Cutting Ontario’s electricity bills: promise made, promise (partly) kept

How the Ford government is cutting electricity costs, and some suggestions on how they might do better

A month or so before the 2018 Ontario election, the Ontario PC Party made a promise to reduce electricity bills for Ontario’s residential ratepayers by 12% or specifically: “Putting $173 back in the taxpayer pocket”.  The amount needed to achieve the $173 per ratepayer would amount to approximately $807 million annually, based on the 4,665,055 residential ratepayers Ontario had at the end of 2017, according to the OEB’s (Ontario Energy Board) “2017 Yearbook of Electricity Distributors”.

PC leader Doug Ford promised if elected, they would give ratepayers the dividends the government receives from the partially privatized Hydro One. For 2018, that would amount to $245 million as 47.4% (the province’s current ownership) of total dividends ($518 million) awarded to common shareholders by Hydro One.  The dividends of $245 million annually would translate to about $53 per residential ratepayer.

On July 13, 2018, the Minister of Energy, Northern Development and Mines announced the cancellation of 758 renewable energy contracts* which he said would save ratepayers $790 million over the life of the contracts. Assuming the bulk of the contracts were for 20-year terms, that would amount to about $40 million annually, costs that would have been borne by all ratepayers, not just “residential” ones.

Over the past several years, residential ratepayers consume about 32% of all grid-delivered electricity, so the savings to that group should be relatively small as 32% of $40 million only translates to annual savings of $13 million (rounded) or less than $3.00 per residential ratepayer. (Bob Chiarelli, when Minister of Energy would have suggested it would amount to “a large Timmies”.)

So, these two actions leave a shortfall of slightly more than $545 million or $117 per residential ratepayer — where will the balance come from?

Will “bold action” pay out the shortfall for ratepayers?

March 21, 2019 arrived and the Ministry of Energy, Northern Development and Mines issued a press release declaring: “Ford Government Taking Bold Action to Fix Hydro Mess.” It was full of promises, but were they enough to deliver the missing $117/per residential ratepayer?

Winding down the Fair Hydro Plan (FHP)

The press release specifically stated the Ministry would “wind down the Fair Hydro Plan” (FHP) and in the process save billions of dollars in borrowing costs.  They would do that by simply moving the borrowing process from the OPG “Trust” directly to the Province.  As noted in the report of the FAO (Financial Accountability Office) of early 2017, borrowing via the “Trust”, would increase interest costs by “about $4 billion in interest expense, because the interest rate on Provincial debt is lower than the interest rate on OPG Trust’s debt.”  The FAO noted the timeline required to both fund and repay the total debt under the FHP was 29 years, so the $4 billion in savings would amount to approximately $138 million annually.  As the FHP was all directed at residential ratepayers, $138 million would reduce future rate increases by $30 per residential ratepayer.

That reduces the missing $117 to $87 per ratepayer.

Reducing Conservation Spending

Another position in the recent press release was related to reducing conservation spending which has added about $450 million annually to ratepayer bills for the past 10 years.  The effect on residential ratepayers will be approximately one-third of that amount.  Those coupons your local distribution company handed out for the purchase of LED bulbs, and the rebates for installing energy efficient furnaces or air conditioners have been cancelled, which will reduce the bill to residential ratepayers by around $150 million annually.  The effect on ratepayers should be a reduction in future rate increases of $32 per residential ratepayer. So that means the $173 reduction is now $55!

Unanswered at this point is where the remaining $85 per residential ratepayer will come from. Perhaps Minister Rickford would like a suggestion or two to find the missing $400 million in annual costs needed to eliminate the missing $55 per residential ratepayer? Here we go.

Quick and easy savings                                                                                                                                                             Wyoming State has implemented a “wind tax” and a suggestion to do likewise in Ontario was put forward by the writer back in March 2018 as just one idea.  If that is seen by the current government as going “against the grain” of a conservative government, I have another suggestion which can be easily found in the regulatory pigeonholes!

Enforce the regulations

Enforcement of regulations dealing with complaints surrounding wind turbines would reduce the generation they provide out of sync with demand or where they are curtailing their generation, but paid for doing so.

Enforcing regulations should be something the government should be onside with!

