ratepayers via the OESP (Ontario Electricity Support Program) which presumably resulted in the year over year drop (at a minimum) of $26 million in Hydro One’s “Allowance for doubtful accounts” from $61 million to $35 million. As well, all Ontario ratepayers pick up the costs of the RRRPP (rural and remote rate protection plan) which was $125.4 million for Hydro One in 2016 and will increase in 2017 to $243.4 million. Adjusting the distribution revenue to reflect contributions to Hydro One by all Ontario ratepayers would reduce their distribution costs to about $54/MWh (5.4 cents/kWh) and bring it almost in line with the claim by Hydro One their distribution/delivery costs represent about 37% of their customer’s electricity bills before HST. If one does the calculation on the OEB’s website however the actual cost of the “delivery” line for a “medium density” Hydro One ratepayer is 43%!

Another asset that showed a big jump on Hydro One’s balance sheet in 2016 was “goodwill” which more than doubled to $327 million, despite their having recovered $60 million in goodwill from the provincial acquisition of Hydro One Brampton before Hydro One went public. This also occurred just before the arranged merger of Hydro One Brampton with PowerStream, Horizon and Enersource. Hydro One has been snapping up some of the small local distribution companies (LDC) such as Norfolk Power, Woodstock Hydro, Haldimand for the past few years and recently applied to the OEB for acquisition of Orillia Power. Hydro One also just completed acquisition of Great Lakes Transmission improving the monopolistic control they hold in this business line to over 98%.   The LDC acquisitions were made well above book value and many of them had their delivery rates frozen for five years.

With Hydro One’s success at being the second most expensive hydro distributor we should expect the ratepayers in the locales of the acquired LDC will see their future delivery rates jump significantly.

On the liability side of Hydro One’s ledger, 2016 saw the acquisition of about $1.7 billion of increased and mainly long-term debt yet, their negative working capital position only improved $716 million. The additional debt raised during the year caused their Debt/Equity ratio to rise from 1.45:1 at the end of 2015 to 1.52:1 at the end of 2016 and brought with it increased interest costs. A rising D:E ratio often precedes a credit rating drop!

Dividend promise impossible, unless …

All this points to a company whose future is dependent on the OEB granting their every wish to increase delivery/distribution rates. If not, the promise to dividend out 70/80% of their annual net profits becomes impossible unless they either: forgo proper maintenance of the infrastructure, or reduce OMA costs via either staff reductions or salary cuts, or sell off assets!

Dividends paid in 2016 on the 5,623,000 common shares were $577 million representing 80% of net income attributable to common shares with just over $400 million going to the provincial treasury leaving about $150 million2. in retained earnings for future investments in infrastructure repairs and refurbishment and the building and/or improvement to the transmission grid(s) and LDC infrastructure.

Something’s got to give, or future increases to Hydro One’s ratepayers will be even worse than the past!

 

  1. Regulatory assets “represent certain amounts receivable from future customers and costs that have been deferred for accounting purposes because it is probable that they will be recovered in future rates.”
  2. Capital spending in 2016 was reported as $1.6 billion.  
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Mr Thibeault needs to go to energy minister school

Ontario Energy Minister Thibeault: listening to the earbuds, not really in the know on energy
Ontario Energy Minister Thibeault: listening to the earbuds, not really in the know on energy

Ontario’s Energy Minister Glenn Thibeault was in Port Hope February 8, 2017 and delivered a speech to the local Chamber of Commerce.  Based on a few of his quotes appearing in the local paper, Northumberland Today, he needs basic training in the electricity system. Clearly, he doesn’t get it.

The article said, “Except for one question from the floor at the Port Hope and District Chamber of Commerce event, all of the queries from chamber members to Thibeault were solicited and chosen prior to his arrival.” I guess he needed help from bureaucrats in the Ministry to ensure he could answer the questions!

