Hydro One latest financials look positive — until you look beneath the surface

Lots of “spin” in a recent news release. 2019 doesn’t look so rosy

On February 21, 2019 Hydro One issued a press release announcing their fourth quarter and year-end 2018 results.

The market shrugged.

That was in spite of the spin of the release titled “Hydro One Reports Positive Fourth Quarter Results”. Some media reports echoed the Hydro One press release without, I presume, looking at the financial statements.

Because if one were to examine their results for the quarter, it is obvious why the market shrugged. Revenue (net of purchased power) was up by $41 million (5.3%) due to higher demand for electricity for the transmission (up 2.5%) and distribution (up 3.2%) businesses. Offsetting the increased demand and related revenue, was a year over year $64 million increase (26.2%) in OMA (operations maintenance and administration) costs for the comparable 2017 quarter.

The jump in after-tax net income to $162 million from$155 million, attributable to shareholders, was up $7 million or 4.5%. However, if it hadn’t been for a huge drop in income taxes (from $38 million in 2017 to only $1 million in 2018’s fourth quarter), Hydro One’s results would have been upsetting to shareholders.

If Hydro One had taken the hit related to the “termination fee” (US$ 103 million) payable to Avista shareholders on the failed acquisition of that company, Hydro One would have reported a loss for the quarter. This is based on Note 4 which stated: “On February 1, 2019, Hydro One entered into a credit agreement for a $170 million unsecured demand operating credit facility (Demand Facility) for the purpose of funding the payment of the termination fee payable to Avista Corporation as a result of the termination of the Merger Agreement and other Merger related costs.”

The first Quarter results of 2019 will presumably reflect the unaccounted-for cost of the termination fee.

While year-over-year results report a favourable trend with revenues (net of purchased power) up 6.5% or $204 million, it was mainly driven by higher demand for distribution customers (revenue up 2.1 %) and higher peak demand for transmission clients (revenue up 11.1%).  If Hydro One had taken the Avista “termination fee” hit of $170 million, net income for shareholders would have been below 2017’s reported $658 million instead of the $778 million (up 18.2%) claimed for 2018.  It’s all about the spin!

Needless to say, scanning the notes to the financial statement indicates Hydro One received rate application approvals from the OEB (Ontario Energy Board) that will affect both their distribution and transmission customers on a go-forward basis. Additional rate applications await rulings from the OEB.

It would appear Hydro One may well experience a decline in profitability in 2019 due to the $170 million Avista termination fee. Additionally, the possibility of reduced demand may surface as ratepayers will not see a repeat of the 25% Fair Hydro Act’s deferral which may have played a role in increased consumption.

We shouldn’t expect the Ford government to deliver the other 12% reduction promised leading up to their election in June 2018 as their accomplishments so far, on this file, have been quite disappointing. They failed to cancel wind and solar contracts that will impact future rate increases.

It appears the former Hydro One CEO has impacted shareholders and possibly ratepayers considerably more than the “Six-Million-Dollar” cost suggested by Premier Ford. While the current Hydro One’s Board of Directors has agreed to restrict the pay to a new CEO to a maximum of $1.5 million per annum it would take 35 years to recoup just the Avista termination costs. An unlikely event!

An ongoing concern is the possible effect on ratepayers, should Hydro One submit a request for a rate increase to the OEB (Ontario Energy Board) to cover the above Avista termination fee and other (already expensed) related costs for the boondoggle.

Ratepayers should hope — and expect — the Minister responsible (Greg Rickford) will issue a clear directive to the OEB instructing them to not grant a rate increase to cover those costs! He should do that despite the province still being a 47% shareholder of Hydro One.

PARKER GALLANT

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Dalton McGuinty: ex-premier “Dad” is still preaching

A shorter version of this article appeared in The Financial Post on March 7, 2019.

Mr. McGuinty’s energy policies brought higher electricity bills and industrialized rural communities with wind turbines–not everyone was happy.

Dalton McGuinty is back, but did he ever really go away?

Former Ontario Premier, Dalton McGuinty has recently reappeared in public. He has launched a university lecture tour with the theme “Climate Change: Can We Win This? Be Honest”. He has already addressed audiences at University of Toronto, Queens and more recently at the University of Windsor. He is scheduled to appear at Western University in March.

Having resigned in disgrace as Ontario’s Premier in October 2012 due to the gas plant scandal, McGuinty has kept a very low profile since. Perhaps he now feels Ontarians have forgotten not only that affair but all the other bad policies he brought us. Those other policies included the promise of no tax increase which was followed by the imposition of a health tax, the Green Energy and Green Economy Act (GEA), which resulted in Ontario having the highest electricity prices in Canada and a doubling of Ontario’s debt. There were others.

McGuinty was recently honoured by a Liberal colleague, Ottawa Mayor, Jim Watson who promised him the “key to the city” in 2019. Mayor Watson of course held various cabinet positions in the McGuinty government before abandoning the ship to return to Ottawa.

