Ontario’s class distinction stings ordinary hydro customers

Electricity bill-payers are subsidizing business to the tune of over $1 billion, every year

 In early 2010, then Minister of Energy Brad Duguid issued a directive to the OPA (Ontario Power Authority) instructing them to create and deliver an “industrial energy efficiency program” specifically for large transmission connected (TX) ratepayers.

That directive led to the creation of the two classes of ratepayers that now exist in Ontario.

Originally, Class A ratepayers were only the largest industrial clients (TX) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new distinction in January 2011, Class A clients have evolved further under Energy Ministers Chiarelli and Thibeault, to allow those with peak demand exceeding 500 kilowatts (kW) per hour.

That move leave the great unwashed “B” Class – you and me — to pick up the subsidy costs for  Ontario’s larger employers. The concern was (is) that those companies without subsidies might exit the province and take their jobs with them.

The algorithm that determines what a Class A customer pays is related to how successful they are at picking the top five hours of Ontario’s peak demand. The “A” class companies who fire up their own generators (usually natural gas) or close their plants/operations down and reduce demand on Ontario’s generation sources during the five highest peak-demand hours over the 12 months, will get the biggest discount.

The focus on “conservation” during those hours carries the political hope of achieving “peak” demand reduction.  The theory is the reduction should result in reduced need for new generation.*

While that goal may have been the intent, at the same time Ministers Duguid, Chiarelli and Thibeault were (are!) giving orders to contract for more and more renewable wind and solar contracts to the point where the “market price” or HOEP (Hourly Ontario Electricity price) continued a slow descent due to surplus generation.   The HOEP in May 2017 achieved a new low of $3.17 per MWh or 32/100th of 1 cent/kWh. In June 2008, it was $62.30/MWh.

Both classes of ratepayer equally pick up the full cost of the HOEP on a per kWh basis!

With the focus on the cost shift of the ratepayer classes tied to the GA (Global Adjustment), the higher the latter the greater the cost shift.   The addition of so many more businesses to the Class A group simply amplified the cross-class subsidy!

For an example of the growth in the dollar value of that shift, let’s look at some June numbers, now that IESO has released the June 2017 summary report.

The first year the B to A shift happened was in 2011: for June of that year the GA was $423.1 million and Class A ratepayers picked up $46 million of that cost. Unfortunately, IESO did not start disclosing the consumption by ratepayer class until 2015, so it is not possible to determine what percentage of the GA was being paid by Class A versus Class B ratepayers.

The June 2015 IESO webpage discloses consumption of 11.004 terawatt hours** (TWh) with Class A consumption of 2.061 TWh (23%), and GA paid by Class A ratepayers of $90.4 million. That’s 9.6% out of total GA costs of $943.1 million.  So, Class B ratepayers picked up $126.5 million to subsidize Class A ratepayers that month.  That translates to a GA cost per kWh for Class A of 4.4 cents versus 9.5 cents for Class B ratepayers. HOEP for June 2015 was $15.31/MWh!

IESO discloses total consumption of 11.509 TWh for June 2016 with Class A consumption of 2.308 TWh (20.05%). The GA for Class A was $121.6 million out of GA costs of $995.3 million. Had the GA been allocated on the 20.05% Class A consumption, they would have paid $200.4 million meaning Class B ratepayers subsidies were $78.8 million for the month.  HOEP for that month was $20.17.

June 2017 total consumption was 11.617 TWh, of which 2.482 TWh (21.36%) was for Class A ratepayers. The Class A GA totaled $137.9 million, but if they had been allocated the 21.36% of their consumption on the GA of $1.208.8 billion instead of the 11.4%, they would have paid $258.2 million.  Class B ratepayers provided a subsidy of $120.3 million.

The 5,055,000 (2015 OEB Yearbook of distributors) Class B ratepayers in the province each picked up an average of $23.80 of subsidy costs for June 2017.

If that becomes the norm, those ratepayers will pony up around $1.4 billion annually. 

Back before former Energy Minister Duguid issued his directive, the Association of Major Power Consumers of Ontario, the Ontario Chamber of Commerce, and the Canadian Federation of Independent Business were lamenting the rising costs of electricity in Ontario. Some companies left the province due to costs, so it was inevitable the Ontario Liberal government would finally hear their pleas for relief.  The result? The creation of the two rate classes.

