Is it time for Ontario to use more power?

A warm summer meant  electricity use went up and costs went down. Is there a lesson here?

Photo © Norris Wilson

With Ontario experiencing a relatively warm summer, I thought it might be interesting to look at three recent months, starting with May 2018, to see if power consumption had increased compared to the same period in 2017.

As it turned out, May, June and July in 2018 versus the same three months in 2017 resulted in an increase in total demand (Ontario consumption plus net exports [exports less imports]) of 1,447,000 MWh or 3.9%.   With “net exports” dropping by 1,120,000 MWh, Ontario consumption actually increased by 2,567,000 or 7%.  This increase occurred despite the continued spending of approximately $400 million annually on conservation initiatives.

You might expect that an increase in power consumption by that much in Ontario would have resulted in a substantial increase in the cost of electricity, but as it happens, the amount was a meager $73 million for that extra 2,567,000 MWh. Based on the average cost (GA + HOEP) of electricity over those three months, the additional cost should have been around $313 million. The additional consumption cost only 2.8 cents per kWh (kilowatt hour).

The question is: why did that additional consumption (enough to power 1.1 million average households for the three months) cost so little?

There are several reasons why! First, curtailed wind (paid for but not added to the grid) in 2018 was 416,400 MWh* less than 2017. That means the savings from lower curtailment was approximately $50 million.

As well, Ontario’s net exports were thus lower by 1,120,000 MWh — that saved Ontario ratepayers the full cost of the GA (the GA averaged about $101/MWh in 2018) or approximately $113 million.

And, the 3.4 million MWh of net exports in 2017 generated only about $8/MWh versus $20/MWh in 2017 (the approximate GA for the three months in 2017 versus 2018) for the 2,280,000 MWh of net exports in 2018 for a net benefit in 2018 of about $18 million.

If one totes up the additional costs of $73 million plus the wind curtailed savings of $50 million, the $113 million saved due to reduced net exports, and the $18 million extra earned on export sales due to a higher GA in 2018, it comes to $254 million or $59 million short of the $313 million noted above.

I suspect the unexplained $59 million is related to: spilled hydro, steamed-off nuclear, and a reduction in the Class B to Class A subsidy resulting from the higher average GA. Most of those latter details are not yet publicly available.

Interestingly, wind power — generated and curtailed — was equal to 80% of net exports in 2017 and 112% of net exports in 2018. That suggests wind power was surplus to demand in both years.

It time to acknowledge again that wind, as an intermittent and unreliable source of power, tends to present itself when not needed. That, along with the multiple millions spent by the previous government encouraging electricity consumers to conserve has a simple effect!

Together, they simply drive up the cost of electricity.  Perhaps we should increase consumption to drive costs down.

© PARKER GALLANT

*Thanks to Scott Luft for his data related to wind generation and wind curtailment.

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Canada’s wind power lobbyist re-energizes its spin


September 3, 2018

The Comber wind power project in Ontario: intermittent, unreliable power. Alberta, are you watching?

A recent posting by Robert Hornung, President of the Canadian Wind Energy Association (CanWEA), occurred shortly after the Ontario government passed an Act to terminate the White Pines wind power project.

Mr. Hornung’s post on the CanWEA website contained these statements.

“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.”

It is ironic that Mr. Hornung, on behalf of CanWEA’s members, would claim they share the “commitment to an affordable and reliable electricity system” while suggesting “Maintaining investor confidence in the Ontario marketplace is important”.

Is he unaware Ontario has lost many good manufacturing and processing jobs due to the high cost of electricity, or has he simply chosen to continue to spin the fallacious claim that wind power projects have not played a role in driving up the operating costs (electricity rates) of the numerous large and small manufacturing and processing plants that have either closed or moved to other jurisdictions?

CanWEA, leaving behind its effect on Ontario’s economic well-being, appears to be moving on to greener pastures, promoting the same spin to politicians who buy into their claims. Now that they have sucked Ontario dry, they are headed to Alberta where Premier Notley has signaled her plan to close the 6,300 MW of coal plants and replace two-thirds of them with 5,000 MW of renewable energy, including 4,500 MW of industrial wind turbines (IWT).

