Electricity in Ontario: save more, pay more

Consumption went down, costs went up!

The IESO (Independent Electricity System Operator) released their July 2017 Monthly Market Report several days ago, including Class B ratepayer consumption levels along with the cost of electricity by MWh (megawatt hour) and kWh (kilowatt hour).

Compared to the July 2016 report, it shows Ontario’s ratepayers used 910,000 MWh less (down 7.2%) in 2017 than 2016 (enough to power 100,000 average residential homes for one year) yet the cost^* of the electricity generated jumped, from $106.47/MWh (10.6 cents/kWh) to $126.41/MWh (12.6 cents/kWh) or 18.7%!

To put this in context, Ontario’s Class B ratepayers reduced their consumption from 10.495 TWh (terawatt hours) in 2016 to 8.858 TWh (down 15.6%), while Class A ratepayers increased their consumption from 2.284 TWh to 3.062 TWh (up 34.1%). The cost of power consumed by both Class A and Class B ratepayers increased substantially year over year.

The impact on Class B ratepayers is being tempered by the debt being accumulated under the Fair Hydro Act that will eventually result in a new and higher debt retirement charge. Some of the additional costs can be attributed to losses on our export of surplus power increasing its cost from $88 million in 2016 to $105 million in 2017.   Wind curtailed (21.3% of potential generation in 2017) costs also increased from $13.2 million to $14.4 million in 2017.

What it means: despite a reduction in consumption of 15.6 %, total costs increased!

Looking at the IESO’s “Global Adjustment Components and Costs” for July 2017, you see that dividing the published Class B costs of the GA for July of $913.4 million by the consumption figure of 8.858 TWh results in a GA cost of $103.11/MWh (10.3 cents/kWh). That cost is $9.71/MWh less than the GA Monthly Market Report of $112.80.  The difference of $86 million^** in additional costs was allocated to Class B ratepayers for the month of July.

When I saw that apparent difference, I inquired why.   What I got back was this:

“Regarding the discrepancy you’ve identified on the Global Adjustment Components and Costs web page, the reason for the difference is because of adjustments between Preliminary Settlement Statements and Final Settlement Statements for previous months. Page 28 of Market Manual 5.5 explains this. The rate as posted in the monthly market report, is not the Class B GA amount divided by TWh. Rather, it is set to cover all payments made through GA including those held in the variance account.”

The “variance account” referenced in the response from the IESO spokesperson is cleared every six months when the Ontario Energy Board (OEB) set future rates and would have been cleared when they reset the new rates under the Fair Hydro Act that applied to Class B ratepayers as of May 1, 2017. As a result of the reply, I undertook similar calculations for other months as a test and all of them wound up within pennies … not the almost $10/MWh difference for July 2017.

What I get from all this is, transparency may not be all it is claimed to be when a mistake is made, or alternately $86 million for one month being billed to ratepayers is considered a rounding error!  What is obvious is that “conservation” costs Class B ratepayers a lot of money.

Parker Gallant,

September 3, 2017

 

* GA (Global Adjustment) + HOEP (Hourly Ontario Energy Price).

** Calculation is 8.858 TWh X $9.71 million/TWh

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Hydro One says: use less power! We still make money!

Hydro One, in keeping with the directives from former Energy Minister Bob Chiarelli and the Long Term Energy Plan, “Conservation First” tells us: use less electricity.  If I were a Hydro One shareholder I would be struggling to understand why the company would want their customers (all captive) to use less of the product(s) they distribute. Wouldn’t that affect revenue and profitability?

Before privatization of Hydro One we were told by the Premier’s Advisory Council head Ed Clark that “The Council’s main preoccupation relative to unlocking value from its interest in Hydro One is how best to obtain maximum financial value from a transaction while also maximizing protection for taxpayers and ratepayers.”

