Rick Conway of the Wellington Times in his editorial of August 16th has done a great job at highlighting the way the current government of the province have messed up the electricity sector and how they are trying to increase the mess.
He points out how we are exporting our surplus power, in part due to the unreliability of wind and solar generation.
He has kindly referenced yours truly in the article and it is much appreciated.
August 5 2017 was an interesting day: the wind was blowing and the sun was shining, in part of Ontario, anyway.
Unfortunately for Ontario ratepayers that weather will cost them a lot of money.
Why? The cost stems from the fact Ontario’s demand for electricity on that day was only 317,000 megawatts (MWh),* according to the IESO Daily Market Summary, probably due to conservation efforts and mild temperatures. Low demand doesn’t save money: in fact, it will cost Ontario ratepayers millions of dollars due to bad management of the electricity sector by the current government.
I was curious about this windy, sunny day, which led me to contact Scott Luft, a master at using IESO data to give us a real picture of market demand and its costs. Scott occasionally produces “Daily Ontario Supply Estimates” which provide a picture of both our demand and generated sources, what it cost, how much was exported, how much was curtailed/spilled (wasted), etc., and even how much of the costs were picked up by Class B ratepayers versus Class A.
Scott also estimates curtailed wind, spilled hydro, etc., using a conservative approach; they are generally confirmed months later by IESO.
Scott’s daily estimate for August 5, 2017 confirmed my suspicions! Emissions-free nuclear and hydro generators alone supplied the 340,000 MWh of power Ontario needed easily, even exceeding Ontario demand by 23,000 MWh. The cost of that generation was $21.1 million. After allowing for the value of the surplus 23,000 MWh as exports at the average hourly Ontario energy price (HOEP) of $4.94/MWh the cost per MWh comes to $66.34/MWh or 6.6 cents/kWh.**
Double the cost — and you’re paying it
Part of Scott’s daily estimate includes additional costs in the form of all the other generation sources, plus curtailed wind and solar, spilled hydro, biofuel and idling costs of gas plants. When those are added to the $21.1 million of nuclear and hydro, the price billed to ratepayers for the day jumps to $37.8 million — $119.24/MWh or 11.9 cents/kWh. The Class A to Class B subsidy results in the cost per kWh for the “B” Class (that’s you and me) jumping to $131.10/MWh or 13.1 cents/kWh.
The other generation sources on Scott’s August 5 daily estimates include transmission (TX) and distributor (DX) connected generation, along with curtailed/idled, etc. costs with gas at 9,123 MWh (cost $4.1 million), wind at 49,088 MWh (cost $6.3 million), solar at 13,002 MWh (cost $6.1 million), biofuel at 701 MWh (cost $368,000) and imports of 8,563 MWh (cost $52,000).
The costs to you are mounting
Are you with me so far? What this means is, those other generation sources (including curtailed wind, etc.) of 85,000 MWh cost $16.7 million — $196.47/MWh or 19.5 cents/kWh) and are billed to … you, Ontario’s ratepayers.
Approximately $8.1 million of the day’s costs will be allocated to the Fair Hydro Plan and wind up on future electricity bills. If August 5 was a typical day, the amount kicked down the road for the next four years by the Premier Wynne-led government will amount to $3 billion annually (plus interest). (The $8.1 million estimate for this day comes from the use of what is referred to as the “Global Adjustment Modifier” set by the OEB at $32.90/MWh from July 1, 2017 to April 30, 2018 and will be reset at the later date. The $8.1 million was obtained by simply multiplying Class B consumption — 246,000 MWh — by the $32.90 “Modifier”.)
Mismanagement of the energy portfolio by the Wynne-led government on August 5 generated a cost for Class B ratepayers that was excessive. It will continue, and lead to an explosion of households living in “energy poverty”*** when the Fair Hydro Plan comes to an end in four years.
The Minister of Energy needs to recognize the problems caused by intermittent and unreliable renewable energy! Once he understands the latter he should immediately cancel any wind and solar contracted projects that have not commenced construction, along with any in the early planning stages.
Kicking the can down the road via the Fair Hydro Act is anything but fair. Paying twice for non-emitting clean energy simply amplifies the bad management this portfolio has received from our government.
August 11, 2017
* Some of the above MWh references are rounded to the nearest thousand.
