After seven years, the Ontario Energy Board has determined that a move by the McGuinty government to shift the burden of electricity costs to smaller ratepayers was “complicated and non-transparent.” What took them so long to find out that out, when it cost Ontario citizens billions?
Back in 2011, the Dalton McGuinty government introduced the Industrial Conservation Initiative (ICI) with the idea of changing the way Global Adjustment (GA) costs were allocated to different classes of consumers. “The stated purpose of the ICI is to provide large consumers with an incentive to reduce consumption at critical peak demand times. The resulting reductions in peak demand were expected to reduce the need to invest in new peaking generation and imports of electricity from coal-reliant jurisdictions.”
The government had been lobbied hard by the Association of Major Power Consumers of Ontario (AMPCO) who had been feeling the effects of climbing power rates brought on by the Green Energy Act (GEA) and the resulting FIT (feed-in-tariff) contracts for renewable energy (wind and solar).
Needless to say, the Liberal government caved, the ICI was born and officially started September 2011.
Just over a week ago the Ontario Energy Board released a report titled: The Industrial Conservation Initiative: Evaluating its Impact and Potential Alternative Approaches. What struck me immediately was this sentence in the Executive Summary: “In the Panel’s view, the ICI as presently structured is a complicated and non-transparent means of recovering costs, with limited efficiency benefits.”
It took the OEB seven years to come to this conclusion. And they are supposed to be the regulators for the energy sector. Their vision is: “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.”
So, it took seven years to determine the ICI wasn’t delivering value?
The ICI was created via a change in the Regulations* and was posted August 27, 2010 on the Environmental Registry with this statement: “As a result of the consultation, there was general agreement that the proposed changes would result in a net benefit to electricity consumers, the electricity system and the broader Ontario economy.”
The new OEB report noted the Class B to Class A shift commencing in 2011 “has shifted nearly $5 billion in electricity costs from larger consumers to smaller ones. In 2017, the ICI shifted $1.2 billion in electricity costs to households and small businesses—nearly four times greater than the amount in 2011.”
Wondering what 2018 would bring in respect to the B to A shift and, knowing IESO now posts both consumption and costs of the GA by customer class on their website, it was worth an exercise to determine if the $1.2 billion shift of 2017 would increase or decrease. Using IESO’s data it appears the subsidy for the first 11 months was about $35.4 million per TWh (terawatt hour). Based on 36.9 TWh consumed by Class A ratepayers the cost shift is $1.306 billion. The 4,665,000 residential ratepayers who use 9 MW of electricity annually will absorb approximately 30% of those costs — in other words, it represents an annual subsidy to Class A customers of almost $100 from each ratepayer.
Small and medium sized businesses will pay a lot more absorbing the remaining 70%, or about $900 million!
Now you know why the price of that hamburger and everything else went up!
Electricity price increases have hit all classes of ratepayers in the province and now that we see the shift of costs, it is helpful to look at the cause!
Renewable energy in the form of wind and solar** power generation has played a big part in rising electricity bills, so it is an interesting exercise to do a simple calculation to determine what wind generation and curtailment have cost in the first 11 months of 2018. My friend, Scott Luft posts actual wind generation and curtailment for grid-connected (TX) and distributor-connected (DX)*** wind. Calculating the TX, wind generated (9.655 TWh) and curtailed (1.940 TWh) for the 11 months indicates costs were $1.305 billion for grid-accepted generation and $230 million for curtailed (paid for but not used) wind.
That brings total costs of intermittent and unreliable wind to more than $1.5 billion. ****
What this simple exercise really does of course is demonstrate how our costs would be much less without intermittent wind power generation, which is produced out-of-phase with demand in Ontario. Considering first-to-the-grid rights for wind power operators means it also results in spillage or waste of hydro (5.9 TWh in 2017) and nuclear steam-off (1 TWh in 2017) and must be backed up with gas generation — all of which we pay for — wind power simply increases our electricity bills without any significant benefit to the environment or power system.
If solar costs were also included in these calculations, we would be in the $3 to 4 billion range.
Short story: Without all that waste, all classes of Ontario ratepayers would have reasonable and cost-competitive electricity rates.
Conclusion The OEB should have stood up for consumers a lot sooner and called out the government for NOT delivering the “outcomes and innovation that deliver[d] value for all Ontario energy consumers.” Instead, the OEB simply watched while billions of dollars were removed from ratepayers’ pockets for foreign-owned wind power developments and stood by for seven years while residential, small and medium sized businesses provided increasing subsidies to large industrial companies for a program “with limited efficiency benefits.”
* Class A was limited to very large consumers with an average monthly peak demand of more than 5 MW (primarily large industrial consumers). Since then, the government has expanded eligibility such that Class A now includes all consumers with an average monthly peak demand of more than 1 MW, as well as consumers in certain manufacturing, industrial and agricultural sectors with an average monthly peak demand of more than 0.5 MW.
**IESO do not disclose solar generation until early the following year ***Estimated for grid connected but generally very close to actual generation.
****Generated wind at $135/MWH and curtailed at $120/MWh.