A recent article noted: “The Ontario government now has records of thousands of complaints dating back to 2006 regarding excessive noise and shadow flicker or strobe effect. The detailed files on these complaints, which contain notes by Provincial Officers with the ministry of the environment, also contain comments on adverse health effects stemming from exposure to the noise emissions.”

Needless to say, those “complaints” have been virtually ignored. If the regulations were enforced wind developers would be told to shut down their turbines thereby saving ratepayers considerable monies and as a wondrous side benefit, would reduce health issues (and costs to the healthcare system) related to the noise and strobe effects.

The Minister of Energy, Northern Development and Mines would quickly find the $260 million missing to help him reach the goal set by Premier Ford to reduce future bills by the $55 per residential ratepayer.

One should hopefully believe (unlike Kathleen Wynne, our previous Premier), Doug Ford was not suggesting the $173 per residential ratepayer he promised will turn out to be a “stretch goal”!

PARKER GALLANT

*One wind power project, the 100-megawatt “Nation Rise” in North Stormont south of Ottawa, escaped the guillotine, despite not being built and in fact, receiving its approval after the election while the defeated Wynne government was in “caretaker mode.” Cancelling this project would save Ontario ratepayers over $400 million for the 20-year contract, less any penalty for cancelling the contract.

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Hydro One shareholders happy with Avista purchase denial

Avista shareholders, not so much

The Hydro One press release immediately following the decision by the State of Washington’s regulator denying them the right to acquire Avista Corporation was short but expressed “extreme disappointment.”

“TORONTO and SPOKANE, WA, Dec. 5, 2018 /CNW/ – Hydro One Limited (“Hydro One”) (TSX: H) and Avista Corporation (“Avista”) today received a regulatory decision from the Washington Utilities and Transportation Commission (UTC), denying the proposed merger of the two companies. The companies are extremely disappointed in the UTC’s decision, are reviewing the order in detail and will determine the appropriate next steps.”

How did investors view the denial? Avista shareholders were definitely in the “extremely disappointed” crowd as their shares tumbled, but Hydro One investors were probably “extremely happy” as their shares had one of their very best days ever!

Remember, Hydro One offered to purchase Avista shares well over book value and at a high multiple to earnings ratio.  While the prior Board of Directors of Hydro One and then CEO Mayo Schmidt, along with Glenn Thibeault, former Minister of Energy, were excited about the offer to purchase Avista, it certainly appears that shareholders weren’t!

Some media blame “political interference” by Premier Ford as the principal reason for the denial! One such individual was quoted in CBC article stating: “Ontario Liberal finance critic Mitzie Hunter said Ford’s “reckless conduct” at Hydro One continues to damage the province’s interests.” Apparently Hydro One’s investors are not buying Mitzie’s claim!

There will, however, be a cost to Hydro One. When the purchase was negotiated, they agreed to a “termination fee” of US$ 103 million (CAD$ 139 million) and will have to pay that to Avista for distribution to their shareholders.  Hydro One will also have to unwind foreign exchange forward contracts and accumulated acquisition costs which will be expensed.  They also have to deal with the large convertible debenture issue ($1,540 million) which has a 10-year maturity and interest payments above market rates prior to conversion.

I assume we ratepayers will have to sit on the sidelines until Hydro One’s year-end report in early 2019 is issued before we get an estimate on the costs of the denial by the State of Washington’s regulator.

We can then hope our regulator, the Ontario Energy Board (OEB), doesn’t grant a rate increase to Hydro One to cover the costs of their ill-considered attempt to acquire a company 3,200 kilometres away at an inflated price.

Only time will tell.

PARKER GALLANT

Wind power in panic mode

Canadian wind power lobbyist CanWEA makes claims that don’t stand up to scrutiny. Boasting that wind power is “low cost” has nothing to do with what Ontario electricity customers pay…

CanWEA’s Robert Hornung (L) with then Ontario Energy minister Bob Chiarelli and a power exec during the boom times. The truth has now come to town.

October 8, 2018

The same day (September 20, 2018) the Government of Ontario announced the introduction of legislation to repeal the “Green Energy Act”, Robert Hornung, President of CanWEA (Canadian Wind Energy Association) issued a press release claiming the Government of Ontario has made inaccurate statements and misleading characterizations about the wind energy industry in the province.”