CanWEA in yet another post on its website seems excited at the new prospects and boasts: “Wind energy developments are making positive and lasting social and economic contributions in communities across Alberta.”

With that in mind, it is ironic that at 11 AM on August 20, 2018, the 1,491 MW of wind turbines in Alberta delivered just 5 MWh* of power to the grid — that’s about 0.33% of their capacity.

Needless to say, similar occurrences have been seen in Ontario and many other places around the world where wind turbines have been constructed. This clearly demonstrates power generation from wind is both intermittent and unreliable, and must be backed up with reliable generation in the form of hydro or fossil fuel generation.

CanWEA buttresses their claims with promises of jobs and prosperity in yet another recent posting on their website. “Wind energy will also generate jobs and other benefits for Albertans, as a recent Delphi Group report demonstrates. And it can be an important part of a broader economic diversification strategy for the province, with the total potential for local project development and construction spending alone reaching $3.6 billion by 2030.”

If you actually read that report, you’ll find it suggests most of the estimated $8.3 billion spending ($1.8 million per MW) will actually occur elsewhere. Alberta produces very little of the materials required to erect wind turbines so the local jobs created will be temporary, in the planning and construction phase. In fact, the report suggests only 15,000 person-years of employment will be created for the $3.6 billion planned to be spent on planning and construction. The report also suggests 714 jobs may be permanent during the O&M (operations and maintenance) phase; however, even that seems optimistic as that would suggest one permanent job for every six MW which at a 2-MW average would represent only three turbines. In fact,the standard is one technician per ten turbines.

With the recent negative Superior Court ruling on the Trans Mountain pipeline build, and Premier Notley’s plea for action by the federal government, it is obvious her government will soon experience a lack of anticipated revenue to execute both her social programs and the provincial climate plan. The slowdown in royalty revenues will push Alberta into further debt. For that reason, it is not enough that she has pulled out of the federal climate plan and should, if logic prevailed, also cancel the provincial climate plan.

I found it stupefying that Premier Notley said “The time for Canadian niceties is over. We are letting other countries control our economic destiny. We can’t stand for it.” Is she suggesting the National Energy Board and the Superior Court are controlled by “other countries”?

Premier Notley should have cancelled the provincial climate plan including replacing coal generation plants with unreliable wind and solar power generation if she really wants to make her point, instead of blaming others.

The time has come, alright: time for Canada’s politicians to stop believing the spin from lobbyist CanWEA, and instead act in the best interests of Canada’s ratepayers/taxpayers. Politicians need to show us they aren’t controlled by those foreign-controlled entities granted contracts to erect symbolic industrial wind turbines.

PARKER GALLANT

*Thanks to Steve Aplin who posted this info on his twitter account: https://twitter.com/SteveAplin

Hydro One’s profit engineering and the Fair Hydro Plan

Who gained the most under the Fair Hydro Plan? Not you. Hydro One comes out the winner

That baby is still not happy… who comes out on top with the Fair Hydro Plan?

In the section titled ”Other Regulatory Developments” in the “Management’s Discussion and Analysis” chapter of Hydro One’s financials for the year ended December 31, 2017, is this interesting note. (The emphasis is mine.)

“In March 2017, Ontario’s Minister of Energy announced the Fair Hydro Plan, which included changes to the Global Adjustment, the Rural or Remote Electricity Rate Protection (RRRP) Program, the introduction of the First Nations rate assistance program, and improving the allocation of delivery charges across the rural and urban geographies of the province. Hydro One worked collaboratively with the OEB on the First Nations rate assistance program, and was a key stakeholder in providing solutions that address both the Global Adjustment and RRRP elements. The Fair Hydro Plan came into effect on July 1, 2017 and resulted in a reduction of approximately 25% on electricity bills for typical Ontario residential customers. The Province also launched a new Affordability Fund aimed at assisting electricity customers who cannot qualify for low-income conservation programs. Additional enhancements were also made to the existing Ontario Electricity Support Program (OESP).