** The 6.6 cent rate, coincidentally, is close to our new off-peak rate of 6.5 cents/kWh (previously 8.7 cents/kWh) which came into effect July 1, 2017. The lower rate is a result of the “Fair Hydro Plan” instituted by the Premier Wynne that kicked 25% of the costs down the road for four years. The Off-Peak rate back on May 1, 2007 was 3.2 cents/kWh so even after the recent reduction it is still up over 103% in the last 10 years.
*** Energy poverty is generally defined as utilizing 10% or more of a household’s disposal income to pay for their electricity and heating needs.
From all appearances, Ontario Energy Minister Glenn Thibeault sincerely believes Premier Wynne’s plan to reduce our hydro bills is the right one and the opposition parties have got it all wrong.
Shortly after Premier Wynne and her loyal servant Glenn Thibeault announced the Liberals’ “Fair Hydro Plan” Andrea Horwath, leader of the NDP, announced their plan. Thibeault had this to say about the NDP’s plans to repurchase Hydro One shares: “Buying back $4 billion in Hydro One shares is costly, he added, and ‘will not take one cent off electricity bills. What it will do is send billions to the stock market instead of making much needed infrastructure investments in communities across Ontario.’ ”
When PC MPP Vic Fedeli suggested diverting our surplus power to local businesses so they can create jobs, instead of exporting it to U.S. states at staggeringly low prices*Thibeault lashed out, saying that was “back-of-the-napkin” thinking. Thibeault did admit Ontario “doesn’t have sufficient electricity demand at home to use up the electricity we export to other markets.”
This begs the question: why does the Energy Minister not cancel contracts recently awarded (LRP 1) and permanently cancel plans (LRP 2) to add more renewables that will be surplus due to insufficient demand and plant closures. In respect to the latter, demand will continue to be insufficient as the recent announcements about the closing of the Proctor and Gamble plant (500 employees) in Brockville and the Siemens plant in Tillsonburg (340 employees), just to name two, will further reduce demand.
The Siemens announcement undermines the Green Energy Act which the Liberals originally touted as destined to create 50,000 jobs, but fell miserably short of that goal. In fact it cost Ontario jobs as suggested by former Ontario Auditor General McCarter in his 2011 report.
Thibeault might also stop directing IESO to spend $400 million annually on conservation programs which further reduces demand, but at a cost that is added to ratepayer bills and negatively affects export sale prices.*
Now, when Minister Thibeault or Premier Wynne speak about the Liberal Plan, they revert to the main “Fair Hydro Plan” talking point which is “This is the largest rate cut in Ontario history”. What Minister Thibeault always fails to note is Ontario’s ratepayers have experienced the largest rate increases in history thanks to the GEA’s passage in 2009! He also fails to acknowledge the future costs due to the Fair Hydro Plan which will push rates up well past those before the “largest rate cut in Ontario history”. That cost (subject to balanced budgets) according to the Financial Accountability Office will be $45 billion versus a benefit of $24 billion. That $45 billion will easily drive up electricity rates and represents in excess of two years of current total electricity costs.
Amortized over 10 years we should expect annual rate increases well in excess of 10%. At that time, all ratepayers will be exposed to the Ontario Liberal government’s incredibility bad planning!
* For the first six months of 2017 IESO report the sales price for surplus exports was $14.93 a megawatt hour (MWh) or 1.49 cents a kWh which is close to 10% of what it costs to produce. Ontario’s ratepayers pay for the losses via their monthly bills
A Globe and Mailarticle of November 11, 2002 reported that Dalton McGuinty, leader of the Ontario Liberal Party (OLP), then in Opposition, was upset because Premier Ernie Eves had promised legislation to cap electricity prices.
Liberal Leader Dalton McGuinty said the true cost of the Conservative government’s hydro bungling will add billions of dollars to the debt.
“Now that families and businesses have been scared to death, now that new investment in supply has been scared off, now that everyone knows hydro has been completely mismanaged, Ernie Eves is going back to square one,” Mr. McGuinty said in a news release on Monday.
“The government should have had its act together before the market opened. And the bill for its failure to do that hasn’t been cancelled — it’s just been put off.”
Mr. McGuinty said the Ontario Liberals have been calling for action for months, but the Eves government has not acted until now to freeze electricity prices and increase supply.
The Liberal Leader said his real concern is what Ontarians will have to pay over the long term.