Needless to say, the Government’s announcement received wide media attention whereas the CanWEA press release received virtually none. The lack of attention to the CanWEA press release should be perceived as a strong signal mainstream media has become educated on the devasting effect of industrial wind developments in Ontario and the many erroneous claims made by CanWEA over the years.

What else did CanWEA claim in that press release?

Claim # 1

Wind energy is not the reason for high electricity bills or a significant electricity supply surplus in Ontario.

This claim is partly right: solar panels and generation from that source also helped to drive up costs, but a quick look at wind power generation for just 2017 will show what wind has done. In 2017, grid-connected industrial wind turbines generated 9.2 TWh (terawatt hours) and had 3.3 TWh of potential generation curtailed (not added to the grid).   Ontario’s ratepayers picked up the bill for both and that alone added at least $1.540 billion to electricity bills. As is the case for wind power generation 65% of the time, its generation was out of sync with demand due to its intermittent nature. Added to that cost, we should also include both the spilling of hydro (6 TWh) and steamed-off nuclear (1 TWh) which together added another $350 million to ratepayer costs. The foregoing alone raises the per kWh cost of IWT generation to 20.3 cents. Include gas plant generation of 5.9 TWh (backing up IWT) and you can add another $450 million resulting in a cost of over 25 cents/kWh! This is the “reason for high electricity bills”!

Claim # 2

In reality, wind energy projects are making significant contributions to Ontario’s economy across the province and are providing long-term, stable pricing for Ontario ratepayers. They are providing sustained revenue, as well as benefits agreements and green jobs that are helping rural and Indigenous communities thrive”.

Examining this claim highlights actual contributions of renewable energy.

The Concerned Manufacturers of Ontario is described by the CBC in March 2017 as “A group that represents hundreds of small to medium sized manufacturers across the province is urging the Ontario government to lower hydro fees for industrial users, or face the prospect of some factories packing up and moving to other jurisdictions where electricity is cheaper.”

The Canadian Federation of Independent Business with 42,000 members in Ontario was featured in a Globe and Mail article from December 2016 which contained a few member stories. Here’s one: “Tor Krueger has big plans for Udder Way Artisan Cheese Co., which sells handmade goat cheese in Stoney Creek, Ont. But crushing hydro bills are hurting the artisan cheese maker’s plans to modernize his facility so he can get federal certification and sell his cheeses across the country.” Mr. Kruger went on to note, “After payroll, hydro is consistently one of my top three operating expenses”.

Another association Canadian Manufacturers and Exporters sent a message to Premier Wynne in March 2017 that stated: “We need to reduce the barriers that are holding us back, particularly high electricity prices and the costs associated with cap & trade.”

The Ontario chamber of Commence in a Globe and Mail article in July 2015 had similar comments noting “This week, the Ontario Chamber of Commerce released a survey that suggested as many as one in 20 business are worried about their survival because of high electricity costs.”

Now, if one accepts the fact that the above mentioned four associations represent the vast majority of businesses in Ontario, it seems obvious the cost of electricity has caused job losses in the province. That observation clearly flies in the face of the claim by CanWEA’s President who stated “wind energy projects are making significant contributions to Ontario’s economy across the province and are providing long-term, stable pricing for Ontario ratepayers.” In 2017 nuclear and hydro generated over 97% of grid-connected Ontario demand at prices of less than 7 cents/kWh for nuclear and 5 cents for hydro. So, shouldn’t CanWEA realize the remaining 3% came from all of the other generating sources including wind at costs as noted above under “Claim # 1”!

Claim # 3

As the lowest cost source of electricity available in Canada today, wind energy is the best choice for new electricity generation when it is needed in the future and can help the Ontario Government meet its objective of an affordable and reliable electricity system that benefits Ontarians.”

Mr. Hornung’s claim that wind energy is the “lowest cost source of electricity” doesn’t specify what he is referring to! One should suspect the reference is to either the LOCE (levelized cost of electricity)* or the cost of fuel (wind is free) but in either case his claim has nothing to do with what Ontario ratepayers pay for the intermittent and unreliable nature of the actual wind power generation. That annually averages only 29/30% of its capacity and is out of sync with actual demand 65% of the time.