Hydro One customers saw the full benefits of the Fair Hydro Plan for all electricity consumed after July 1, 2017. A typical rural residential customer using 750 kWh per month will see savings on their monthly bills of 31% on average, or approximately $600 annually. These changes did not have an impact on the net income of the Company.

Now, fast-forward to the release of Hydro One’s 2018 2nd Quarter results and there is no mention of the Fair Hydro Plan, the Global Adjustment, the RRRP or the First Nations rate assistance program!

In the recent report, Hydro One simply brags about the big jump in its net income. That jump was supposedly due to approval of a substantial transmission rate increase and favourable weather noted as “higher energy consumption resulting from colder weather in April 2018”!*

The actual growth in revenue for the six months was only $24 million; however, after-tax net income** year over year increased from $284 million to $422 million, showing an increase of $138 million or 48.6% for the comparable six months.

Dreams come true … for Hydro One

If one looks at gross revenue less the cost of “purchased power,” Hydro One’s RoR (Return on Revenue) for the six months was 25.6% (after-tax). Any other service provider or retailer could only dream about growth like that!

So, was the $138 million improvement in net profit a reflection on the now retired, six-million-dollar man’s achievements or other factors?

Let’s look at a few aspects of the results.

As it turns out, the “substantial transmission rate increase” generated additional revenue of $123 million. The transmission revenue is paid for by all local distribution companies (LDC) and included in the “delivery” line on electricity bills. The result of the $123-million increase collected by Hydro One (and all LDC) in delivery costs should have increased that line on the bills, but for Hydro One customers, it didn’t!   The “delivery” costs for Hydro One customers is estimated to have decreased from about 8.2 cents/kWh to 5.4 cents/kWh and “distribution” revenue fell by $96 million despite increased demand of 5.4% (697,000 MWh) in the comparable six months.

Another significant item affecting the positive results is related to what Hydro One paid for the cost of power which fell (despite increased demand) by $113 million from $1.538 billion to $1.425 billion and also fell for “delivery” line items previously included on hydro bills.

The kickbacks, under the Fair Hydro Plan, resulted from moving the “purchased power” costs to future ratepayers and by moving costs of issues such as the OESP*** and “conservation” spending to current taxpayers.

Those cost shifts naturally had a positive effect on Hydro One’s earnings.

In addition, and as noted in an article in the Ottawa Citizen Hydro One is responsible for monitoring “the energy production and pay thousands of FIT and MicroFit producers across the province, it is no longer able to share any information about those contracts publicly.”

Worthy of our trust?

Hydro is simply required to submit a bill to the IESO for the generation produced for all the MicroFIT contracted parties on their distribution network. Those bills are submitted monthly without scrutiny by the OEB or IESO, and IESO simply writes them a cheque the cost of which is billed to all of Ontario’s ratepayers.

Should we trust Hydro One’s billing process for those thousands of FIT and MicroFIT producers, knowing that back in 2015 Ontario’s Ombudsman reported they issued more than 100,000 faulty bills to their customers? Privatization by the former Ontario Liberal government has resulted in a monopoly, now operating without oversight.

The Ottawa Citizen article about this issue had a fitting comment from Steve Aplin, an energy environment data specialist (website Emmissiontrak): “That’s what happens when you break up this system. Now, nobody is minding the store. It’s outrageous that the IESO, they send the cheques. You don’t just blindly send a cheque off to somebody. There must be some fiduciary responsibility.”

The results of Hydro One working “collaboratively” with the OEB reduced revenue in a positive way for them, as they shifted costs to future ratepayers and current taxpayers, generating higher profits.

Additionally, despite ratepayers picking up the billions in costs for “smart meters” and the “smart grid” neither the OEB or the IESO seem able to execute their fiduciary responsibility!

From all appearances, improving results for shareholders is more important now than containing costs for ratepayers and taxpayers for Hydro One, IESO and the OEB.