Fast forward to September 14, 2005 when Dalton McGuinty was Ontario’s Premier. In a keynote speech to the Ontario Energy Association, he bragged about what the OLP had accomplished and their plans for the future. Let’s examine the promises made in that speech.
McGuinty: “We won’t gamble away Ontario’s future prosperity because of what the next poll might or might not say...”
A noble thought, but discarded by the OLP. When seeking re-election in 2011 McGuinty cancelled the Mississauga and Oakville gas plants and plans to contract for offshore wind developments. Polling in ridings affected by the foregoing showed several Liberal seats in jeopardy. More recently, shortly after a poll indicated Premier Wynne’s approval rating was at 20 %, she announced hydro rates would be cut by 25 %. Policy by polls…
McGuinty: … Or because of what new technology might or might not be developed.
The launch of the Green Energy and Green Economy Act (GEA) in 2009 focused on wind and solar generation at above market prices, without a cost/benefit study as pointed out by the Ontario Auditor General in his December 5, 2011 report. Both wind and solar were old technologies promoted by ENGO and wind and solar associations and known to be intermittent and unreliable sources of generation.
McGuinty: That’s why we asked the OPA to report on a long-term plan.
The Ontario Power Authority (OPA) produced a viable plan with limited wind and solar capacity to be contracted for in a competitive environment, but the plan was suspended by Energy and Infrastructure Minister George Smitherman before approval via his directive to the OPA dated September 17, 2008.
McGuinty: That’s why we acted to take the politics out of pricing.
The recent Fair Hydro Act and the gas plant moves dispel the notion that politics has been removed from pricing, as do the FIT and MicroFIT programs that past Minister Smitherman enabled via a directive issued September 24, 2009 to the OPA which included a domestic content requirement. The latter resulted in a challenge before the World Trade Organization which Canada lost and taxpayers picked up the costs.
McGuinty: This spring, the Ontario Energy Board, a truly arms-length public agency will set the price of power for small consumers. The OEB sets the price based on what electricity costs, not on what politicians think it should cost, or wish it would cost.
While those homilies are correct, the prices are set based on input costs which the OEB has no control over. In simple terms, they divide the input costs accumulated (Global Adjustment + Hourly Ontario Electricity Price + transmission) and divide it by kilowatt hours consumed. The impact of above market (highlighted by the Auditor General reports) contracts with wind, solar, and other generators and the plethora of other spending (e.g., conservation $400 million per year, etc.) dictated by the Energy Minister, plus above market salaries and benefits for OPG and Hydro One employees etc., are all part of those costs.
McGuinty: We could require our businesses and families to subsidize the price of electricity through their taxes.
Premier McGuinty did just that when he moved the gas plants and part of the cost was paid by taxpayers. The Liberal government also drove up the price of hydro and put 600,000 household into energy poverty. It fell on charities, supported by Ontario taxpayers, to help those households. Tax dollars from those households also supplied grants to buyers of expensive Tesla automobiles and those grants continue today!
McGuinty: But, having finally put our province on a sound financial footing, we choose to ensure the price of electricity reflects the true cost of electricity.
The “sound financial footing” didn’t last long, and during the Liberals’ reign Ontario’s debt has increased from $132 billion to over $300 billion. Ontario has seen only one budget in the last decade that will seemingly balance and that was the most recent one.
McGuinty: We can’t guarantee price certainty –; that just isn’t realistic, given the nature of the challenges before us.
The Fair Hydro Act just passed by the Wynne government guarantees price certainty for four years for certain classes of ratepayers. This isn’t realistic: refinancing those assets may conflict with their ability to continue to generate electricity for an additional ten years. Amortization of fixed assets is based on the longevity of those assets, but the Wynne government has decreed that they can extend their life so that our children will be stuck with the replacement costs.
McGuinty: But I can assure you that we will do everything we can to ensure safe, clean, affordable electricity is always in full supply in the Province of Ontario.
When the OLP became the government, the average price of a kilowatt hour was 4.3 cents. By 2016 it averaged 11.2 cents — a 160% increase. The 25% reduction touted by Premier Wynne as the largest in Ontario’s history followed. The subsidy to cover that 25% will accumulate within the confines of OPG and at the end of increases held to “the rate of inflation for the next four years,” that subsidy will rise well above that benchmark in the years following that moratorium.
McGuinty: We won’t subsidize prices or cap prices –; that would mean more debt or higher deficits. Both of which would lead ultimately to higher taxes.