In effect, the creation of the two rate classes and the subsidy shift from Class B to Class A ratepayers should be labeled “employment insurance” as it was needed to simply retain jobs in jeopardy because many companies were threatening to leave the province due to high uncompetitive electricity rates.

Why can’t our Energy Ministers come to the realization they should cease contracting for new, unreliable and intermittent wind and solar generation that produces power out of phase with demand?

*   The claim by the government is that by not contracting for new capital investment in generation, we ratepayers save future rate increases

**1 terawatt is equal to 1 billion kilowatts

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Definition of the Global Adjustment: confusing

February 20, 2017

Can it be that even the Minister of Energy (at the time) didn't understand it?
Can it be that even the Minister of Energy (at the time) didn’t understand it?

The term “Global Adjustment” (GA) made its appearance on certain electricity bills on January 2011 and created confusion among those with a “retail” contract. (Previously, there had been a line item called the Provincial Benefit.)   The definition of “global” is “relating to the whole world” and “adjustment” is “alter slightly” — no wonder people are confused!

Brad Duguid was the Minister of Energy at the time of the name change which occurred the same time the Ontario Clean Energy Benefit (OCEB) began.  The OCEB followed the addition of the 8% provincial portion of the HST on hydro bills, along with start of the ICI (see below) and people were receiving bills with shocking increases.

At the same time as the name changed to GA from Provincial Benefit, the way billing occurred for ratepayers with peak capacity over 5 MW (large industrial companies) also started, providing a subsidy from other provincial ratepayers, and was called the Industrial Conservation Initiative (ICI).

In 2016 the GA represented $12.333 billion. On its own the GA, if it were a Ministry, would rank as third highest in provincial expenditures.

The Wynne government seems to have noticed this expenditure and its effect on households and businesses. CTV News on February 14, 2017 reported: “Senior officials told CTV Toronto that the plan will likely target the global adjustment fee, which fluctuates based on per-kilowatt-hour cost, and makes up approximately 85 per cent of the cost of electricity.

The news report went on to say, “The fee was introduced in 2005, to help the province pay for new power plants as well as for investments in new energy projects. Now the government is considering spreading out payment over a longer period.”

That statement is obviously incorrect: it is Ontario’s ratepayers who pay for investments in new power plants and new energy projects. Spreading payment over a longer period is unacceptable as “amortization” (estimating the life span of the plants and projects) is a predetermined factor and unlikely to be changed.  That is why the Darlington nuclear plants are being refurbished.

Clarifying the GA

Now if one is looking for a simple explanation of what the GA is, Steve Aplin of Canadian Energy Issues defines it:  “It is simply a price recovery mechanism. It is the difference between the price the government promised any particular electricity generating company and the “market” price of electricity.”

The IESO (Independent Electricity System Operator) describes it as “This charge accounts for the differences between the market price and the rates paid to regulated and contracted generators and for conservation and demand management programs.”

On the surface the “GA”sounds simple unless you get the definition from some politicians or even some bureaucrats within the Ontario Ministry of Energy.  Following are a couple of excerpts from the “Standing Committee on Estimates, Energy Ministry on October 6, 2015”.   Then Minister Bob Chiarelli and his Deputy Minister, Mr. Serge Imbrogno were asked about the GA.

Hon. Bob Chiarelli: “—independently verified by the Ontario Energy Board, and it’s part of the all-in electricity price. Without the global adjustment, generators across Ontario would be unable to produce power. My understanding is that the global adjustment actually was initiated by the Conservative government when they were in office. I’ll turn it over—”

Mr. Serge Imbrogno: “I’ll be quick. The regulation price plan is calculated by the OEB. The OEB hires—I think they’ve had Navigant, in the past, to do the calculation. Partly it’s what’s in the global adjustment; partly it’s that they have a variance account, depending on if they collected too much or too little during the year. So it’s a calculation that the OEB makes. We don’t have that information to share with you at this point.”

Could it be that the two most senior people in the Ministry of Energy— where the GA was conceived — were unable to provide even a simple response? And the Minister himself was unaware it was his government that created the GA?

Premier thoughts

The September 2016 Speech from the Throne declared: “Since 2011, the Industrial Conservation Initiative has encouraged large electricity users — primarily large industrial customers — to take on-site steps to shift consumption away from peak periods and lower their electricity costs by up to one third. To benefit more businesses, your government will expand eligibility for the Industrial Conservation Initiative by lowering the threshold for participation and broadening participation to all sectors.”