Mr. McGuinty’s seminars demonstrate he is still a firm believer in “climate change” and is convinced he and the province’s taxpayers should do more. In a CTV Windsor news report, he is quoted as saying that while current Premier Doug Ford is fighting the carbon tax,: “we should embrace it” because “it is the most effective and efficient way to demonstrate a commitment to addressing climate change”.

He must view taxpayers as bottomless pits with surplus cash.

Not only has McGuinty re-entered public view, he has also accepted appointments as a director to several corporations. He is on the Boards of Innergex Renewable Energy Inc, Pomerleau Inc., and Electrovaya Inc. He also became a lobbyist for Desire2Learn as well as being appointed “a special advisor”.

The latter two companies; Desire2Learn and Electrovaya both received substantial Government of Ontario grants during McGuinty’s time in office as the Premier. Desire2Learn were awarded a $4.25 Million Grant from the Government of Ontario in January 2011 and Ekectrovaya received their $17 million dollar Grant in August 2009. Desire2Learn also received $3 million from the education ministry. In 2014 McGuinty was caught red-handed trying to lobby on behalf of Desie2Learn to certain members of the Wynne led government and was forced to register as a lobbyist.

While Innergex Renewable Energy Inc. is a Canadian company it is headquartered in Montreal and depends on Ontario for only 6% of its revenue. Its asset base in Ontario consists of one solar generation unit of  33.2 MW and three small hydro generation units totaling 36 MW. Its unclear what Ontario’s former premier brings to their Board of directors unless they were seeking a politician of his ilk.

Pomerleau Inc is a private Quebec headquartered civil works and building company and it appears McGuinty joined them as a member of their Board of Directors in the early part of 2016. They have been quite successful at winning contracts in Ontario including those with Provincial funding. A large waste water treatment plant in Kingston was one such win. A report to Kingston Council October 5, 2010 contained the following: “The funded portion, as per the agreement, was reviewed with respect to the award of contract to Pomerleau Ontario Inc. and was considered to fairly represent the defined works. The total projected budget for the engineering and construction remains within the $116,325,000 approved budget envelope, which includes electrical co-generation, on-site biosolids storage, staff costs and allowances for furnishings and equipment to be purchased outside the construction contract.” And: “In June 2005, the Province of Ontario announced project funding of $25,000,000.”

There are more interesting connections: former Mayor of Kingston, John Gerretsen, who served in the McGuinty Cabinet and Gerretsen’s son was Kingston’s Mayor from 2010-2014 and is now an MP In the Justin Trudeau Liberal government. Pomerleau is working with SNC-Lavalin and other companies on the first “Infrastructure Bank” investment in respect to the $6.3 billion Montreal REM project. As reported, “Construction on the project is already underway. SNC-Lavalin, Dragados Canada, Inc., Aecon Group Inc., Pomerleau Inc. and EBC Inc. were all part of the winning consortium and broke ground on the project in April.” As the SNC-Lavalin Federal controversy unfolds it will be interesting to see what eventually happens to this project.

On April 7, 2017 Dalton McGuinty, joined the Electrovaya Board of Directors. At that time Electrovaya was being investigated by the Ontario Securities Commission (OSC). In the OSC Proceedings one finds the following: “Between May and September 2016, Electrovaya issued five news releases that announced significant new business relationships in unbalanced terms. Electrovaya also did not disclose in its MD&A that revenue estimates announced in two previously announced commercial arrangements would not be realized.”

Just over two months later the OSC reached an agreement requiring Electrovaya Inc.’s CEO to pay a $250K penalty over OSC disclosure violations as noted in the Financial Post on June 30, 2017. Is it possible Electrovaya’s new Board Member played a role in getting their CEO and the OSC to reach that agreement?

Clearly Mr. McGuinty has value to those companies he handed out grants to, and perhaps they saw the value he could add to their business if appointed as a member of their board or as an “advisor”. One might assume he is being rewarded monetarily for both his board/advisory positions and for those speaking engagements. The former appears to be the case as the December 31, 2017 Annual Information Form for Innergex Renewable Energy discloses that Mr. McGuinty is the holder of 8,505 Deferred Share Units with a current value of approximately $121,000.

Mr. McGuinty is presenting himself to the younger generation and university audiences as a father and grandfather who is simply interested in preserving the environment and influencing positive climate change. Many Ontarians however, will recognize him for the damage his Premiership created both in terms of making the province the most indebted sub-national government in the world as well as the province decimated with industrial wind turbines and solar panels causing electricity prices to be among the highest in North America.

PARKER GALLANT

 

P.S. The resignation of Gerald Butts from the PMO February 18, 2019 is noteworthy also for his role in both getting the Ontario Liberals elected in 2003 and for setting their policies: “Butts largely wrote the platform McGuinty successfully campaigned on during the 2003 Ontario election. It contained more than 100 promises, including pledges to cancel proposed tax cuts and increase social spending. It was also heavy on environmental protection: McGuinty promised incentives for renewable energy, and to phase out Ontario’s coal-fired power plants.”