Looking at one of the Minister’s quotes along with a message from his speech, one is blown away by what appears to be either ignorance or fabrications he thinks ratepayers will believe.

“Thibeault supported the refurbishment of nuclear power plants in Ontario, a 30% source of power in this province, he said.”  Nuclear refurbishment was approved prior to Thibeault’s appointment so that’s a meaningless message.  But it also failed to deliver the correct facts!

According to IESO, while the capacity of nuclear was only 30% it produced 61% of total generation in 2016 and 67% (91.7 TWh) of Ontario’s total demand of 137 TWh (terawatts).

The quote that makes absolutely no sense is his remark, “We really have built the system of the future with yesterday’s dollars,” he said.”   Was he suggesting “yesterday’s dollars” were money in the bank already? If so,

Why have electricity rates risen over 100% under this government?

Why does Ontario have the highest electricity rates in Canada?

Why does Ontario have the fastest rising rates in North America? And

Why were almost 567,000 households (12% of households) in arrears on their electricity bills as of December 31, 2015?

We could go on and on about the damage done to the electricity system in the province by the current government meaning, the Thibeault’s claim “yesterday’s dollars” were used to “build the system of the future” is either a bogus boast or an outright lie.

The time has come for the Minister of Energy to admit his and his predecessor’s mistakes, and get some basic training.

Hard to see through the fog of Wynne government energy promises

On October 21, 2013 Premier Wynne wrote a letter “To the people of Ontario” with a few promises.

“We must also unlock public data so that you can help us solve problems and find new ways of doing things. I believe that government data belongs to the people of Ontario and so we will make government data open by default.”

and

“Our Open Government initiative will help create the transparent, accessible government that the people of Ontario deserve. Over the months and years to come, we’ll be bringing forward additional initiatives that will improve transparency, accountability, and connectivity.”

Almost a year later, possibly in an effort to augment her promise of “transparency” she wrote “mandate letters” to her Ministers. To her Minister of Energy, Bob Chiarelli she said, “We want to be the most open and transparent government in the country. We want to be a government that works for the people of this province — and with them. It is of the utmost importance that we lead responsibly, act with integrity, manage spending wisely and are accountable for every action we take.” [Italics mine]

Premier Wynne’s “mandate letter” to the current energy Minister, Glenn Thibeault, September 23, 2016 said nothing about transparency but does say:  “At this halfway mark of this government’s mandate, I encourage you to build on the momentum that we have successfully achieved over the past two years, to work in tandem with your fellow ministers to advance our economic plan”.

After almost three and a half years since Wynne’s letter to the people, perhaps it’s time to look at the promise to “unlock public data” and how the “Open Government” promise has delivered on  “transparency”!

  • Two months after Wynne’s letter to her Energy Minister Bob Chiarelli, in an appearance on TVO he claimed, “since 2008, the province of Ontario – and you can verify it with the IESO — has made a $6 billion profit on the trading of electricity.”
  • Current Energy Minister, Glenn Thibeault when asked in an interview with Global TV for information on how many ratepayers were behind in their hydro bills and how many had been disconnected, he had no idea! Neither did the OEB, or Ministry of Energy staff. Thibeault wouldn’t admit there was a crisis.
  • Less than two months after Thibeault refused to agree there was a crisis, Premier Wynne admitted rising hydro bills were “an urgent issue”. Loss of a critical byelection finally opened her eyes.

The IESO (Independent Electricity System Operators) website dazzles with the amount of data available. Search using the terms “transparency” or “transparent” you get 2,800 hits. Impressive, but as the saying goes, actions speak louder than words!