By deferring debt to subsidize hydro prices for four years within OPG’s balance sheet (guaranteed by the Province), the plan is to hide (temporarily) the impact from ratepayers while supposedly balancing the budget.
So, what happened to all those lofty promises of “affordable” electricity costs for consumers and business, that is immune to politics?
Was this what all those promises really meant?
“The true cost of the Liberal government’s hydro bungling will addtens ofbillions of dollars to the debt.”
Ontario news in May focused on record rainfalls in many areas of the province, records were being set elsewhere, too: in Ontario’s our electricity sector.
While one of those records occurred on May 27 when the 4,500 MW capacity of industrial wind turbines generated a record low of one (1) megawatt hour, there were others. They won’t make you proud.
Highest “B” Class GA per MWh ever @ $123.07/MWH – What the $123.07 represents is a Global Adjustment cost to all Class B ratepayers of 12.3 cents /kWh without including the HOEP (Hourly Ontario Electricity Price) at a time when Premier Wynne has told us her government is reducing our electricity bills by 25%* so the difference between what the cost of electricity was in May and other months and the TOU rates (to be announced) will be “kicked down the road” to be paid at a future date.
Highest “B” Class total dollar GA cost ever @ $1,013.9 million – The Class “B” ratepayers got stung badly in May 2017 as their portion of the GA reached record levels.
Highest OPA contracted GA monthly cost ever @ $838.3 million – The Ontario Power Authority (since merged with IESO) was created by Dwight Duncan when Minister of Energy and contracted for all new power contracts, including those above market ones for renewable energy (wind, solar and biomass). Those contracted generation sources set a new record for contribution to the GA representing 73.2% of the total amount as noted under # 5. below.
Lowest “B” Class consumption for May (in evidence) @ 8.310 TWh – It would appear that Class “B” ratepayers did their best to reduce consumption and based on data on the IESO website consumption levels set a record low in May 2017.
Highest overall total GA costs ever @ $1,144.5 million – The total GA costs for May 2017 for the combination of Class B and A ratepayers achieved this record level since the GA was first created.
Based on what happened in May, it would appear that holding future rate increases in the next four years to the inflation index will result in huge increases when the hold-back (financed by taxpayers via the OPG) is slated for recovery.
That could make the Debt Retirement Charge look like chump change!
* The OEB has not yet announced the TOU rates that will apply effective July 1, 2017 as a result of the passing of the “Fair Hydro Plan” Act in the Ontario Legislature.
Stumbling over the IESO weekly summary* for May 24th to May 30th came with a shocking discovery that the HOEP (Hourly Ontario Electricity Price) for the week had descended to a low of $1.05 /MWh (megawatt hour) or 0.11 cents /kWh (kilowatt hour).
As it turns out, there is probably nothing you could buy for eleven one hundredths of a cent except for what was surplus to Ontario’s electricity demand for the week.
If you were looking to buy power from Ontario while living elsewhere it was much better than a Boxing Day or Black Friday sale! During that week IESO exported 278,712 MWh to NY, Michigan, Quebec, etc., which could have supplied 1.6 million average Ontario households with their electricity needs for the whole week for 19 cents. Yes, you read that right! The 278,812 MWh cost Ontario ratepayers the GA (Global Adjustment) which IESO’s 2nd estimate for May suggests will be $127.76/MWh (12.8 cents /kWh)!
What that means is, Ontario’s ratepayers will pick up $35.6 million in GA costs reducing electricity rates for our neighbours. Our neighbours can use that cheap power to lure small and medium sized businesses to their state or province. The businesses being lured away provide employment for many Ontarians.
Now, so surprised was I by the foregoing I fired off an e-mail to my friend Scott Luft about the meager amount of the HOEP for that week. Scott quickly responded suggesting a look at the prior week which he said was even more egregious. So egregious, that the HOEP for the week of May 17th to May 23rd was negative at -0.48 /MWh or -0.5 cents /kWh. He closed with the thought provoking “free power is really expensive” alluding to wind and solar as a fuel having virtually no cost!
It turned out the 308,616 MWh exported to NY, Michigan, etc., for the week commencing May 17th required Ontario ratepayers to pick up almost the full costs of our surplus and unneeded** generation and to also pay our neighbours to take it off our hands. The cost of the latter was $148,134. and the cost of the generation based on the second IESO estimate of the GA for May was $39.4 million! Those exported 308,616 MWh were equivalent to the “average” consumption of 1.8 million Ontario ratepayers for one week. Those 1.8 million ratepayers if they lived in Ontario, unburdened by the GA costs, would have been paid .83 cents for their average weekly consumption.