 

Ben Chin and Gerry Butts: we’ve seen this show before

After watching and reading the former Attorney General’s testimony before the House of Commons Justice Committee, Yogi Berra’s famous quote “it’s deja vu all over again” immediately came to mind. The former AG, Jody Wilson-Raybould (JWR) in the 30 minutes of her opening remarks mentioned two names: Ben Chin (seven times) and Gerry Butts (five times).

For the benefit of those who didn’t follow Ontario politics during the McGuinty/Wynne era, it’s worth pointing out both Gerry Butts and Ben Chin played significant roles in Ontario, especially the ill-fated electricity file.

Butts is credited as the mastermind behind Dalton McGuinty’s election as Ontario’s Premier: Butts was, according to the Toronto Star, “the man they call ‘the brains behind the operation’ and policy architect of the Liberal government since 2003.”

Butts left the McGuinty government in mid-2008, after he and the Ontario Liberal team set the stage for the Green Energy Act, by pushing for renewable wind and solar projects and to close coal plants. Butts went off to lead the WWF (World Wildlife Fund) for four years before joining Justin Trudeau as his political advisor. As we now know, Butts was the director leading the “drama teacher” Justin Trudeau, to a win as Canada’s Prime Minister.

Ben Chin, engaged as a “political advisor” to Dalton McGuinty, was the McGuinty candidate chosen to run against the NDP’s Peter Tabuns in a byelection in 2006. Chin lost, but returned as a “senior advisor” to Premier McGuinty’s office where he again worked with Gerry Butts. Chin left for the private sector and a short while later was hired back as Vice President Communications for the OPA (Ontario Power Authority). The OPA was the creation of Dwight Duncan when he was McGuinty’s Minister of Energy and became the Crown corporation to enact the myriad of things mired in the Green Energy & Green Economy Act (GEA).

Chin later became embroiled in the “gas plant” scandal as the Premier’s principal contact with the negotiating team dealing with TransCanada et al on compensation issues related to the cancellation. Ontario’s ratepayers know how that turned out! While Chin occupied his position with the OPA, Tom Adams and I were investigating the gas plant scandal by reviewing thousands of documents. Tom and I uncovered interesting details in exchanges between him and a political staffer in the Energy Ministry headed up, at that time, by Brad Duguid.

The following reveals some of our findings in an article I wrote about the “smart grid” and a Brad Duguid directive.

Co-incidentally (noted by Tom Adams), the Duguid directive is dated the same day as the e-mail exchange between Alicia Johnston (formerly a senior political staffer for Energy Minister Brad Duguid, later promoted to the Premier’s Office) and Ben Chin (a senior Ontario Power Authority executive).  That e-mail exchange contained Ms Johnston’s suggestion to engage Tyler Hamilton, a contributor to Toronto Star, as an “expert” to counter the Adams and Gallant duo who “are killing me”; Chin agreed. Shortly after, Hamilton received a contract from the Independent Electricity System Operator (IESO) for a report on the smart grid.

The spin emanating from the Prime Minister’s Office (PMO) and the Prime Minister himself is not all that different than what we were hearing several years ago during the gas plant scandals days. The following is one such quote from the mouth of the former Premier of Ontario, Dalton McGuinty when queried as to the costs of the gas plants move: “I am waiting for the day when somebody says, ‘Actually it’s $400 trillion,’ because, as I say, ‘If Elvis says it, I’ve got to print it.’ What was the latest number? $1.3 billion? Do I hear 1.7? When are we going to get to 2.8? It’s kind of an interesting game . . . In total we are talking a $230-­million cost.”

Those two unelected individuals (Butts and Chin) originally involved in the Ontario electricity muddle now find themselves named as two (out of eleven) of the bullies pressuring JWR to grant SNC-Lavalin a DPA (deferred prosecution agreement). In the case of the GEA and the gas plant scandal it took much longer to surface in the public eye than the current SNC/JWR scandal so it would appear the Chin/Butts team has lost some of the spin abilities they displayed in the past. Not to usurp of malign the mainstream media, the following are a few excerpts from the JWR testimony related to Ben Chin and Gerald (Gerry) Butts.

The Chin former AG dialogue:

“Two days later, on September the sixth, one of the first communications about the DPA was received from outside of my department. Ben Chin, Minister Morneau’s chief of staff, emailed my chief of staff and they arranged to talk. He wanted to talk about SNC and what we could do, if anything, to address this. He said to her, my chief, that if they don’t get a DPA, they will leave Montreal and it’s the Quebec election right now so we can’t have that happen. He said that they have a big meeting coming up on Tuesday and that this bad news may go public.

And:

“A follow-up conversation between Ben Chin and a member of my staff, Francois Giroux, occurred on Sept. 11.Mr. Chin said that SNC had been informed that the PPS — or by the PPSC — that it cannot enter into a DPA, and Ben again detailed the reasons why they were told that they were not getting a DPA. Mr. Chin also noted that SNC legal counsel, Frank Iacobucci, and further detailed what the terms were that SNC was prepared to agree to, stating that they viewed this as part of a negotiation.” And:

To be clear, up to this point, I had not been directly contacted by the prime minister, officials in the prime minister’s office or the Privy Council Office about this matter. With the exception of Mr. Chin’s discussions, the focus of communications had been internal to the Department of Justice.”