IESO fail to provide data on:

  • How much wind is curtailed or
  • How much water is spilled by hydro electric generators or
  • How much nuclear is “steamed off” by Bruce Nuclear or
  • How much wind or solar distributor connection energy was produced or
  • How much money was generated from sales of surplus exported power to our neighbours and
  • How much that exported power cost Ontario’s ratepayers

IESO is responsible for the financial aspects of settling (contracted and/or regulated) with each and every generator in the province either directly or via local distribution companies, and also must settle with the buyers and sellers of both our exported and imported energy. In effect they play a major role in determining the final cost of what each and every ratepayer are charged for the line on their bills reading either “electricity” and “GA” or Global Adjustment.

They should be the purveyors of all the “public data” from the energy sector Premier Wynne referenced in her letter to us in September 2013 but as noted, they are falling short.

A recent event made that obvious.

On January 18, 2017, IESO issued a News Release, “ Ontario’s Independent Electricity System Operator Releases 2016 Electricity Data”. The release had a table summarizing Ontario’s transmission connected generator output by fuel type, listing the outputs as: Nuclear 91.4 TWh (terawatt hours), Hydro 35.6 TWh, and Wind 9.0 TWh respectively.   Two days later, those three “outputs” were suddenly different with Nuclear at 91.7 TWh, Hydro at 35.7 and Wind at 9.3 TWh.

No apologies, no explanations or even a mention they altered the original News Release. The .7 TWh added to the output represents a cost of about $70 million ratepayers will pay, yet no explanation was posted about the change.

In Ontario today, transparency is shrouded in fog, and “spending wisely” has been forsaken by this government, in the badly managed electricity sector.

No natural gas, more natural gas: what is the Wynne government’s game?

February 6, 2017

In April 2015 Brad Duguid, then Minister of Economic Development, Employment and Infrastructure issued a press release stating: “Increased natural gas access, through the $200 million Natural Gas Access Loan and $30 million Natural Gas Economic Development Grant, will attract new industry, make commercial transportation and agriculture more affordable, help to create jobs, provide more energy choices and will lower electricity prices for businesses and consumers across Ontario.”

The focus was expansion in rural communities and the money offered would do wonderful things including lowering “electricity prices.”  The Duguid statement appears to have flowed from the 2013 Long-Term Energy Plan (LTEP) released by Bob Chiarelli when he held the Energy Minister’s portfolio as noted in the OEB’s 2014-2017 Business Plan.

Just days ago, another press release was issued on the same issue by Bob Chiarelli, Minister of Infrastructure:  “Ontario is expanding access to natural gas for communities that do not currently have service, including those in rural and Northern Ontario and First Nations communities.”  It gave a “Quick Fact”: “Natural gas is the dominant heating source in Ontario and continues to be consistently less expensive than alternative sources such as electricity, heating oil and propane.” The Chiarelli announcement increased the “grant” amount to $100 million.

The recent announcement indicates the Duguid offer fell flat so perhaps Chiarelli’s announcement is an effort to see the claim he endorsed in the 2013 LTEP as one he is determined to follow through on, even if it raises Ontario’s debt by $100 million!

It is also ironic that Chiarelli is pushing expansion of natural gas consumption while our current Energy Minister, Glenn Thibeault is heading in the opposite direction. He recently instructed IESO (Independent Electricity System Operator) to basically shut several of the NUG (non-utility generators) gas plants down. Minister Thibeault’s recent directive to IESO notes:  “Ontario has put in place legislation for its new cap and trade program to limit greenhouse gas pollution while moving to a low-carbon economy.”   Most NUG contracts are gas generation units whose original contracts (executed in the Peterson Liberal government days) are close to expiry, and are “take or pay” contracts.  With the  surplus of power today, Minister Thibeault considers them expendable.  As a result the directive instructed IESO to renew contracts but only: “if the IESO is able to negotiate replacement contracts (IESO Contracts) with OEFC NUGs that incentivize them to operate in a manner that is better aligned with the integrated power system’s needs.”

As noted by Scott Luft some of those NUG contracts have been renegotiated, others ended, (the plants will be closed or mothballed) while some are in the process of  renegotiation.  One of those cancelled contracts offered to produce and sell power for 5.9 cents/kWh, but that offer was rejected even though it was way under prices paid for generation from industrial wind turbines and solar panels. Both those forms of power generation are unable to generate power when needed.

