IESO’s aim to be transparent reveals bad news for ratepayers

The Independent Electricity System Operator (IESO) is trying to become “transparent” as they now disclose consumption by the two classes* of Ontario ratepayers.  Along with consumption data they also disclose what each class, “A” and “B,” pay for the Global Adjustment (GA) component by month.

The Class A ratepayers were formerly customers with a peak demand greater than 5 MW, but that changed in June 2014 as noted in an IESO document:   “The change to the ICI expands Class A eligibility to customers with a peak demand greater than 3 MW and less than or equal to 5 MW.” (Class “B” is, basically, you.)

IESO disclosed that in the first six months of 2016, total Ontario consumption was 69.284 terawatts (TWh) with Class A consumption of 13.834 TWh (19.96%) and Class B consumption of 55.450 TWh (80,04%).  The total GA was $6.401 billion, and Class A customers paid 12.2% ($781.8 million) and Class B customers 87.8%  ($5.619.4 billion).

What that means: Class B customers subsidized Class A customers in the first six months of 2016 by picking up $496 million of the GA costs.

For the comparable period in 2015, total Ontario consumption was 70.823 TWh. In that six month period Class A consumption was 12.477 TWh (17.6%) and Class B was 58.346 TWh (82.4%).  The GA was $4.604 billion with Class A paying $441 million (9.58%) and Class B $4.163 billion (90.42%).  So, the Class B subsidy to support Class A industrials in 2015 was $369 million.

Use goes down, rates go up

It’s obvious: Class A consumption increased year over year by 1.357 TWh, whereas Class B consumption declined by 2.896 TWh. One would assume the almost 5% decline in consumption by Class B ratepayers would mean an upcoming decrease in the electricity rates come November 1, 2016.  Alas, a decrease does not appear to be on the horizon!

IESO also just released the June 2016 “Monthly Market Report” and on page 26 of the report they provide a six-month weighted average of the GA, hourly Ontario energy price (HOEP), transmission costs, etc., for the January 1st to June 30th period for Class B ratepayers.   The “weighted average” (removing the DRC or Debt Retirement Charge) per megawatt hour (MWh) is $127.79/MWH versus a weighted average for the first six months of 2015 of $111.92/MWh — resulting in an increase of $15.87 per MWh or 1.6 cents per kWh.  Not included in the above is any additional delivery costs as a result of rate increases for your local distribution company, including Hydro One who are currently seeking another increase, even though they received one in 2015 increasing their delivery rates.

A 14% jump year over year

The Class B increase is a 14.2% year over year jump in costs (for the electricity line only) paying for: contracted generation, conservation programs, curtailed generation, spilled hydro, export sales losses1.: etc. etc.  If the increase prevails for the next few months it will reflect itself in the OEB’s consistent and semi-annual announcments of rate increases (mid October). The anticipated increase will be paid by Class “B” ratepayers at an annual cost of $144.00 (plus HST) for the “average” ratepayer consuming 750 kWh per month and will start on November 1, 2016.

Effectively what the Ontario Liberal government has done is to create a subsidy for Class A ratepayers by picking the pockets of Class B ratepayers in order to protect jobs that might disappear if those large industrial companies decide to pack their bags and move elsewhere.

To sum up: Class B ratepayers are picking up “employment insurance” costs that might embarrass the Liberal government just like when Xstrada moved their refinery operations to Quebec back in 2010 due principally to high electricity costs. That caused the loss of 670 direct jobs and as many as 4,000 jobs, according to union groups.

The misguided focus of the Wynne government on unreliable and intermittent wind and solar generation has hit Class B ratepayers particularly hard, and calls on Ontario’s low and middle income taxpayers to pick up the subsidy cost to retain jobs while simultaneously creating more energy poverty.

It’s time to stop the train before Ontario goes over the cliff!

© Parker Gallant,

August 1, 2016

 

* Effective January 1, 2011, an amendment to Ontario Regulation 429/04 established two classes of consumers: Class A consumers, with average monthly demand greater than 5 MW, and Class B consumers.