What that means for Ontario’s households and the many small and medium sized businesses is pretty simple: the cost of subsidizing larger businesses will go up, meaning that benefit you may have received from the 8% reduction to your electricity bill will be wiped out.

Metro News Toronto, on December 19, 2016 quoted Premier Wynne about the issue of putting the GA on hydro bills. “I think being as transparent on bills as possible is a really good objective, but my challenge is greater than that,” she said in a year-end interview with The Canadian Press. “It’s not just about breaking out the number on the bill, it’s actually figuring out how to reduce that number.”

Perhaps the Premier should concentrate on getting herself and her cabinet to understand what the composition of the $12.333 billion that constitutes the Global Adjustment is before she tries to figure out how to reduce it!

NEXT: a calculation of the partial makeup of the $12.333 billion in the 2016 GA.

How did we get here? A review of ministerial remarks on electricity prices in Ontario

January 5, 2017

With Ontario’s lead in energy prices in Canada and the fastest rising consumer rates in North America, it is perhaps worth a review of a few of the ministerial comments that got us to this point.

Rates will rise 1% because of the GEA

George Smitherman, Minister of Energy and Infrastructure from June 2008 to November 2009 told the Standing Committee on General Government in April 2009: “We anticipate about 1% per year of additional rate increase associated with the bill’s implementation over the next 15 years.”  In May 2009 the “average” rate was 6.07 cents per kilowatt hour (kWh) (not including delivery or HST). By May 2016, the “average” rate had increased to 11.1 cents/kWh, an increase of 82.9% in 7 years.  The comparable costs of generation from IESO’s Monthly Summaries for the May 2009 to May 2016 comparisons grew by 84.9%.  Looks like the forecast missed the mark by a bit.

Conservation will save you money

Back in July 2013 a press release from Minister Bob Chiarelli credits him with this quote: “By investing in conservation before new generation, where cost-effective, we can save ratepayers money”. At that point, average rates were 8.4 cents/kWh — in just three years they increased 32.1%. IESO’s monthly summaries indicate the cost of generation rose 26.4% in the same time-frame.  Since 2012, consumption has fallen by 4.3 terawatts (TWh) on enough to provide 475,000 average Ontario households with power for a full year.  Conservation hasn’t shown it will “save ratepayers money.”

Moving a gas plant is less than the price of a Tim Horton’s coffee                                                                                                          

Another from former Energy Minister Bob Chiarelli who, when asked about the Oakville gas plant move was quick to suggest, “It’s less than a cup of Tim Horton’s coffee a year.” for the average ratepayer over 20 years. He made this dismissive comment to the Legislature Justice Committee investigating the move. What it meant was the waste of $1.1 billion dollars of taxpayer/ratepayer money; the Minister’s comment is a reflection of the regard the Ontario Liberal government has for the average hardworking Ontarian.

It's nothing, Chiarelli said of a $1.1B scandal
It’s nothing, Chiarelli said of a $1.1B scandal

The Ontario Auditor General not informed?                                                                                                  

Bob Chiarelli again: when the Auditor General’s report in late 2014 on  smart meters was released suggesting the program was over-budget and under-effective  Minister Chiarelli said, “Why are my numbers more credible than hers?” He went on to say: “Electricity is very complex, is very difficult to understand. Some of our senior managers, in discussing these issues with some of the representatives from the auditor general’s office, had the feeling they didn’t understand some of the elements of it.”  As it turned out Auditor General, Bonnie Lysyk worked for Manitoba Hydro for 10 years so probably knew more about the electricity sector than the Minister.

Municipal authority is a non-starter                                                                                                                      Oh dear: Mr. Chiarelli, again. In May 2013 Bob Chiarelli said “Municipalities will be given a much bigger say in where or if renewable energy projects are located”.  His remarks were well received by many municipalities and in the case of Dutton Dunwich council a survey they engaged in allowed them to declare 84% of their residents were against industrial wind developments.  So what? The will of the people was ignored and a contract for a $250-million wind power project was granted anyway.  The minister’s comments appear to have been a pretense that rural Ontario had been given authority to accept or reject contracts.

Industrial Wind Turbines granted special realty tax status                                                              

When Dwight Duncan was Minister of Finance it appears he bowed to lobbying efforts by trade association Canadian Wind Energy Association or CanWEA members who may have been concerned they would be required to pay significant municipal taxes should MPAC assess IWT at actual value!  He accordingly issued a direction to MPAC (Municipal Property Assessment Corporation) to assess industrial wind turbines (IWT) at only $40,000 per megawatt (MW). That means, not only did municipal governments have no say in allowing IWT in their jurisdiction, but were also to receive nominal realty taxes from their presence.