Is the objective of the Energy Minister to reduce emissions from gas plants so Premier Wynne can claim the “cap and trade” tax is working?

Meanwhile, if Minister Chiarelli is successful at handing out the $100 million tax dollars as grants to expand natural gas use, emissions will increase! Any increase will generate additional cap and trade revenue to help pay for the grants and the early shutdown of those gas plants.

Here’s the game: reduce emissions in the (already clean) electricity sector while pushing them up elsewhere and capture additional taxes along the way.

The topsy-turvy world of power policy in Ontario continues.

Amherst Island: perfect example of why wind power can be a bad choice

Ontario’s Energy Minister Glenn Thibeault, at the launch of planning for the next Long-Term Energy Plan, said “We have a robust supply of all forms of energy for at least the next 10 years.”  The month prior to the launch he announced the suspension of LRP II  slated to acquire another 1,000 MW of renewable energy.  His claim at that time was, it would save ratepayers $3.8 billion in electricity costs over the projected term of the contracts.

Cancel the contracts 

Why didn’t he go further and cancel contracts that have not broken ground and saved billions more?   Amherst Island’s “Windlectric” project, owned by Algonquin Power & Utilities Corp., project is just one. On its own, cancellation could save Ontario ratepayers over $500 million in future costs.  Those contracts, signed years ago, either have not been built or are involved in litigation preventing them from breaking ground.   Their sunk costs are small in comparison to their full costs over 20 years and canceling them outright would represent a nominal cost to ratepayers while saving, birds, bats, butterflies and endangered species from harm as well as prevent human health effects, and depreciation to property values.

Cancellation would reduce the amount of surplus energy that is exported at a cost to ratepayers or simply curtailed, but paid for by ratepayers. Savings would be in the billions.

Amherst Island—Owl Capital of North America

 In the July/August 2003 copy of “Wildbird”, Kevin T. Karlson wrote this article “Owl Capital of North America.” and said “An occasional glance at these ‘owls in wonderland’ always brings a smile to my face.” The Owl Woods is the only place where it is possible to see ten species of owls in one day.

Amherst Island, 66 square kilometers in size, is situated west of Kingston along the northeastern shore of Lake Ontario close to the St. Lawrence River and considered a “Hidden Cultural Gem.” The island is the first of the world famous 1,000 islands based on the water flow. The permanent population of about 450 residents swells to over 1,000 during the summer months and attracts visitors from all over the world. People come to see the culture and history of a settlement dating back to the late 1700s by the Empire Loyalists and the Irish immigrants who followed. Many also come to see the birds as the island is on the IBAs (Important Bird Areas) list. Amherst Island is home to “as many as 34 different species at risk known to rely on the Island’s natural environment for survival.” including the threatened Blandings turtle.  

The foregoing paragraph should make the reader wonder exactly why, back in 2011 the Ontario Power Authority (OPA) granted the contract to a shell company (Windlectric) established by Algonquin Power & Utilities Corp. Subsequent to the contract award the Ministry of the Environment (MOE), since relabeled the Ministry of the Environment and Climate Change (MOECC), granted a Renewable Energy Approval (REA) with some modifications to the original contract.  One wonders why the REA was granted as Amherst Island was already designated as an IBA and known as the Owl Capital of North America.  Was it simply because the OPA (now merged with IESO [Independent Electricity System Operator]) gave them a contract, or was the MOECC unconcerned about the heritage of the island and the many species at risk?  

For over 10 years, residents of Amherst Island and their onshore supporters have battled proposals to blanket the Island with industrial wind turbines. The support received by APAI (Association to Protect Amherst Island) has been overwhelming coming from many different groups and individuals, including those who support wind power as renewable energy. Among them are Nature Canada and Ontario Nature who jointly wrote an 18-page letter to the Ministry of Environment and Climate Change in March, 2013. Their logical defence of wildlife had no effect on the outcome of the appeal to the Environmental Review Tribunal.