And:

On Sept. 20, my chief of staff had phone calls with Mr. Chin and Justin To, both members of the minister of finance’s office, about DPAs and SNC.”

The Butts former AG dialogue:

“On Dec. 5, 2018, I met with Gerry Butts. We had both sought out this meeting. I wanted just to speak about a number of things, including bringing up SNC and the barrage of people hounding me and my staff. Towards the end of our meeting, which was in the Chateau Laurier, I raised how I needed everybody to stop talking to me about SNC, as I had made up my mind and the engagements were inappropriate. Gerry then took over the conversation and said how we need a solution on the SNC stuff. He said I needed to find a solution. I said no and I referenced the preliminary inquiry and the judicial review. I said further that I gave the clerk the only appropriate solution that could have happened and that was the letter idea that was not taken up. Gerry talked to me about how the statute was a statute passed by Harper and that he does not like the law. I said something like that is the law that we have.”

And:

“On Dec. 18, 2018, my chief of staff was urgently summoned to a meeting with Gerry Butts and Katie Telford to discuss SNC. They wanted to know where I — me — am at in terms of finding a solution. They told her that they felt like the issue is getting worse and that I was not doing anything. They referenced a possible call with the prime minister and the clerk the next day.”

And the foregoing led to this:

“I will now read to you a transcript of the most relevant sections of a text conversation between my chief of staff and I almost immediately after that meeting.

Jessica: Basically, they want a solution, nothing new. They want external counsel retained to give you an opinion on whether you can review the DPP’s decision here and whether you should, in this case. I told them that would be interference. Gerry said: “Jess, there is no solution here that does not involve some interference.” At least they are finally being honest about what they’re asking you to do. Don’t care about the PPSC’s independence. Katie was like, “We don’t want to debate legalities anymore.” They keep being like, we aren’t lawyers, but there has to be some solution here. MOJAG — I text — so where were things left, Jessica? Jessica: So unclear. I said, what? Of course, let you know about the conversation, and they said that they were going to kick the tires with a few people on this tonight. The clerk was waiting outside when I left, but they said that they want to set up a call between you and the prime minister and the clerk tomorrow. I said that of course, you’d be happy to speak to your boss. They seem quite keen on the idea of you retaining an ex-Supreme Court of Canada judge to get advice on this. Katie Telford thinks it gives us cover in the business community and the legal community and that it would allow the prime minister to say we were doing something. She was like, “If Jody is nervous, we would, of course, line up all kinds of people to write op-eds saying that what she is doing is proper.”

The foregoing highlights the unmitigated gall of two unelected individuals who, for whatever reason, see themselves as “king makers” much as they did for the McGuinty government in Ontario. Presumably they reasoned, it worked once so we will try it again.

The voters and believers of democracy in Canada should be grateful for the intestinal fortitude displayed by Jody Wilson-Raybould!

PARKER GALLANT

P.S. If the reader would like to see the damage done to Ontario in respect to the electricity sector my 2012 writings over 10 Chapters referenced as “Electricity and the Liberals Hansard History” Chapter 1 through 10 can be found on the WCO website: http://www.windconcernsontario.ca/?s=ELECTRICITY+AND+THE+LIBERALS+HANSARD+HISTORY%2C+CHAPTER

Bugs, biomass and carbon tax: the confusing world of climate initiatives

Did this guy wreck our forest carbon sink? Tax it! [Photo: Purdue University]
Trying to understand the various issues surrounding “climate change” and the upcoming federal carbon/pollution tax or provincial cap and trade programs can be confusing when trying to research why they are being imposed.

It gets more confusing when you try to figure out, are Canada’s forests, a carbon sink or a carbon emitter?

A CBC article from a few years ago claimed forests absorb a third (2.4 billion tonnes a year) of the world’s C02 emissions. The CBC reported the study was “by an international team of government and university researchers published Wednesday in Science” and quoted a scientist “with  Natural Resources Canada’s Canadian Forest Service” who co-authored the paper. The article said “the study found that the amount of carbon absorbed annually by Canadian forests from 2000 to 2007 was about half the amount they absorbed annually from 1990 to 1999.” That was because trees killed by forest fires and by insects such as mountain pine beetle were no longer taking in carbon.

Fast forward to a recent CBC article which had this to say: “When you add up both the absorption and emissions, Canada’s forests haven’t been a net carbon sink since 2001.” The article goes on to claim our “managed forests” do absorb some emissions but: “our forestry practices would only negate roughly three to four per cent of our greenhouse-gas output each year.” And,  “In 2015, largely due to raging wildfires, these forests kicked a whopping 237 more megatonnes of carbon dioxide into the atmosphere than they absorbed. But when you exclude natural disturbances like fires and insect infestations and look only at the areas directly impacted by human forestry activity, the picture changes.”  The picture, as far as this article suggests, changes slightly suggesting we “have been a net sink of roughly 26 megatonnes annually since 2001.”