  1. Net exports for June 2016 were 1,054,080 MWh and generated revenue of $19.7 million at the average HOEP of $18.69/MWh but cost ratepayers $140.36/MWh meaning the cost to ratepayers for those net exports was $148.3 million creating a loss of $128.2 million for the month.

 

Ontario’s costly electricity conservation program slams customers

On April 14, 2016 the Ontario Energy Board (OEB) issued a notice that electricity rates would rise effective May 1, 2016. The OEB also announced that they redefined “average” consumption for residential customers.

The explanation for the rising rates was that Ontarians hadn’t consumed enough electricity during the winter months, so the OEB needed to recover the cost of what we didn’t use.   Sure sounds like conservation planning failed to realize that a reduction in consumption would result in …  lower consumption!

The OEB told us the average residential ratepayer now consumes 750 kilowatts (kWh) monthly, a drop of 5.2% (.74% per annum since 2009) or 50 kWh per month. That’s a change from the previous 800 kWh (9.6 megawatt hours/MWh annually) set in 2009. The OEB report went on to claim it all had something to do with the former Minister of Energy’s “Conservation First” vision.

The OEB’s report stated, “According to the IESO, conservation efforts achieved 1,184 GWh of cumulative energy savings among residential customers from 2011 to 2014.”   The 1,184 GW would suggest a savings of about 250 MW of capacity producing at 54% of rated capacity.  The estimated levelized cost of electricity (LCOE) from a combined cycle gas plant of that size is about $200 million according to the U.S. Energy Information Administration. That’s a far cry from the cost to Ontario ratepayers.

With approximately 4.9 million household connected to the grid in Ontario, the reduction of 50 kWh per month suggests a drop in demand of 2,940 GWh (gigawatt hours), or close to three times what the OEB claim. The remaining 1,756 GWh drop is ignored.

If we look at the “Minister’s Message” conveyed in the referenced Conservation First document from December 2015, one of Mr. Chiarelli’s messages was:  “Ontario has already made great strides in reducing electricity use. From 2005 to 2011, families and businesses across this province conserved enough to reduce demand by more than 1,900 megawatts, the equivalent of powering more than 600,000 homes. Investments in conservation allowed Ontario to avoid building new capacity that would have cost almost $4 billion, equivalent to four peaking natural gas generation plants.”

To put the foregoing message in context, 600,000 homes (at that time) would consume 5.7 million MWh (megawatt hours), meaning the 1,900 MW he refers to would only produce power at 34.2% of rated capacity. The 1,900 MW referenced by the former Minister, Bob Chiarelli, running at 100% of capacity could produce 16,644,000 MWh.  If they produced 5.7 million MWh, their capacity value would be 34.2% of capacity, which coincidently is about what the newer models of industrial wind turbines (IWT) are expected to produce annually.

It is perhaps also coincidental that about 1,200 MW of intermittent, unreliable power generation from wind was added to the Ontario grid from 2005 to 2011. If those 1,200 MW generated at only 30% of their capacity the cost to Ontario ratepayers is about $419 million annually, and $8.4 billion over 20 years.

Another claim in the Conservation First document was: “Between 2006 and 2011, investing $2 billion in conservation ($333 million annually) allowed Ontario to avoid more than $4 billion in new supply costs.” That math is really simple: $2 billion divided by 6 [years] = $333 million annually.

Another interesting sidebar found in “Conservation First” is this: “Since 1990, average household electricity consumption has declined by almost 25 per cent, representing about $350 in savings each year for the average household, based on current electricity costs.” 

Why the ministry picked 1990 is a mystery; it’s actually embarrassing! To explain, the following comes from a 2005 report prepared for the OPA: “Usage per household (intensity) fell from 12,474 kWh annually in 1990 to 10,445 kWh per year in 2003 (870 kWh per month).”

To put that into context, the decline in annual average household consumption for that period was 16.3% or 1.2% per annum, but former Energy Minister Bob Chiarelli actually brags about a 5.2% drop or a .74% annual decline.

Use less power, pay more: it’s Ontario

Needless to say, the latter decline hit ratepayers’ pocketbooks much harder than the bigger decline (1990 to 2003) and one would be hard pressed to defend the claim about $350 in savings each year, made in Conservation First. Unless, that is, you note the statement at the end of the claim which says “based on current electricity costs”.  Even then, the claim is not defensible!