In fact, the decision of the Tribunal in August of 2015 was a major failure according to Nature Canada: “The Amherst decision is a reminder that we are missing adequate government policy that both promotes renewables in the right places while recognizing and protecting our key biodiversity areas including Canada’s nearly 600 Important Bird and Biodiversity Area (IBAs) such as Amherst Island and the South Shore of Prince Edward County.” 

Organizations as diverse as Heritage Canada The National Trust, Mohawks of the Bay of Quinte, Kingston Field Naturalists, the Dry Stone Wall Association of Ireland, BirdLife International, the Maryland Ornithological Society, the Hawk Migration Association of North America, Pennsylvania Ornithological Society, and Brereton Field Naturalists’ Club all oppose turbines on Amherst Island.

Economic impact

 The Windlectric project proposes 26 wind turbines with a capacity of 74.3 MW and according to the specifications, would be Siemens turbines each with a total height in excess of 500 feet with a hub height of about 330 feet and a blade radius of almost 180 feet. If they generate electricity at the anticipated norm of 30% of capacity, they will produce about 195,000 megawatts (MWh) intermittently and out of synch with Ontario demand. Windlectric will be paid $135 per/MWh plus cost of living benefits up to 20% more, so as much as $162 per/MWh in the latter years of their contract term. At an average of $140 per/MWh, the gross revenue to Windlectric will be $27.3 million annually, or about $550 million over the life of the contract.

Loyalist Township, where Amherst Island is located, was obligated to allow the Windlectric project to proceed because the Green Energy Act in 2009 stripped all municipalties’ local land use planning powers as regards an energy project. The best the township could do was reach agreement on a “Community Benefit Fund” for an annual payment of approximately $520K. Added to that will be realty taxes of around $240K. Ontario limits the assessed value of wind turbines to only $40K per MW. The assessed value of the 26 turbines will be less than $3 million, but their capital cost is over $200 million.

All-in, the township will get about $760K annually — 2.8% of the revenue to Windlectric. Obviously, the contributions Algonquin Power and other large renewable energy companies gave to the Ontario Liberal Party were worth the money.

So, Ontario has a “robust supply” of electricity, wind turbines will harm the 34 endangered species, and we are exporting surplus generation at pennies on the dollar while curtailing wind, spilling hydro and steaming off nuclear energy.   Ontario doesn’t need the intermittent power from the turbines on Amherst Island. We don’t need them in Prince Edward County either (White Pines) (or Dutton-Dunwich, or La Nation, or North Stormont). The Minister should demonstrate that he means what he said recently in North Bay:  “There are some families in this province that are struggling to meet their energy bills. It’s why I’ve recognized and the premier has recognized that we need to do more …That is why we’re making sure we can find ways to reduce bills. Everything is on the table within reason.”

The Minister has an opportunity to save ratepayers $1 billion dollars in future rate increases by simply canceling the Amherst Island Windlectric project and the Prince Edward County White Pines project, to name two.

He should take it.

Back room conversations at the Ontario Liberal Party?

With recent polling results in Ontario putting the Ontario Liberal Party in third place and almost 60% of those polled suggesting Premier Wynne should resign, we imagine there might be some hand-wringing going on among party executives and senior MPPs.

The following is my take on how one of the strategy sessions to plan for the upcoming 2018 election might go.

The players:

VB—President of the party

SG—Liberal strategists

GM—Environment Minister

GT—Energy Minister

PW—Premier

CS—Finance Minister

VB: OK, folks, I’ve called this meeting because we are down deep in all the polling results and we only have a little over a year to turn things around.  I felt after our last planning session the announcements by the Premier and the Energy Minister to drop the 8% provincial portion of the HST and the reduction offered to rural ratepayers would do the job.  That hasn’t happened and the media have kept presenting bad news stories about hydro rates despite those two actions.  We need to do more so I need some ideas!