Pretty small potatoes considering Canada possesses about 12.5% of the world’s forests, second to Russia with 20%.  Russia claims its forests are a carbon sink, absorbing between 300 to 600 million tonnes of emissions annually. Russia has not signed on to the Paris Agreement so it’s not obligated to do what the UNFCCC tells them they should do, unlike Canada!

An interesting aspect of forests affected by the mountain pine beetle and other invasive species is related to those dead or dying trees. Those dead or dying trees are used to make wood pellets or biomass. Much of the manufactured biomass is exported to countries around the world and used for home heating and/or for generating electricity. Wood pellet exports from Canada and the U.S. for 2018 were projected to reach 2.4 million tonnes from Canada and 6.2 million tonnes from the U.S., as noted by Canadian Biomass, the media partner of the Wood Pellet Association of Canada.  The industrial pelletizing process uses energy to create the end product by using: a grinder, a rotary drum dryer, a magnetic separator, a ring die pellet maker and finally a counter flow cooler.  Needless to say, these actions create greenhouse gas emissions and are (or will become) subject to a “pollution tax.” The wood pellets are then transported by cargo ships burning diesel oil to destinations across the Pacific and Atlantic oceans.

For importers, the pellets reaching their destination oftentimes translate to ROCs (Renewable Obligation Certificates) or “carbon credits” as they do for the Drax Power Station in the U.K.  Reference to Drax and those ROCs can be found in an article by the writer where Drax is described as:  “It has a capacity of 3,906 megawatts (MW) and produces around 20 terawatt-hours (TWh) of power a year, 65% or more using compressed wood pellets, a form of sustainably sourced biomass.” Drax receives an ROC for each MWh (megawatt hour) it generates using those imported wood pellets which they can then sell to “carbon emitters.”

Needless to say, those ROCs generate considerable income for Drax while we here in Canada pay for the emissions created by those wood pellets manufactured in Canada.

Are you confused yet? There’s more.

The energy created using biomass emits 150% the CO2 of coal, and 300 to 400% the CO2 of natural gas, per unit of energy produced.  Apparently that concept is blessed by the UNIPCC: “The Intergovernmental Panel on Climate Change (IPCC) also says that biomass can only be considered carbon neutral if all land use impacts have been considered first.”  It is noteworthy that “Around half of the EU’s target for providing 20% of energy from renewable sources by 2020 will be made up by biomass energy from sources such as wood, waste and agricultural crops and residues, according to EU member states’ national action plans.” The article goes on to state: “Wood makes up the bulk of this target and is counted by the EU as ‘carbon neutral’, giving it access to subsidies, feed-in tariffs and electricity premiums at national level.”

An opinion by the European Environment Agency’s Scientific Committee  argued that “legislation that encourages substitution of fossil fuels by bioenergy, irrespective of the biomass source, may even result in increased carbon emissions – thereby accelerating global warming.”

So, bearing the above in mind, why do our politicians, ENGOs, and the UNIPCC want to tax us Canadians when others are receiving “emission credits” for using our deadwood?

Clean Energy BC in a posting on their website says: “Biomass generation, pursued on a sustainable basis, is endorsed by Greenpeace, the Sierra Club, and the David Suzuki Foundation.”  Hmm, one wonders if it occurred to these ENGO that supporting biomass might actually accelerate global warming? Would they also endorse the use of “dung” as an energy source?  An article on “energypedia” claimed “More than 2 billion people across the planet burn dried animal dung for energy.”  Is that where our politicians and those ENGOs such as Greenpeace, the Sierra Club and the David Suzuki Foundation want to take us?

Perhaps our politicians can examine how they could tax the “lighting storms” causing the forest fires, the wood boring pine beetle, the emerald ash borer and the fungus responsible for Dutch elm disease instead of us environmentally aware taxpayers!  That might (temporarily) get us off the path to energy regression they and their supporters seem determined to put us on.

PARKER GALLANT

Just released 2018 electricity data: are things finally looking up in Ontario?

Why ‘down’ is actually ‘up’ in topsy-turvy Ontario

Last month, the Independent Electricity System Operator (IESO) released the grid-connected 2018 Electricity Data. Under the “Price” heading the IESO said this: “The total cost of power for Class B consumers, representing the combined effect of the HOEP [2.43 cents/kWh] and the GA [9.07cents/kWh] was 11.50 cents/kWh”.

In 2017, that combined price was 11.55 cents/kWh, so there has been a slight decline. That slight decline represents an annual savings to the average household consuming 9,000 kWh per annum of—wait for it—$5.00.

If Bob Chiarelli was still Minister of Energy, he would probably suggest you could now purchase two “Timmies” with that much money!

The price drop isn’t very much but, the question is, how or why did the average price drop?