Transparently opaque                                                                                                                        Premier Wynne in early March 2014 introduced the Accountability Act and had this to say to the Legislature:  “I came into this office just over a year ago saying that I was going to do government differently, that we were going to open up and be more transparent.”  Now should you have the urge to seek specific information from the Energy Ministry, which this writer frequently does, what you receive back is a homily that starts out with “you have reached out to us” followed by the promise they will get back to you. If and when the response comes, it generally dodges the question(s) and simply repeats the spin in the press release you are inquiring about.

Electricity exports are profitable                                                                                                                We have consistently heard about how profitable our exports of electricity are from the various Energy Ministers in place over the past decade. Former Minister Chiarelli’s claim we made $6 billion was debunked, but the claims continue.  The profits were claimed by former Premier Dalton McGuinty, Brad Duguid when Minister of Energy, and even a senior officer with IESO.  The Auditor General noted the following in the 2015 report:  “Since power is exported at prices below what generators are paid, and curtailed generators are still paid even when they are not producing energy, both of these options are costly. From 2009 to 2014, Ontario had to pay generators $339 million for curtailing 11.9 million MWh of surplus electricity.”  This continues today, at a much higher rate!

High electricity prices a “mistake”                                                                                                            

When Premier Wynne spoke to the 850 members who attended the Ontario Liberal Convention on November 19, 2016 she told the delegates her “government made a mistake” by allowing rates to soar. Apparently Premier Wynne doesn’t pay her electricity bills and didn’t notice since she was elected leader of the Ontario Liberal Party January 26, 2013 to the date of her recent speech, rates charged to residential ratepayers increased 38%.  She also missed the fact that IESO in their monthly summary of December 2012 reported the cost of power generated was 8.89 cents/kWh and the October 31, 2016 summary reported it had climbed to 13.49 cents/kWh — an increase of almost 52%.

 

The last word is mine 

I challenge anyone to make the claim that “planning” or a “cost/benefit” analysis ever played a role in Ontario reaching our current state of claiming the title of “highest cost” electricity in Canada or “fastest rising” in North America!   The design pursued by the various energy ministers occupying the portfolio since the current government gained the reins of power in Ontario demonstrate clearly, they failed to consider the fate of Ontario households, along with the impact on jobs. Instead, they listened to the cadre of environmental NGOs and corporations that benefit from subsidies provided by the ratepayers.

                                               

Question for Minister Thibeault: how does buying power we don’t need save us $70 million?

OPEN LETTER to Minister of Energy Glenn Thibeault 

December 16, 2016

Dear Minister Thibeault:

As a concerned citizen of our wonderful province I do my best to stay up on current events.   In that regard I recently noted Ontario Premier Wynne and Quebec Premier Couillard attended the official signing of “the historic electricity trade agreement between Hydro-Québec and the Independent Electricity System Operator of Ontario (IESO).”

It appears you also attended the signing and had a quote recorded on the press release: “By importing 2 terawatt hours of clean electricity, enough to power the City of Kitchener for a year, Ontario will reduce carbon emissions and system costs by $70 million.”

I read that and wondered how importing 2 TWh of electricity from Hydro-Québec would save “system” costs by $70 million? It just didn’t ring true based on the math I was taught and have used throughout my lifetime. I pondered your comment for a while and then I wondered if statements of that standard are simply inherited with the portfolio.

Thinking back I recalled several which left me and many others scratching their heads. What if I give you a simple test by asking if you know which energy minister uttered the following. The answers can be found on page 2 but don’t peek until you have at least guessed.