So, privatization of Hydro One was undertaken because the Ontario Liberal government wanted to unlock the value of Hydro One. Ontario still holds controlling interest in Hydro One so via the Ontario Energy Board (OEB), the Wynne government can ensure revenue and bottom line profitability grow, despite instructions to tell their rate-paying clients to use less!

Hydro One is doing this in two ways.

First is to keep raising distribution rates with the full blessing of the OEB; and second is, issue “shaming letters” labeled as a Home Energy Report.

The Home Energy report tells people, “You used more than average” and then compares our power use to “Efficient Neighbours” and “All Neighbours”.  The reports are sent even to people who live year-round in a tourist area where seasonal homes (cottages and weekend retreats) are located.  Those permanent residents, some of whom have to heat their homes with electricity,  may be suffering from “energy poverty” due to the extremely high distribution rates levied by Hydro One.

An example of climbing distribution rates can be found by reviewing the recent 2^nd Quarter 2016 financial report of Hydro One.  Using the information available one can calculate the “average” distribution revenue per kilowatt (kWh) versus the comparable 2^nd Quarter in 2015.   First, note the amount of distributed kWh dropped by 7.5% versus 2015, signaling either “shaming letters” are working or people are reducing usage because they want to buy food or pay their mortgage.

Second, you can see Distribution Revenue (net of the “Cost of Power”) is up modestly by less than 1%.

Third, by using figure for terawatts (TWh) distributed in the quarter (6.2 TWh) you can calculate the “average” distribution cost per kWh was 5.63 cents/kWh — an increase from the 2015 comparable quarter by 8.7%.

That’s not the whole story, however.

If you visit the OEB “electricity calculator” Web page you can quickly see distribution rates for the three categories of low, medium and urban “average” ratepayers are respectively: 12.5 cents/kWh, 9.3 cents/kWh and 6.6 cents/kWh.  There is the promise of increased distribution revenue for Hydro One’s shareholders compared to the 2nd Quarter; the OEB approved high distribution costs for the three residential classes, driving up the revenue base to higher levels than the 2nd Quarter average of 5.63 cents.

Hydro One shouldn’t be surprised if that also drives up their “residential arrears” levels at the same time.

It is hard to see how privatization of Hydro One has fulfilled the goal of maximizing maximized “protection for taxpayers and ratepayers.”

Parker Gallant

September 7, 2016

Ontario’s costly electricity conservation program slams customers

On April 14, 2016 the Ontario Energy Board (OEB) issued a notice that electricity rates would rise effective May 1, 2016. The OEB also announced that they redefined “average” consumption for residential customers.

The explanation for the rising rates was that Ontarians hadn’t consumed enough electricity during the winter months, so the OEB needed to recover the cost of what we didn’t use.   Sure sounds like conservation planning failed to realize that a reduction in consumption would result in …  lower consumption!

The OEB told us the average residential ratepayer now consumes 750 kilowatts (kWh) monthly, a drop of 5.2% (.74% per annum since 2009) or 50 kWh per month. That’s a change from the previous 800 kWh (9.6 megawatt hours/MWh annually) set in 2009. The OEB report went on to claim it all had something to do with the former Minister of Energy’s “Conservation First” vision.

The OEB’s report stated, “According to the IESO, conservation efforts achieved 1,184 GWh of cumulative energy savings among residential customers from 2011 to 2014.”   The 1,184 GW would suggest a savings of about 250 MW of capacity producing at 54% of rated capacity.  The estimated levelized cost of electricity (LCOE) from a combined cycle gas plant of that size is about $200 million according to the U.S. Energy Information Administration. That’s a far cry from the cost to Ontario ratepayers.

With approximately 4.9 million household connected to the grid in Ontario, the reduction of 50 kWh per month suggests a drop in demand of 2,940 GWh (gigawatt hours), or close to three times what the OEB claim. The remaining 1,756 GWh drop is ignored.