Ontario’s overall consumption in 2018 increased from 2017 by 5.3 TWh (terawatt hours) or 4%.  In 2017 the IESO reported grid-connected consumption was 132.1 TWh and in 2017 it increased to 137.4 TWh.  This is increase is a “good thing.” Here’s why:

  • Curtailed (paid for but not used) wind power fell by 1.207 TWh, which saved around $145 million!
  • Nuclear maneuvers (steam-off) or shutdowns declined by 791 GWh (gigawatt hours) and saved approximately $60 million.
  • Net exports (exports less imports) also fell by 2.318 TWh and, combined with the higher HOEP average for the year, saved ratepayers approximately $320 million.
  • Foregone hydro generation was probably lower as the first three quarters reported by OPG show it dropped from 4.5 TWh to 2.4 TWh (down 2.1 TWh). That saved around $90 million.

Taken together, that $615 million ratepayers had to absorb in 2017 comes to much more than Class B residential ratepayers benefited in 2018. There are only 4,665,000 of them so total net savings was only about $25 million.* Other Class B ratepayers presumably received some very minor benefits, too.

The reason these benefits were not more is because additional costs were levied in 2018, absorbing most of the remaining $590 million. The Ontario Energy Board approved large rate increases for OPG for the regulated hydro and nuclear generation segments.  The rates for the latter rose substantially and will also increase further in 2019 and 2020 before falling back in 2021 as the OEB used their power to attempt to “smooth” the nuclear refurbishment costs over several years.

Despite the fact that increased consumption in 2018 helped to, ever so slightly, reduce costs, the IESO continued their efforts to get us to reduce consumption by spending upwards of $350 million on conservation programs.

Why?

The small price drop for Class B ratepayers turns the economic law of “supply and demand” which is: increased demand will increase prices.  Somehow that law works in reverse in Ontario’s electricity sector!

Enjoy your two extra “Timmies” this year!

PARKER GALLANT

*These savings have nothing to do with the 25% reduction under the Fair Hydro Act which eliminated the 8% provincial portion of the HST and provides a 17% reduction for residential ratepayers. The FHA amortized assets over a longer timeframe than normal in the rest of the electricity generation world.

What (and who) is the Ecofiscal Commission (Part III)?

People in Ontario have seen some of this before … it didn’t end well

Part one in this series dealt with the creation of the Ecofiscal Commission and had a short review of its commissioners (economists), advisors and funders. Part Two looked at the Chris Ragan/TVO interview with Steve Paikin and several of the claims made by Mr. Ragan, Chair of the Commission.

Today, I deal with the significant influence the Ecofiscal Commission and its economists/commissioners have had in respect to the Pan-Canadian Framework and various government documents created in support of “pricing carbon pollution”.  The Pan-Canadian Framework gives special mention to “Canada’s Ecofiscal Commission” in a call-out on page 7: “Carbon pricing is the most practical and cost‑effective way to lower GHG emissions while encouraging low‑carbon innovation — Canada’s Ecofiscal Commission”.  The only other non-government credit handed out is to the World Bank.  That alone speaks volumes about Ecofiscal’s influence!

Chris Ragan’s influence was obvious in his appearance at the Standing Committee on Environment and Sustainable Development November 1, 2018 where he dazzled them! In his presentation he suggested: “The proposed federal backstop is also a quite well-designed policy,” and went on to say: “there are two main challenges that you need to address. One is the impact on business competitiveness. The second is the impact on household purchasing power.” He also claimed “you can however, design policies in a way that address those challenges head-on” and “This is the output-based pricing element of the federal backstop”.

(Mr. Ragan’s views on this echo what Ontarians were told when the Green Energy and Economy Act was presented. Consumers, both residential and businesses, would become innovative in order to reduce the use of electricity. We know how that worked out!)

The questions posed to Ragan were gentle and he handled them with conviction. Ragan answered one question by saying: “I am not an expert on the number of tonnes we have to go, basically because that’s not our focus.” Huh?

One of the issues ignored by the media in respect to the Pan-Canadian Framework is how it is really more than just “pricing carbon pollution” via the carbon tax. It also established “clean fuel standards” which “would promote the use of clean technology and lower carbon fuels, and promote alternatives such as electricity, biogas, and hydrogen.”  Additionally, the federal government will establish a “methane regulation” and “energy efficiency/building code amendments”.  Along with that array of additional costs for businesses and households in Canada, the government would be able to purchase foreign “carbon offsets” using our tax dollars.  In effect, the Pan-Canadian Framework adopted by the First Ministers of the 10 provinces and three territories on March 3, 2016, referred to as the “Vancouver Declaration on Clean Growth and Climate Change,” created as many as five ways Canada’s taxpayers and businesses will be hit with costs.

On October 3, 2016, Environment and Climate Change Canada issued a press release containing a quote from Minister McKenna stating: “Pricing pollution is one of the most efficient ways to reduce greenhouse gas emissions and to stimulate innovation. Already 80 percent of Canadians live in a province where there is pollution pricing. We want to continue this trend and cover the final 20 percent.”

As most people now know, that 80 percent has fallen significantly with the election of the Ford government in Ontario and is likely to fall further pending the outcome of the upcoming Alberta election.