Here they are in no particular order. From Energy ministers:

  1. “Conservation is the cleanest and least costly energy resource, and offers consumers a means to reduce their electricity bills.”
  2. “I think most in the industry would expect that the rates will likely go down, but we’re confident we’ll do that in a way that maintains confidence in the investment climate in Ontario”
  3. The same energy minister in 2. above also said: “When you put in the new meter you find out the previous meter wasn’t billing and working properly. So the new meter is bringing bills up to date and is more accurate.”
  4. We anticipate about 1% per year of additional rate increase associated with the bill’s implementation over the next 15 years.”
  5. “if you change your behaviour, if you use less carbon emitting products you are actually going to see your bill reduced”

Now, reverting to your December 15, 2016 quote I hope you were aware that in 2015 Ontario exported 22.6 TWh of electricity to our neighbours because it was surplus to our needs!  According to the IESO (a signatory to the above agreement) and an earlier release from your ministry we have a “robust supply” of electricity that will last us for a decade.  I checked out current IESO data and determined that, up to the end of October 31, 2016, Ontario has exported 18.33 TWh of surplus electricity.  The average “sale price” of those 18.33 TWh was $16.04 million per TWh but it cost ratepayers $112.26 million per TWh according to IESO.

In simple math terms we were billed $2,057.7 million for the 18.33 TWh and sold it for $294 million — meaning it cost ratepayers $1,763.7 million or about $360.00 per ratepayer …  and we still have two months left in the year to account for.

Importing two (2) more TWh will simply add to our surplus generation meaning we will either have to export it at a big loss or; curtail wind, spill hydro or steam-off Bruce Nuclear. What we are looking at here is similar to “Dutch Disease” but in reverse.

I hope you understand the math better than your predecessor(s) and you are able to provide me, and many others with a plausible explanation as to exactly how importing 2 more TWh from Hydro Quebec will save $70 million in system costs?   Were you aware that in the past five years (2011-2015) Ontario has imported 18.9 TWh (per IESO) from Quebec or an average of 3.78 TWh annually.  That begs the question—what is so special about the additional 2 TWh we will be importing in the future?

OK, now is the time to let you know which Minister of Energy was behind the quotes on the first page.

  1. The first one was a Minister Bob Chiarelli quote from his “Conservation first” Long-Term Energy Plan in 2013.
  2. This was a Minister Brad Duguid quote from Reuters November 24, 2010 when he was telling them the rates for “green power” were going to go down.
  3. This one was a Brad Duguid quote from the Toronto Star November 16, 2010 when he was attempting to explain why electricity rates went up again.
  4. This particular quote was from George Smitherman when he sat in the Energy Minister’s chair and was ushering in the Green Energy and Green Economy Act.   He said this to the committee hearings members about the GEA.
  5. I assume you guessed this one as it was you on December 9, 2016 as you were interviewed on Global TV and asked a question about how the “cap and trade” bill would affect heating bills. From my perspective your response was perhaps rushed or you were badly prepped by your staff in the ministry. The reason I would suggest the foregoing is if you look back in time you will note your predecessors all look pretty dumb!   When you review events that unfolded after their quotes they have been proven to be very wrong. History will undoubtedly prove you to be wrong like your predecessors.

Another issue for you is the query about why gas bills won’t disclose the “cap and trade” levy when it takes effect.   When questioned as to why the information would not appear on gas bills you stated that the OEB acts “independently” and your ministry doesn’t give them directions!Just to remind you, one of the first things you did when you took over the energy portfolio was to issue a directive (June 27, 2016) to the Ontario Energy Board which contained the following (emphasis mine): “I write in my capacity as the Minister of Energy in order to exercise the statutory power I have under section 35 of the Ontario Energy Board Act, 1998 (the “Act”) to require the Ontario Energy Board (the “Board”) to examine and report back to the Ministry of Energy (the “Ministry”) with advice on the questions outlined below.”

In looking over the letters and directives in the OEB files, it appears letters of directions and directives (“orders in council”) are commonplace and reflect the full power of the “minister” and the governing “caucus” over the OEB.

You have the power to instruct the OEB to tell natural gas distributors to disclose the amount the “cap and trade” act will add to their bills.

In a related issue, your predecessor Bob Chiarelli ensured electricity bills disclosed the amount of savings due to the cancellation of the debt retirement charge or “DRC” while (seemingly) intentionally failing to order disclosure of the cost of removal of the OCEB (Ontario Clean Energy Benefit).If you want your legacy as the Minister of Energy to reflect the bad traits of your predecessors then you can continue doing as you have been doing, but if you believe in transparency you have an opportunity to demonstrate those beliefs by coming clean.I certainly hope you will review your actions of the recent past and show the ratepayers of the province you have the ability and the intestinal fortitude to stand up and recognize the abuse we have suffered for the past decade and show us actions that stop the climb in electricity rates that are a necessity of life in this province.

Yours truly,

Parker Gallant 

A concerned citizen

PS: Looking forward to your response on how the imported TWh will save the system $70 million