What one should take from all this is that the money spent to convince us to conserve since the Ontario Liberal government came into power in 2003 has not achieved that claim or the one suggesting“for every $1 invested in energy efficiency, Ontario has avoided about $2 in costs to the electricity system.”

With that in mind one should ask, why would the average 1990 annual consumption of 12,474 kWh have cost $536.38 in 2002 (OEB Historical pricing) and in 2016 cost $1,564.50 (including HST of $179.99) for just the electricity?

If you consumed 9,000 kWh in 2016 (the new “average”) you are paying $1,128.80 (includes $129.80 for HST) annually for just the electricity!

To sum up: the Ontario Power Authority contracted for 1,200 MW of IWT capacity from 2005 to 2011 adding $400 million annually in generation costs, almost 2,000 MW of solar adding $1.3 billion in annual generation costs (generating at 15% of capacity), $2 billion on energy conservation programs ($333 million annually) and $2 billion on smart meters to allow imposition of time-of-use pricing.

Conservation spending, renewables boost electricity bills

Over those six years, increased ratepayer commodity costs were driven by adding intermittent and unreliable renewable capacity and conservation spending, collectively totalling $2 billion annually (not including smart meter spending) representing an increase of $461.00 (includes $53.00 HST) per annum per average household.

Since 2011 additional contracted renewables and conservation spending have further driven up the costs despite reduced consumption of 27.8% (3,474 kWh) since 1990 and the cost of electricity still went up.

Reduced consumption increased the “average” bill 110.4% or $592.42 since 2003 — not the $350.00 savings.

(c) Parker Gallant

July 27, 2016

 

Open letter to Energy Minister Thibeault

This post first appeared on Wind Concerns Ontario’s website, at windconcernsontario.ca

While concerns about Ontario’s electricity bills mount, with families increasingly finding it hard to pay the “hydro bills,” Ontario’s new Energy minister revealed in a Global TV interview that he doesn’t know that the situation is a crisis … in fact, he doesn’t know much about the entire portfolio. Here’s a fact: wind power in Ontario is less than 5% of the power supply, yet accounts for 20% of the bills. And, Ontario is exporting huge amounts of power while paying wind power generators to “constrain” production.

Parker Gallant this week sent a letter to the new Energy Minister Glen Thibeault, with an earnest offer to help, as a private citizen.

The Honourable Glen Thibeault, Minister of Energy,

Legislative Building, Queen’s Park, Toronto ON, M7A 1A1

Dear Minister Thibeault:

I was intrigued with your interview by Shirlee Engel of Global National and your humble admission that you still have much to learn about the portfolio that Premier Wynne handed you.   Just to somewhat set your mind at ease I have been observing the Ministry of Energy and its complexities for six years and I too, on occasion, have doubts of my knowledge and understanding of the sector.

One thing I noted during the interview was your responses were not always factual perhaps reflecting your belief that your predecessors or the Ministry staff were, and still are, always correct. For example, you answered one of the questions on electricity rates by saying our “rates will rise 1.7% over the next 15 years”.

You may or may not be aware that when George Smitherman held the “energy” portfolio and shortly after he introduced Bill 150, the Green Energy and Green Economy Act (GEA), he appeared before the Standing Committee on General Government in 2009 and said this:

“We anticipate about 1% per year of additional rate increase associated with the bill’s implementation over the next 15 years.”

The Ontario Energy Board (OEB) says the “average” rate as of May 1, 2009 for electricity alone was 6.07 cents per kilowatt hour (kWh) and today, the OEB reports the “average” rate seven years later, as of May 1, 2016 was 12.10 cents/kWh. The increase of 6.03 cents/kWh is a 99.3% increase — not the Smitherman forecast of 7% for that period.   In respect to delivery costs, Hydro One’s have increased by over 100% since 2009, and all of those increases were approved by the OEB.

Your predecessor Minister Chiarelli also made predictions. A year ago in an interview with the Windsor Star he said, “Rates are going to continue to go up everywhere. There was a blip in rate pressures because of the investments that we made, but starting in 2016 that will be flatlined very significantly.”