Needless to say, the Environment and Climate Change Ministry put out several documents to augment their views and the wonders of “pollution pricing” in driving down emissions. One of those documents was referenced as “Estimated impacts of the Federal Carbon Pollution Pricing System”.  Canada’s Ecofiscal Commission is touted for its recommendations and is cited three times in the “Endnotes”. 

One of the ENGOs, the Pembina Institute, also gets two nods in the Endnotes, one of which states:

“Pollution from coal power plants results in health issues that cost the health care system over $800 million annually, according to a study performed by the Pembina Institute in 2014.” Now in yet another Pembina Report a year earlier they had this claim: “According to the analysis, climate change impacts from coal-fired power range from $1.1 to 4.5 billion annually.”

Pick a number, any number, seems to be the theme, so politicians and ministry officials apparently do nothing to confirm what they are told!

The Ecofiscal Commission is also to be an intervenor in the Ontario Court of Appeal in respect to “the matter dealing with the Greenhouse Gas Pollution Pricing Act (GGPPA)”. Their “Factum” was handled by none other than Stewart Elgie, a professor of law and economics at the University of Ottawa, and director of the University’s interdisciplinary Environment Institute and founder of Ecojustice. The latter is also scheduled to be an intervenor. The factum clearly indicates Ecofiscal’s support for the Federal carbon tax and makes this assertion under 12 (a) of the factum: “The use of price-based regulation minimizes the costs to provincial economies — saving an estimated $70 billion per year across Canada, compared to prescriptive regulations, based on the CEC’s economic modeling.”

The suggested $70 billion seems like a stretch but perhaps as the bulk of the commissioners in Ecofiscal are quasi-government employees perhaps they are confident that the annual costs would be 225% more than the combined 2018 budgets of both Saskatchewan and Manitoba. Perhaps they are trying to make the case that by 2022 the carbon tax priced at $50/tonne will only extract $35 billion (based on Canada’s 2016 emissions of 704,000 tonnes). Their argument apparently is that we would be saving $35 billion annually by simply accepting their “economic modeling.” As a former banker, I have trouble buying into their suggestion.

As an Ontarian, It is hard for me to believe this is anything more than our experience from the creation of the Green Energy and Green Economy Act (GEA). It even includes some of the players involved in that fiasco via the GEAA (Green Energy Act Alliance) whose goal was: “to make Ontario a global leader in clean, renewable energy and conservation, creating thousands of jobs, economic prosperity, energy security, and climate protection.” The GEAA basically wrote the GEA for the McGuinty government.

We all know how that turned out!

PARKER GALLANT

Who (and what) is the Ecofiscal Commission? Part II

A closer look at one of the commissioners’ claims

As noted in “Part One” of this series, the Ecofiscal Commission’s Chair, Chris Ragan, was interviewed on the Agenda by Steve Paikin in respect to the push for a carbon tax. The program title was “Losing Ground on Carbon Pricing” which, according to Ragan, shouldn’t happen, so he sprinkled his parsimonious answers with selected information that omitted facts.

The following highlights a few questions posed and Ragan’s answers. Please note for brevity’s sake I have only included the main thrust of the question and the pertinent part of the response.

  1. Are you losing ground in the battle for public opinion?
  2. I think on one side of the debate there is not very good information, maybe even misinformation in some cases. I think the other side really doesn’t want to debate or explain.

It appears Commissioner Ragan is satisfied the science is settled despite some “good information” from the “other side” such as, “There are several claims that large numbers of scientists do not agree with the theory of climate change, the best known of which is a petition organized by the Oregon Institute of Science and Medicine (the OISM petition). This petition now appears to be signed by over 32,000 people with a BSc or higher qualification.” Is it Mr. Ragan who suffers from “misinformation”?

  1. Is carbon pricing really a necessary tool to fight climate change?
  2. A. I would argue carbon pricing does work. I think the evidence, whether its from British Columbia or the UK or other countries that have introduced these, including, and the State of California, carbon pricing does reduce emissions.

Let’s examine Mr. Ragan’s claims:

British Columbia:                                                                                                                                                       Mr. Ragan’s arguments in respect to British Columbia are a big stretch.

B.C.’s Carbon Footprint Grows as a very recent article suggests: “The carbon footprint of British Columbia is growing and has been growing for the last eight years despite a strong environmentalist lobby, the latest provincial government data suggests.” The article goes on to state: “British Columbia had a target of cutting carbon emissions by 33 percent from 2007 levels to 2020. However, the new figures reveal the province has only succeeded in cutting emissions by 2.2 percent from 2007 levels, which means the 2020 target will be pretty much unattainable unless a radical change in driving habits takes place.” Transportation is a major emitter in BC and a recent announcement by the NDP/Green government recently stated: “By 2040, all new light-duty car and truck sales in British Columbia will be zero-emission vehicles (ZEV).” B.C. has the highest per capita rate of EV in the county with 12,000 registered, representing a penetration rate of less than 1/2 % according to Statcan.