© Parker Gallant

*A quick estimate of additional April demand for Hydro One suggests increased distribution revenues of $10 million at say $50/MWh for the additional (estimated) 200,000 MWh their ratepayers consumed.

**Net Income before costs attributed to the planned acquisition of Avista Corporation.

***Hydro One has consistently had the highest percentage of dollar amounts in customer arrears. In 2016 they had almost 52% of all dollar amounts of arrears of $69.7 million.

 

What did we get for billions spent on electricity in Ontario?

It’s not over: Ontario taxpayers and ratepayers will be paying for the past government’s mismanagement for years to come. Here’s how… and how much.

Ontario wind turbines at Belle River project

The last in a series on the IESO

August 2, 2018

The two earlier articles about Ontario Independent Electricity System Operator or IESO revealed the fact that it could be “gamed” — and in fact, it was! To the tune of $100 million, by just one generator.

Needless to say, any gaming by a local distribution company (LDC) also may be happening. Why would I suggest that?  When I asked the IESO why the Fair Hydro Plan “Variance” amount was so high for May 2018, they said this:

“Please note that settlement data submitted to the IESO by the LDCs is not audited by the IESO (audit responsibilities reside with the OEB) and is processed as submitted.”

The May “Variance” amount was $309.9 million. More disturbing is that the first six months of the current year has rung up $1.180 billion in the “Variance” which could represent $2.360 billion for 2018 if the last six months are similar.

The results to date of the FHP “Variance” amount is well in excess of the calculations presented by the Ontario Financial Accountability Office (FAO) in their review, which had the following note:

“Figure 3-3 summarizes the FAO’s estimate of the annual cost of the FHP through to 2045-46. The FAO estimates the cost of the FHP to the Province will peak at $1.8 billion in 2020-21, after which the FAO assumes that the electricity relief programs will no longer be funded by the Province. The HST rebate is forecast to cost $0.9 billion in 2021-22, rising rapidly to $1.6 billion by 2028-29”.

The average suggested by the FAO per year was $1.750 billion, so, at the current rate of accrual, future Ontario ratepayers may be looking at total of almost $9.5 billion (without including interest costs) added to our electricity bills.

Taxpayers will be affected too: They’ll have to bear the costs of lost revenue of about $4.1 billion (plus interest costs) associated with the HST rebate and another $3 billion associated with “Adjusting Electricity Relief Programs”. The latter includes the RRRP (Regulated and Remote Rate Program) the OESP (Ontario Electricity Support Program) and a new First Nations On-Reserve Delivery Credit and Affordability Fund.

So, the 17-percent reduction on our electricity bills, coupled with the HST foregone tax revenue plus the cost of those “Relief Programs” represents $16.6 billion of spending, without interest costs.

What are we getting for $16B?

What are we getting for that $16.6 billion? No new power generation. No new transmission lines or upgrades to LDC infrastructure. Simply more wasted money, lots of it, as a result of the Green Energy Act.

Questions put to the IESO about the May Variance amount got the following response from them:

“Hi Parker– the increase in GA deferral in May is mainly due to most LDCs submitting settlement data to the IESO based on the second GA estimate which was unusually high (i.e., 13.2 cent/KWh) in May. LDCs submit May settlement data to IESO during the first four business days of June at which time the actual GA rate would not have been calculated yet as per IESO’s settlement schedule. Each month there is a true up when LDCs submit their data to the IESO for the previous month plus an estimate of the current month they are submitting for.”

Read that and you have to ask, Why? Why not settle the Variance account once IESO has determined “the actual GA rate” rather than go through a series of wasted financial maneuvers? Logic doesn’t seem to be a formula used or followed within the electricity sector.

Are the ratepayers and taxpayers being “gamed” or can we trust IESO with our hard-earned money and believe that each and every action by them is truly being “audited” by the OEB?

I will leave the foregoing question to be answered by an “Electricity Audit” that will hopefully be conducted by Ontario’s new government.

PARKER GALLANT

 

Which is it, Mr Manley?

John Manley of the Business Council of Canada is complaining that cancelling wind power contracts is bad for business. But he says high electricity costs are bad for business, too.