SG: As I see it the start of the “cap and trade” tax sure hasn’t helped the parties image either, in spite of how we painted it as Ontario “leading the world in a climate change environment.”   We also got both the environmentalists and the Prime Minister himself to bless it!  The good thing though is the tax will pull in lots of money so we should think about how we can use it.  Just a warning Charles—you may have to be imaginative when you present the budget to show it coming to balance in 2018 and Glen—most of the funds won’t be at your disposal either! We need to get voters back on side in the urban centres now too.  We are looking weak in Ottawa, Windsor and even Toronto in a few ridings.   We have to get electricity costs off the front burner!  So, how?

GM: I’m OK with not getting a chunk of the money—we are so far ahead of everyone else on this issue.

GT: Well, as you suggest, the electricity sector is at the top of the list among voter’s concerns so we have to do something to show rates going down.  We have made some noises about looking at the distribution rates and can, to a certain extent, blame the municipalities who own the local distribution companies. Or, we could blame the OEB so maybe we should focus on getting those down?  Could we use some of the “cap and trade” tax for that purpose?

PW: We have kind of teased the media that we will use some new money for exactly that, looking for more ways we can get rates down so let’s do it.  Glenn, I am glad you followed through and got some of those old gas plants shut down as that should mean the electricity sector emissions will show a slight decrease, and let’s pray for no smog days in 2017 so we can brag about it.  It also makes it look like we know what we are doing!   One thing I should tell you though, Glenn: stay away from O’Leary. Your letter to him didn’t do so well in social media.  I probably shouldn’t have gone after him either, so from now on let’s just pretend he doesn’t exist!

Now Charles, how much do you think we can put towards getting those rates down, oh, and don’t forget, as soon as we are re-elected we can put the 8% right back on those electricity bills?

CS: I figure we can throw $1.2 to 1.3 billion into the Energy Ministry pot to help get rates down. It’s less than 1% of the budget.  Glenn and I figure it will get distribution rates down quite a bit—possibly as much as $300 a year for residential ratepayers.  That would be $25 per month and should win us back a bunch of those voters that are ticked off with us.  Even if we get, say, 1 million voters back, that will go a long way to bringing us another majority.   I’m pretty sure I can find a way to come up with what looks like a balanced budget for 2018 even without that money.  Thank God the economy is showing some signs of life as that is helping to push revenues up a little bit. Some of those recent fee increases for licenses, etc. also help, not to mention the HST tax on the cap and trade tax.

SG: OK, I think this plan makes sense so let’s keep our fingers crossed and make it happen.  We will help the Premier coordinate the news releases to make sure the media can’t do anything but praise her and the party.  Timing will be key so let’s keep this under wraps for a little while and just offer some snippets to give the sense that good news is coming.  Later this year we can deliver the goods!

VB: OK.  I agree with SG that this should be a major plank in our comeback bid and we can hopefully see those polling numbers change for the better.  I have a good feeling that we will be able to get those supporters back and come through the 2018 election with another majority.  This meeting is over!

END

 

Now we taxpayers and ratepayers can sit back and watch as the Ontario LIberals do what they continue to do before the next election, or we can push for real change to reduce the burden on households rather than simply watch the shell game unfold.

As Abraham Lincoln once said: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”

 

Surplus power: the other side of wind’s “success story”

Napanee gas plant: more flexible resources needed to offset intermittent wind -- trouble is, they also push emissions up
Napanee gas plant: more flexible resources needed to offset intermittent wind — trouble is, they also push emissions up

January 23, 2017

The Canadian Wind Energy Association (CanWEA) summarized their submission on Ontario’s long-term energy plan (LTEP) to the IESO on their website.  “Ontario is the Canadian leader in clean wind energy with 4,781 megawatts of installed capacity, supplying about 5 per cent of the electricity that Ontarians depend on,” CanWEA said. “Wind has been the largest source of new electricity generation across Canada over the past decade. Over this time, costs have come down as capacity factors have increased.”