California:                                                                                                                                                                     The foregoing is not much different if one looks at the State of California where an article from six months ago suggested: “Emissions from cars and other light-duty vehicles in 2016 hovered near the 2008 level of 118 million metric tons of carbon dioxide or its equivalent. Truck emissions continued to decline at a rate insufficient to make up for the added tailpipe pollution.”

If one goes further and examines other events in California one notes from an article in the SF Chronicle: “solar electricity generation, both from rooftop arrays and large power plants, grew 33 percent in 2016, according to the air board. Imports of hydroelectric power jumped 39 percent as rains returned to the West following years of drought.” So, importing hydro power allows California to claim they are reducing emissions while transportation emissions have remained at or near 2008 levels. In California’s case if one also looks at electricity prices it is interesting to compare electricity prices and note: San Francisco residential electricity prices were 27.95 cents/kwh versus 7.13 cents/kwh in Quebec.

Another important fact; California imports about a quarter of its electricity on average and much of that is emissions-free hydro. This is not information Economist/Commissioner Ragan brandishes as it flies in the face of his claims. The Chronicle article notes: “And while California has aggressively supported electric cars, only about 200,000 are registered in the state. “We have not made progress on transportation,” Borenstein said. “We’ve made negative progress.” In contrast, efforts to slash emissions from power plants have been far more successful, and are running well ahead of schedule.” As of December 31, 2017 there were 25,467,663 automobiles registered in California so EV represented less than 1% of all automobiles registered in the state.

UK:                                                                                                                                                                                          If one quickly glances at the UK statistics on emission reduction it appears they have been successful at leading the way amongst most European countries.  On closer examination however much of their achievements can be attributed to either reducing coal generation, adding gas plants or converting some coal plants to biomass. The Drax Power Station is one large example of the latter.  “Drax Power Station is the biggest renewable generator in the UK and the largest decarbonization project in Europe.” “It has a capacity of 3,906 megawatts (MW) and produces around 20 terawatt-hours (TWh) of power a year, 65% or more using compressed wood pellets, a form of sustainably sourced biomass. The remainder is produced using coal, a fossil fuel being phased out by 2025.” And “Drax Power Station supplies 6% of the country’s electricity needs, including 11% of its renewable power. Four of its six power generation units have been upgraded from burning coal to use biomass.” An article from 2014 by the writer examined the conversion process to biomass and the eventual consumption of wood pellets (7 million tons annually) produced in the southern US and elsewhere and shipped to a port in the UK for destination to the DRAX Power Station. The energy created will generate emissions 150% of a coal plant and 300% of a gas plant but are classified as “renewable” energy. That means each megawatt hour created will generate a “carbon credit” to be sold via the ETS (European Emission Trading Scheme). It’s a “double whammy” counted towards reducing emissions.

The electricity generating sector has been a driver in reducing UK emissions. In a report for 2017 year-end from the UK government they note: “Reductions in carbon dioxide emissions in the energy supply sector down 7.6 per cent (8.7 MtCO2e) driven by a decrease in power station emissions. The main reason for this fall is the switch in the fuel mix for electricity generation from coal and gas to renewables.“

It appears the “evidence” offered by Mr. Ragan is not factually related to carbon pricing — unless he views the UK’s biomass generation as representing an event caused by “carbon pricing” and not from “carbon credits” for a plant now generating 50% more emissions than when operating as a coal plant!

 

  1. If you’re are taking with this hand and giving back with this hand and it’s a wash, why would I change my behaviour?
  2. Because it’s not a wash at the end of the day in terms of what you do. It’s a wash in terms of your purchasing power. The whole logic is to maintain your purchasing power but because gasoline and other carbon-intensive things are now more expensive you do things differently. [Ragan goes on to say] It’s their choice and that flexibility is the key for why carbon price is the lowest cost way.

What economist/commissioner Ragan doesn’t say is the obvious. Ragan suggests the plan should be to return all of the “carbon tax” so we can change our purchasing habits. The plan announced by the federal government suggests 80% of households will receive rebates in excess of their cost.  The question becomes: will they use the slight excess to trade in their automobile for an EV or change their gas furnace to one consuming wood pellets?  Unlikely on both counts, as the excess received, as an example, in Ontario in 2022 when the carbon tax is $50/tonne the excess per household will be $133.00 for the full year.  Most of that excess will be paid back to the government via the sales taxes applied to both the gasoline we use for our cars and the natural gas we use to heat our homes*.  Households will see the cost of all consumption rise as food, services, toiletries, etc. etc. will increase based on carbon taxes charged to the raw material/assemblers/transporters of those products/services.   By 2022, when the $50/tonne is in place the cost to Ontario’s households and businesses will be in excess of $8 billion based on 2016 provincial emissions of 161 MT but the amount returned to households will be about half that amount.

  1. What about subsidizing fossil fuels, what we do to the tune of $1 billion per year?
  2. We as a country do not have explicit fossil fuel subsidies.

Finally, Ragan provides one honest answer!

PARKER GALLANT

Coming tomorrow: Part 3 will look at the influence the Ecofiscal Commission had in the creation of the Carbon Tax.

*Over 6 million Canadian (43%) households heat their homes with natural gas.