Business spokesperson John Manley doesn’t get it: high-priced wind power contracts aren’t good for business

July 27, 2018

The unwanted and unneeded 18.45 MW White Pines wind power project being erected in Prince Edward County is receiving a lot of attention. The people in “The County” have been fighting the project for years with some success and were continuing that fight.  Nevertheless, IESO granted wpd Canada an NTP (notice to proceed) after the writ for the Ontario election was drawn up, and the power developer charged ahead.

They did so knowing the newly elected Premier Ford-led government were proceeding with a “special act” in the Ontario Legislature to stop the project. German owned wpd ignored the backdating of the “act” to July 10, 2018 and in response to the “act” (noted in a CBC article) responded: “The company has indicated that it will seek to recoup $100-million that it has sunk into the project, but it is not clear how much the provincial government will agree to pay. The legislation requires wpd to cover the cost of decommissioning the project and to restore the land to ‘clean and safe condition’.”

The action caused Berlin’s ambassador to Canada Sabine Sparwasser to suggest the move to cancel the project represents a black mark for the province in the eyes of foreign investors: “Obviously, every incoming government has the right to change policy direction. But to have a unilateral cancellation pushed through by law that way is unsettling for the company, but is also something that will unsettle other potential investors.”

Shortly after, John Manley, President of the Business Council of Canada, wrote a letter to Premier Ford in which he said: “(The Act) would revoke permits several years after the proponent obtained them from the appropriate regulatory bodies, cancel contracts with the Independent Electricity System Operator that were negotiated in good faith and unilaterally set the terms upon which the proponent may be eligible for compensation.” What Mr. Manley failed to note is that wpd were facing three charges under the Environmental Protection Act and the NTP was issued after the writ period, so it was in fact the proponent who failed to act in “good faith”. Mr. Manley did not fully investigate the circumstances surrounding the proposed act and simply sided with the developer without consideration of the other contentious issues.

Interesting is a letter Mr. Manley sent to Premier Wynne, last June 15, 2017 in which he noted: “According to the Ministry of Finance’s Long-Term Report on the Economy, Ontario’s average annual growth rate is projected to slow to 2.2 per cent between 2016-2020. At the same time, businesses in Ontario are adjusting to sharply higher electricity rates, higher CPP contribution rates and the implementation of a cap-and-trade program for greenhouse gas reductions.”

Yet another letter Mr. Manley sent to Glen Murray, then Ontario’s Minster of the Environment and Climate Change back in March 2015 stated: “Ontario firms are facing a number of challenges, not the least of which is higher electricity costs as a result of policies already adopted by the government.”

It would appear Mr. Manley, a former Liberal MP and Deputy Prime Minister of Canada, failed to realize how industrial wind turbines helped cause those “higher electricity costs.” At the same time, he seems to condone the actions of parties who fail to follow legislation meant to protect voters and our environment.

Mr. Manley and the Council he represents cannot have it both ways.

Ontario’s complicated (and expensive) struggle with energy poverty

In a recent article on CBC Sudbury, Wendy Watson, Director of Communications for Greater Sudbury Utilities, was quoted as saying there are 590 customers in Sudbury who could face possible disconnection this spring, compared with just 60 when the ban against power disconnections started in November.

The Energy Minister responded saying, he hoped people having trouble paying their power bills will talk to their hydro utility and look at the numerous programs the government offers to help low-income citizens.

Coincidentally, a recent article in the Financial Post carried dire news: “The proportion of Ontarians living in low-income rose a scandalous 26 per cent from 2003 to 2016. No other province even comes close to performing that badly.” The article also noted “the latest Statistics Canada data show that in 2016, the percentage of Ontarians living in low-income exceeded the national average for the fifth straight year.”

Also in the CBC Sudbury article is an interesting comment from Ferio Pugilese, EVP Customer Care for Hydro One. CBC reported he said the company has worked hard to configure payment plans for customers over the last three years and find ways for them to pay “that fit their lifestyle.” Pugliese also told the CBC that disconnections and the amount owing from outstanding bills to Hydro One are down 60 per cent in the last year.