Here’s the other side of that apparent success story. It’s not as rosy as CanWEA, the wind power industry lobbyist, would like you to believe.

The IESO just released the 2016 Electricity Data indicating industrial wind turbines (IWT) were responsible for the generation of 9.0 terawatts (TWh) of power, representing 6% of Ontario demand of 137 TWh.

What IESO doesn’t say about wind power generation, however, is annoying.  IWT generation in 2016 was actually10.7 TWh when DX (distributor connected) industrial-scale wind turbines or IWTs are included.  If the 2.2 TWh of “curtailed” wind is added, the bill to ratepayers was for 13 TWh.  The estimate of curtailed and DX wind comes from Scott Luft who does a remarkable job of tracking what is actually happening with generation.  IESO fails to disclose either curtailed or DX generation for whatever reason as they are the settlement agent for all generation in the province.

They have the data available to supply the public with those details.

Surplus baseload means possible grid failure

Not surprisingly IESO continue to run “stakeholder committees” that generate reports disclosing concerns about the intermittent and unreliable nature of wind (and solar), referencing it as “Variable Generation.” They note the production of Surplus Baseload Generation (SBG) which may cause grid failure leading to brownouts or blackouts. One of those reports from May 2016 noted: “SBG in ~65% of hours in 2015, even with 2 major nuclear outages” and “So far, SBG in ~88% of hours in 2016”.

Interestingly enough the current Minister of Energy, Glenn Thibeault on December 16, 2016 issued a directive to IESO instructing them to negotiate an exit from some of the NUG (non-utility generators) gas contracts labeled as “baseload” generators. IESO obeyed the directive as noted by my friend Scott Luft in his recent post “Ontario’s IESO steps off the gas”. We should suspect this action was not aimed at reducing SBG, but instead is aimed as trying to give credibility to the addition of the “cap and trade” tax that took effect January 1, 2017 by showing some negligible reduction in emissions.

The oxymoron in that is also to be found in a June 2016 IESO report titled: “Review of the Operability of the IESO-Controlled Grid to 2020” which suggested:

“We recommend enhancing the flexibility of Ontario supply resources to ensure that there are increased quantities of resources able to address the hour-ahead VG forecast inaccuracy, 95% of the time. This translates to needing ~1,000 MW of additional flexibility. The additional flexibility needs to be located in unconstrained parts of the system to ensure they can operate without restriction. Methods to enhance the flexibility of Ontario resources could include: increased utilization of existing resources, enabling simple cycle operation at combined cycle plants, or adding new peaking generation, grid energy storage or demand response resources. Methods chosen, which are expected to happen through open competitive processes, must ensure that they are cost effective and can meet expected operational duty requirements – given that these resources are required in the near-term to address reliability needs.”

Serious problems with wind

What IESO’s concerns and subsequent recommendations suggest is the variable and unpredictable nature of wind generation has created serious problems in the eyes of those entrusted to run Ontario’s electricity system.

So, here are the facts: power generation from wind cost Ontario’s ratepayers over $1.7 billion (approximately 12% of total generation costs) in 2016 for just over 6% of demand, and will cause ratepayers hydro bills to be further affected negatively.   IESO’s responsibility to manage the system through the exercises suggested in their recommendations will cost the system more money, increasing costs just to ensure industrial wind developments are able to extract money from the pockets of Ontario’s ratepayers.

The government of Ontario led by Premier Wynne will (in the near future) claim their actions on the electricity file were instrumental in reducing emissions, but here’s the thing: the flexible resources IESO seeks will push the emissions up again.

The trick is, that won’t be seen until after the 2018 election.