Instead of a benefit, those ratepayers were obliged to pay 12.8 cents /kWh for power they didn’t consume and also pay $20.00 for their own “average” consumption of 172 kWh for the week.
In just two weeks of May Ontario ratepayers subsidized the generation and export of 587,328 MWh at a cost of $75 million (excluding costs of curtailed wind, spilled hydro, etc.) to ensure our grid was stable and not cause blackouts or brownouts.
What the foregoing highlights is the complete mess our various Ministers of Energy have made of Ontario’s electricity system by catering to the whims of the many unqualified environmental groups who have led our government down the path of contracting for intermittent and unreliable wind and solar generation at high rates to save the world without even so much as a cursory cost/benefit analysis.
Just those two weeks of May 2017 make it obvious: Free power is really expensive!
June 6, 2017
* IESO’s weekly summaries commence Wednesday running to Tuesday of the following week.
**Unneeded generation costs include: spilled hydro, curtailed wind, steamed-off nuclear and idling gas plants.
April brought high winds, record curtailment of wind power, and record low consumer demand. Wasted and exported power could have supplied half the homes in Ontario for a month.
The Independent Electricity System Operator (IESO) recently released their April 2017 Monthly Market Report with information on power consumption, market pricing, exports and a host of other data. What the April report revealed was Ontario’s average demand was low — so low that when energy analyst Scott Luft searched IESO’s records, he found the total demand for the month was a record low. He searched back to 1994, which is as far back as available.
The total demand reported by IESO for April 2017 was 9,788,614 megawatt hours (MWh): Ontario ratepayers are conserving, or we have lost many industrial clients, or both!
Another significant fact appearing on IESO’s website is that April was a pretty good month for Class A ratepayers. They consumed 21.9% of Ontario’s demand, but were only charged 11.4% of the Global Adjustment (GA), $965.7 million. Class B ratepayers (that’s you and me, and small businesses) were charged with paying 88.6% of the GA, but represented only 78.1% of Ontario’s demand.
Cost: $160 million for revenue of $14 million
The other disturbing fact about April was our net export sales of power. That totaled 1,311,120 MWh sold at an average price of $11.14/MWh for a revenue of just $14.6 million for power that cost ratepayers $160 million. The loss of $145.4 million for the month contributed to the GA total of $965.7 million.
That 1.3 million MWh of exported power — which you paid for — could have provided power for more than 1.7 million average Ontario households at a cost of 1.11cents/kWh or just $8.35 for the month! (Assuming average use of 750 kilowatt hours/kWh of electricity for the month.)
Reviewing the IESO stats provides relatively current information but it doesn’t disclose the source of the generation, or what caused the hourly Ontario electricity price (HOEP) to be so low. Did we, for example, have to curtail wind?
Wind power: wasted. Again.
For that information I depend on my friend Scott Luft, who keeps a monthly data file which includes not only actual industrial wind generation, but also an estimate (always conservative) of curtailed wind power which we pay for but isn’t delivered to the electricity grid. For the month of April 2017, wind power generated and curtailed (521,056 MWh) was 1,374,873 MWh, for a cost of approximately $182 million.
Curtailed wind in April was the highest on record since we began paying for it back in September 2013!
Here’s the fatal math:
net exports of 1.3 million MWh +
the 521,000 of curtailed wind = 18.7% of total Ontario demand.
Combined, the 1,832,176 MWh at the HOEP price of $11.14/MWh and 1.11 cents/kWh and what do you get? Enough power for more than 2.4 million average households (over 50% of all households in the province) with their average need for power at a cost of only $8.35 — for the whole month.
Why doesn’t Premier Wynne simply cancel the Green Energy Act and the contracts for projects not yet built?
Either math is a problem for the Premier or she doesn’t want to admit to another “mistake”!
May 28, 2017
*Please note the GA is the can Premier Wynne is “kicking down the road” under her “Fair Hydro Plan” where she will refinance assets the Province doesn’t own by getting Ontario Power Generation to accumulate the debt for the uncoming 25% reduction in our monthly bills for the next four years. Look forward to a reappearance of the DRC (Debt Retirement Charge) but on a bigger scale in 2021!