What Mr. Pugilese says sounds impressive — unless you look at a 29 page report the OEB (Ontario Energy Board) produced for the 2016 year (referenced in an earlier article about “energy poverty”).   The article didn’t specifically highlight Hydro One’s data but, needless to say, it stood out as the “winner” in most categories including: disconnections (up 407% from 2013 to 2016), number of customers in arrears at year-end (8.5% of all their customers or one household out of each 12 on a street), total dollar amounts of arrears (51.7% of all residential ratepayers but only 24.7% of all residential customers), number of arrears payment agreements (55.9% of all arrears payment agreements), total monies owing under arrears payment agreements (75.1% of all) etc., etc.

So, based on the horrendous results reported by Hydro One for 2016 in respect to customers arrears, the question is, how could they have possibly reduced their disconnections and the amounts owing by 60%?

Well, the answer is, Hydro One should send a big thank you to all taxpayers and future ratepayers as many of those arrears were picked up by via the Fair Hydro Plan and by several changes in the allocation of ratepayer costs to taxpayers.

Here are some that significantly benefited Hydro One!

The litany of band-aids                                                                                                                 

First look at an October 19, 2016 press release which states “The Ontario Rebate for Electricity Consumers Act, 2016 will reduce electricity costs by 8 per cent on the amount before tax, an average savings of about $130 annually or $11 each month, for about five million residential consumers, farms and small businesses.” On the “about five million” ratepayers, that $130 annual reduction represented about $650 million in foregone tax revenue and for Hydro One, it was a reduction of around $140 million they didn’t have to bill ratepayers for.

Now the second big benefit for Hydro One is found in another note in that press release: “Eligible rural electricity ratepayers will receive additional relief, decreasing total electricity bills by an average of $540 a year or $45 each month.”

The ratepayers referenced were those under the RRRP (rural or remote rate protection program) which the Energy Minister in his May 11, 2017 press release (announcing the Fair Hydro Act) noted: “Enhance the Rural or Remote Rate Protection (RRRP) program to provide distribution charge relief to about 800,000 customers and shift costs from ratepayers to provincial revenues. This would include customers served by local distribution companies (LDCs) with the highest rates.” That translates to a cost of $670 million and for Hydro One, with over 300,000 of those customers, it represents taxpayer funding of $160 million annually.

The third benefit for Hydro One was the substantial (50%) increase in the OESP (Ontario Electricity Support Program) which will also be funded by taxpayers. When the plan was first launched, the estimate for annual costs was approximately $200 million, so the increase would drive that to $300 million. With Hydro One servicing 25% of Ontario’s five million ratepayers, they would again receive a minimum of $75 million from taxpayers.

Collectively, the above three benefits will result in taxpayer support for Hydro One of $375 million.

Reviewing Hydro One’s 2017 annual report discloses that 54% of “distribution revenue” came from residential ratepayers, which would amount to $2.36 billion. And, the cost of power (CoP) would represent $1.25 billion, meaning Hydro One’s net revenue from those customers was $1.11 billion. If one excludes the foregone sale tax of $140 million, it means Hydro One will annually receive subsidies from taxpayers of $235 million — that’s 19% of their net distribution revenue!

Due to the Green Energy Act, Ontario’s electricity ratepayers have subsidized renewable energy generation for years (principally wind and solar) and now, with the Fair Hydro Act, the government enlisted taxpayers to subsidize the local distribution companies, with Hydro One being the biggest beneficiary.

Knowing the intricacies as described, it is easy to understand why Hydro One’s EVP Mr. Pugilese can make the claim that disconnections and outstanding bills are down 60 per cent. Hydro One is being handed $235 million of taxpayer money, which must have gone a long way to reduce both the disconnections and amounts in arrears.

Parker Gallant

 

*At year-end 2016 Hydro One claimed they had disconnected 14,114 customers and at year end had 96,397 customer accounts in arrears that represented $69.7 million.