Claim # 4

“… the report provides no consideration for the value returned by the province’s strategic investment in renewable energy, most notably its role in eliminating smog days”

That claim from a CanWEA press release just over a week later (October 4, 2018) had Mr. Hornung responding to a report released by the Fraser Institute which suggested the Doug Ford-led government should cancel contracts because “According to our study, cancelling the subsidized contracts would reduce the GA charge by almost 40 per cent, thereby reducing residential electricity prices by, again, roughly 24 per cent.”                                                                                     

CanWEA’s response reiterated much of what they claimed in their earlier press release including the suggestion cancelling the contracts would undermine “investor confidence” and the one above noted as “Claim # 4”.

What is interesting about this latter claim is that the Fraser Institute back in January 2017 in another report stated: “The Ontario Ministry of the Environment and Climate Change undertook a special analysis of the role of U.S. emissions in Ontario air quality in 2005, which showed that a majority of O3 (ground level ozone) and PM2.5 (particulate matter) was due to U.S.-based emissions and would not be reduced by cutting emissions in Ontario.”

As the backlash over the cost of renewable energy, along with its other failings, is finally being discovered by politicians around the world and now includes Ontario, it is obvious CanWEA’s concern is that it will affect the targeted provinces of Saskatchewan and Alberta where they have signaled they want more wind power generation. The revelations emanating from Ontario may well impact those current deliberations and slow or stop the IWT march affecting CanWEA’s members!

One can almost see the tears in Robert Hornung’s eyes!

PARKER GALLANT

 

*Levelized cost of electricity (LCOE) is often cited as a convenient summary measure of the overall competiveness of different generating technologies. It represents the per-megawatt hour cost (in discounted real dollars) of building and operating a generating plant over an assumed financial life and duty cycle. 4 Key inputs to calculating LCOE include capital costs, fuel costs, fixed and variable operations and maintenance (O&M) costs, financing costs, and an assumed utilization rate for each plant type.” 

 

 

Ontario’s wind turbines demonstrate what they can’t deliver: reliability

The wind power lobbyist makes impressive claims but reality is a different story

Ontario turbines at Belle River: power not there when needed

 

In a bid to be assertive after the Speech from the Throne last Thursday and Premier Ford’s pronouncement of the upcoming demise of the Green Energy Act, CanWEA’s (Canadian Wind Energy Association) President Robert Hornung issued the following announcement

He made some impressive claims.

Maintaining investor confidence in the Ontario marketplace is important for Ontario’s short- and long-term economic prosperity. The Canadian Wind Energy Association (CanWEA) shares the Ontario Government’s commitment to an affordable and reliable electricity system that benefits Ontarians. CanWEA notes that wind energy projects in Ontario are an important source of sustained revenue for municipal and Indigenous partners. Ontario’s wind energy projects are providing long-term, stable pricing for Ontario ratepayers. Wind energy is now the lowest-cost option for new electricity supply in Ontario, across Canada, and throughout much of the world.”

Focusing on the weekend immediately following Mr. Hornung’s announcement is an interesting exercise. Examining his use of the words “reliable electricity system” is worthwhile to see if it has any bearing on generation from industrial wind turbines (IWT).

As it turns out, both Saturday July 14th and Sunday July 15th delivered pretty average summer days with Ontario demand of 837,000 MWh and total demand (including net exports) of 910,000 MWh. Over those two days, grid-connected IWTs in Ontario delivered 11,329 MWh.

What that means: wind turbines operated at a capacity value that was 5.4% of their rated capacity of over 4,400 MW. Peak output was at 12 AM on July 14th when they generated 969 MWh or 22% of rated capacity. The lowest output was at 10 AM on July 15th when they were probably consuming more than their output of 26 MWh, or 0.6% of their rated capacity.

Wind power generators represent 11.9% of total grid-connected capacity in Ontario according to IESO, so if they are promoted as part of “reliable” electricity, it’s not too far a reach to expect them to demonstrate their reliability.

It appears CanWEA’s claim is false.

Over the two weekend days they generated 1.4% of Ontario’s demand and only 1.2% of total demand.