The electricity rate actually increased by 10% since his prediction …

Read the full letter here: Open letter to Energy Minister Thibeault July 2016

How Ontario is walloping business

This article first appeared August 2015 in The Financial Post.

Over the past several months there has been a constant din of noise from all business segments in Ontario about the high price of electricity and its effects. Electricity prices have risen as they have absorbed the high costs of 20-year contracts for renewable energy in the form of wind and solar as additions to Ontario’s electricity grid. Ontario currently has a huge surplus which results in as much as 20 per cent of our generation exported at fire sale prices. Couple that with a drop in demand, annual spending of $400 million on conservation messages, smart meters that allow time of use (TOU) pricing and the Hydro One, OPG and other Ministry of Energy employees enjoying wages and benefits that outstrip the private sector means electricity bills for all segments of businesses and households are now a drain on the economy versus an attraction for new business and the jobs they might create.

The foregoing recently manifested itself in a report from the Ontario Chamber of Commerce entitled: “Empowering Ontario: Constraining Costs and Staying Competitive in the Electricity Market.” The report stated soaring electricity prices would cause one (1) in 20 Ontario businesses to shut their doors within the next 5 years. The report didn’t suggest how much electricity those 5 per cent of businesses consume or how many jobs would be lost but it should represent a concern to the ruling Liberal Party of Ontario. Should the scenario play out it would also result in a revenue drop for generators, transmitters and local distribution companies. Due to how the electricity sector operates in Ontario a revenue drop results in rate increases to all remaining Ontario businesses and residential households.

The Chamber was not the first to note the problems with high electricity costs, as the Association of Major Power Consumers of Ontario (AMPCO) raised its concerns in a May 2015 release of its “Power Market Outlook” and the president was quoted in the media referencing large Ontario industrial concerns: “Not only are they paying very high costs for the commodity but they’re paying some of the highest delivery rates … so it’s not just a commodity cost problem, it’s not just a renewable energy or coal phase-out problem.”

The above concerns were expressed despite the fact AMPCO members qualify as “Class A” ratepayers, meaning they get a break on their rates as part of the Global Adjustment which finds its way to residential and small businesses (Class B ratepayers) who subsidize the reduction of Class A rates.

A mid June 2015 C. D. Howe study, noted: “Class B consumers are paying more in GA charges so that Class A consumers can pay less. The panel estimates that the new GA formula resulted in Class A consumers paying $422 million less in 2012 than they would have paid under the former formula. From a policy perspective, the relevant question is – is society better off?”

The Canadian Federation of Independent Business (CFIB) also expressed its concern in relation to electricity prices on “small businesses” in April, noting: “The situation for many small business owners is dire, said CFIB’s Ontario vice president Plamen Petkov. The advocacy group, which represents 42,000 small and medium-sized business, has been asking the provincial government to provide relief for businesses for years.”

The Canadian Manufacturers and Exporters in their January 29, 2015 “pre-budget” report submitted to the ruling Wynne led Ontario government also expressed concern about electricity rates:

“Competitive electricity rates are fundamental to the success of Ontario’s manufacturing sector and our economy. Despite progressive reforms including the demand based allocation of the global adjustment for large volume users, Ontario has among the highest electricity rates in North America.”

The CME further stated: “The only path forward for Ontario is to adopt a manufacturing action plan with an industrial/electricity rate as a core component.”

Another association referencing the cost of electricity to their activities is the Ontario Mining Association which on May 11, 2015 reported: “Jurisdictions with higher mining tax rates have lower electricity prices and government cost-sharing on infrastructure. A recent report indicates that exploration and mining costs are particularly inflated in the North, where companies need to invest in lacking, but essential infrastructure such as ports, power plants, winter and permanent roads, and accommodation facilities.”

And the Ontario Forest Industries Association in its January 9 [2015] pre-budget submission to the Ontario government noted: “As a primary resource industry, forestry is an energy-intensive and trade exposed sector. The government has introduced a number of programs that have provided some relief from the steady rise in electricity pricing. However, given the government’s own projections in the recent Long Term Energy Plan these benefits are quickly being erased, along with the small competitive advantage they bring.”