If we look at the “Minister’s Message” conveyed in the referenced Conservation First document from December 2015, one of Mr. Chiarelli’s messages was:  “Ontario has already made great strides in reducing electricity use. From 2005 to 2011, families and businesses across this province conserved enough to reduce demand by more than 1,900 megawatts, the equivalent of powering more than 600,000 homes. Investments in conservation allowed Ontario to avoid building new capacity that would have cost almost $4 billion, equivalent to four peaking natural gas generation plants.”

To put the foregoing message in context, 600,000 homes (at that time) would consume 5.7 million MWh (megawatt hours), meaning the 1,900 MW he refers to would only produce power at 34.2% of rated capacity. The 1,900 MW referenced by the former Minister, Bob Chiarelli, running at 100% of capacity could produce 16,644,000 MWh.  If they produced 5.7 million MWh, their capacity value would be 34.2% of capacity, which coincidently is about what the newer models of industrial wind turbines (IWT) are expected to produce annually.

It is perhaps also coincidental that about 1,200 MW of intermittent, unreliable power generation from wind was added to the Ontario grid from 2005 to 2011. If those 1,200 MW generated at only 30% of their capacity the cost to Ontario ratepayers is about $419 million annually, and $8.4 billion over 20 years.

Another claim in the Conservation First document was: “Between 2006 and 2011, investing $2 billion in conservation ($333 million annually) allowed Ontario to avoid more than $4 billion in new supply costs.” That math is really simple: $2 billion divided by 6 [years] = $333 million annually.

Another interesting sidebar found in “Conservation First” is this: “Since 1990, average household electricity consumption has declined by almost 25 per cent, representing about $350 in savings each year for the average household, based on current electricity costs.” 

Why the ministry picked 1990 is a mystery; it’s actually embarrassing! To explain, the following comes from a 2005 report prepared for the OPA: “Usage per household (intensity) fell from 12,474 kWh annually in 1990 to 10,445 kWh per year in 2003 (870 kWh per month).”

To put that into context, the decline in annual average household consumption for that period was 16.3% or 1.2% per annum, but former Energy Minister Bob Chiarelli actually brags about a 5.2% drop or a .74% annual decline.

Use less power, pay more: it’s Ontario

Needless to say, the latter decline hit ratepayers’ pocketbooks much harder than the bigger decline (1990 to 2003) and one would be hard pressed to defend the claim about $350 in savings each year, made in Conservation First. Unless, that is, you note the statement at the end of the claim which says “based on current electricity costs”.  Even then, the claim is not defensible!

What one should take from all this is that the money spent to convince us to conserve since the Ontario Liberal government came into power in 2003 has not achieved that claim or the one suggesting“for every $1 invested in energy efficiency, Ontario has avoided about $2 in costs to the electricity system.”

With that in mind one should ask, why would the average 1990 annual consumption of 12,474 kWh have cost $536.38 in 2002 (OEB Historical pricing) and in 2016 cost $1,564.50 (including HST of $179.99) for just the electricity?

If you consumed 9,000 kWh in 2016 (the new “average”) you are paying $1,128.80 (includes $129.80 for HST) annually for just the electricity!

To sum up: the Ontario Power Authority contracted for 1,200 MW of IWT capacity from 2005 to 2011 adding $400 million annually in generation costs, almost 2,000 MW of solar adding $1.3 billion in annual generation costs (generating at 15% of capacity), $2 billion on energy conservation programs ($333 million annually) and $2 billion on smart meters to allow imposition of time-of-use pricing.

Conservation spending, renewables boost electricity bills

Over those six years, increased ratepayer commodity costs were driven by adding intermittent and unreliable renewable capacity and conservation spending, collectively totalling $2 billion annually (not including smart meter spending) representing an increase of $461.00 (includes $53.00 HST) per annum per average household.

Since 2011 additional contracted renewables and conservation spending have further driven up the costs despite reduced consumption of 27.8% (3,474 kWh) since 1990 and the cost of electricity still went up.

Reduced consumption increased the “average” bill 110.4% or $592.42 since 2003 — not the $350.00 savings.

(c) Parker Gallant

July 27, 2016