If that is considered a “reliable” electricity source, Ontario’s ratepayers have been taking it on the chin since the wind contracts were awarded. Those contracts have had the opposite effect of bringing Ontario “short- and long-term economic prosperity” as our electricity cost increases have been more than double those of our neighbours.

All Ontario’s ratepayers are grateful that nuclear and hydro generation, (supported by gas generators during peak periods) were up and running over the past weekend.

Now all we ratepayers need is for the President of CanWEA to finally confess: wind power is intermittent and NOT reliable, and, oh yes, very expensive!

 

Should the Pickering nuclear plant be closed? Not based on cost and performance…

Pickering: working at 95% capacity during the heat wave [Photo: OPG]
July 6, 2018

Wind power a failure during recent high demand during heat wave; dependable power needed

I got a call at 11 a.m. on June 25th from the producer of the Scott Thompson show on CHML 900 AM to appear on the show to discuss the suggestion by NDP leader Andrea Horwath about closing the Pickering Nuclear plant.

Essentially it was about her statement during the election campaign indicating the NDP’s position on Pickering:  “we will begin the decommissioning process immediately, which will bring more jobs to the area — as opposed to the Liberal plan, which is to mothball that facility for 30 years and allow the next generation to figure out the decommissioning”.

Doug Ford, leader of the Ontario Progressive Conservatives, on the other hand stated: “The Pickering plant can continue to safely operate until at least 2024. We can generate 14 per cent of Ontario’s power needs right here”.

The producer suggested Scott wanted to explore the opposing issues with me.

Aware I was scheduled to be on his show at 12:35 p.m., and remembering that a Brady Yauch article a few months earlier in the Financial Post had suggested closing Pickering, I felt I should do more research before the call back.  Brady’s principal point was Pickering was a poor performer and the estimated costs ($300 million) of the extension would prove to be negative for ratepayers.

OPG’s website describes Pickering as follows: “Pickering Nuclear has six operating CANDU® (CANadian Deuterium Uranium) reactors. The station has a total output of 3,100 megawatts (MW) which is enough to serve a city of one and a half million people, and about 14 per cent of Ontario’s electricity needs.”.

Pickering Nuclear traces its roots back to 1971 when it first commenced operation with four units and expanded to eight units in 1983.  Two of the first four units have been in voluntary lay-up since 1997.  The CNSC (Canadian Nuclear Safety Commission) awarded OPG’s Pickering and Darlington nuclear stations its highest safety rating in 2017.

Combined, the Pickering and Darlington nuclear stations generated 10.4 TWh (terawatts) of power for the 1st Quarter of 2018 at a combined cost of 7.2 cents/kWh (up from 5.8 cents/kWh in the comparable quarter).  The 10.4 TWh was sufficient to supply the 4.6 million average residential households in the province.

Directing my research to IESO’s hourly Generator Report I was able to discern Pickering at hour 10 of June 25th had just generated 2,308 MWh out of 10,457 MWh produced by all the nuclear plants in the province.  Pickering nuclear represented 22% of nuclear generation at that hour, 15.6% of Ontario demand and 14% of total demand (including exports).   At hour 10, wind turbines were generating 452 MWh or 10% of their capacity versus Pickering nuclear which was operating at about 74.5% of its capacity.

Both nuclear and wind are classified as “base-load” generation!

As it turned out, when I was on Scott’s show the bulk of our chat was related to his prior guest’s discussions about Premier Ford’s cancellation of the “cap and trade” tax.  Only a couple of questions were raised about Pickering which I responded to.

Interestingly enough, now that the Ontario July heat wave has passed, I felt the urge to look at the performance of Pickering and IWT over the seven days when peak demand was high.  Pickering nuclear performed well generating close to 3,000 MWh each and every hour over the period meaning it was operating at over 95% of capacity.  Wind power generation, however was all over the map reaching a high of 2,769 MWh (62% of capacity) at midnight July 1st and a low of 5 MWh (0.11% of capacity) at 10AM on July 4th!

It is obvious that wind fails miserably as “base-load” generation when needed and the relative cost of generating power (sans back-up costs) is over 17 cents/kWh.

It sure looks like we should keep Pickering nuclear operating, as Premier Ford suggested.

Parker Gallant