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

 

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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.”