In writing these posts, I am an independent observer and commentator on Ontario’s energy sector.

Class distinctions in Ontario’s electricity sector

Ordinary consumers try to conserve while …

Ontario: where the energy ministry robs Peter to benefit Paul

April 15, 2018

The data is out for the first two months of 2018 for both the consumption of electricity as well as the costs to Ontario’s upper and lower class of consumers.

According to Independent Electricity System Operator or IESO, consumption increased by 4.7% or 1.084 terawatts (TWh). That’s what 725,000 average households would consume for two months.

The annoying thing about the increase in consumption, however, is while Class B (that is, regular folks) ratepayers reduced consumption by 729,000 MWh Class A ratepayers (customers with higher demand such as businesses) increased their consumption by 1.813 million MWh.

So, why did consumption increase? If you guessed, Ontario’s energy ministry launched a “Black Friday” or a post “Boxing Day” sale, you would be heading in the right direction!  To explain: if one travels back to the days when Brad Duguid was the Minister of Energy he 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. He issued that directive and, as they say, the rest is history.   The resulting ICI (Industrial Conservation Initiative) granted the “A” ratepayers the ability to reduce their consumption during the “high five” peak hours and the reward was the GA (Global Adjustment) component would drop significantly for them.

Originally, Class A ratepayers were only the largest industrial clients (approximately 170) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new class distinction in January 2011, however, Class A clients have evolved further, to allow those with peak demand exceeding 500 kilowatts (kW) per hour. In other words, because industrial jobs were fleeing Ontario and various associations such as the Chamber of Commerce, the Canadian Federation of Independent Business, the Association of Major Power Consumers of Ontario, etc., made their concerns known, the ability to “opt in”’ to Class A was lowered. The results should have been obvious: Class B electricity costs would climb higher!

January and February 2018 saw the “B” to “A” Global Adjustment or GA subsidy transfer increase to $201 million compared to $179 million in the same two months of 2017. The full cost of the transfer and the extra $22 million (+ 12.3%) is allocated to Class B ratepayers, and probably includes some newly classified “A” ratepayers.

When you review the GA subsidy Class B ratepayers provided in 2017 compared to 2016, the increase year over year is up $369 million or 30%.   In 2016 Class B ratepayers absorbed $1.222 billion of the GA subsidizing Class A ratepayers and that support jumped to $1.591 billion in 2017. The $369 million increase occurred despite Class B ratepayers reducing their consumption by 9,976,000 MWh (what 1.1 million average households would consume in a full year) while Class A consumption went up by 5.146 million MWh.

No doubt most of this increase can be attributed to the lower “A” qualification level but IESO does not disclose that information.

For those of you who like to “connect the dots” here’s the puzzle: the almost $1.6 billion annual Class B subsidy added to the $400 million spent on “conservation” comes to $2 billion.   That $2 billion annual cost of 2017 comes very close to the Financial Accountability Office’s estimate of the annual cost of the Fair Hydro Plan at $2.1 billion.

Coincidence?

As it turns out, the outcry from Class B ratepayers about high electricity costs started to result in negative media attention which presumably brought about the concept of the “Fair Hydro Plan” which actually kicks about $2 billion of annual costs down the road for the next ten years.

Despite the obvious Class B to Class A subsidy highlighted above, the Fraser Institute’s* recent report on Ontario’s electricity system notes in the Executive Summary: “In 2016, large industrial users paid almost three times more than consumers in Montreal and Calgary and almost twice the prices paid by large consumers in Vancouver.” So, even though Class B ratepayers contributed $1.222 billion in 2016 to help reduce electricity rates for Ontario’s large industrial users, they still paid almost three times more than their counterparts in Montreal and Calgary.

Parker Gallant

*From the Fraser Institute report: “The centerpiece of the GEA was a Feed-In-Tariff program, which provides long-term guaranteed contracts to generators with renewable sources (wind, solar, etc.) at a fixed price above market rates. In order to fund these commitments, as well as the cost of conservation programs, Ontario levied a non-market surcharge on electricity called the Global Adjustment (GA).”