Free power is really expensive!

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.

Conclusion

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!

Parker Gallant,

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.

Replacing coal power in Ontario: what the government really did

There is so much mythology now around Ontario’s coal plants for power generation, it really is time to set the record straight on what really happened, how much it cost, and what was actually achieved. This is the first in a two-part series.

Back in 2011, Ontario had coal plant capacity of 4,484 MW but the plants really operated only occasionally, producing 4.1 terawatts (TWh) of power — just 10.5% of their capacity. The 4.1 TWh they generated in 2011 represented 2.7% of total power generation in Ontario of 149.8 TWh.  The cost  per TWh was $33 million or 3.3 cents/kWh, making the ratepayers’ bill for those 4.1 TWh $135 million.

As most Ontarians know, those coal plants were either closed (Lambton and Nanticoke) or converted to biomass (Atikokan and Thunder Bay). We were continually told closing or converting those coal plants would save Ontario’s health care system $4.4 billion, based on a study completed while Dwight Duncan was Ontario’s Energy Minister.  Duncan’s claim was a fictitious interpretation of the actual study, but it was repeated so often by Liberal ministers and MPPs that they all believed it and presumably felt the public believed it, too.  

Good PR but … the truth?

Whether one believes the Duncan claim, the fact is the coal plants were closed or converted and the ruling Ontario Liberal government made a big deal of it even to the point of obtaining an endorsement from Al Gore as the first jurisdiction in North America to end coal fired power generation.

The government never disclosed how much it cost the ratepayers/taxpayers of the province to close or convert those coal plants, and we certainly haven’t seen any improvement in our healthcare system since it happened, as one would expect from saving billions. So, was the claim of savings a falsehood? And what did closing the plants really cost?

Let’s start with looking at our electricity consumption level in 2011 and compare it to 2015. In 2011 Ontario generated 149.8 TWh and consumed 141.5 TWh.  In 2015 we generated 159.6 TWh, including 5.9 TWh of embedded generation, and we reportedly consumed 137 TWh, not including the 5.9 TWh of embedded generation consumed within the confines of your local distribution company (LDC).

The difference of 8.3 TWh in 2011 and 16.7 TWh in 2015 was exported.

Replacing coal-fired generation 

As noted, coal capacity was 4,484 MW in 2011 and in 2015 was zero — so what did we replace it with?   According to the Independent Electricity System Operator (IESO) Ontario Energy Report for Q4 2015, since the end of 2011 we have added:

  1. Nuclear supply increased by 1,532 MW (Bruce Power)
  2. 754 MW of hydro
  3. Natural gas generation increased 602 MW
  4. 2,580 more MW capacity of industrial wind turbines (IWT)
  5. Solar up by 2,078 MW
  6. Bio-mass increased by 481 MW (principally conversions of Atikokan and Thunder Bay from coal)
  7. “Other” increased by 10 MW

As well, residential ratepayers conserved 1.184 GWh1. , equivalent to 450 MW of wind turbines operating at 30% of capacity (generating electricity intermittently and out-of-phase with demand).

So altogether, Ontario added 8,037 MW of capacity to cover the loss of 4,484 MW of coal which, in 2011, operated at only 10.5% of capacity.

Ratepayers also reduced consumption by 6,553 GWh with residential ratepayers representing 1,184 GWh of that reduction.

It would appear the variations of long-term energy planning emanating from the Ontario energy portfolio continually overestimated future demand by a wide margin. Their numerous ministerial directives to the Ontario Power Authority (merged with IESO January 1, 2015) with instructions to contract more and more unreliable intermittent wind and solar generation with “first-to- the-grid” rights at high prices produced surplus energy.

This stream of directives and the acquisition of excess capacity resulted in increasing electricity costs for ratepayers due to surplus generation and payment guarantees for displaced generation.

They also added other expensive policies such as conservation initiatives that simply piled on unneeded costs.

NEXT: The second in this series will examine the additional costs associated with the various policies applied and how generation additions to Ontario’s energy mix continue to drive up Ontario’s electricity costs

Parker Gallant

August 28, 2016

  1. Interestingly, the OEB in a revision to the “average” residential ratepayers monthly consumption reduced it from 800 kWh to 750 kWh, yet suggests conservation achieved (2011 to 2014) was 1,184 gigawatts (GWh).   The total number of residential ratepayers suggests that consumption has declined by 2,739 GWh (4,564,835 residential ratepayers at December 31, 2015 X 50kWh [montly] X 12 = 2,739 GWh) since 2009.
Replacing coal power generation (which only operated at 10% capacity) resulted in a doubling of Ontario power exports
Replacing coal power generation (which only operated at 10% capacity) resulted in a doubling of Ontario power exports

And the winner is : Hydro One! Most expensive residential power rates in North America

Transmission System ProjectsUntil recently the only jurisdiction in North America with higher all-in residential electricity rates than Ontario was Hawaii. The website for Hawaiian Electric in a media release March 14, 2016  bragged about their electricity rates being at a six-year low, even though Oahu had an effective rate of 22.6 cents per kilowatt-hour (kWh) and that rate included their distribution costs.

The title for most expensive rates now belongs to Hydro One, whose low-density clients pay 25.9 cents per kWh and medium-density clients pay 22.6 cents per kWh effectively, in a tie with Oahu. Add in the HST and the price jumps to over 27 cents per kWh for low-density ratepayers.

Hydro One’s website has a chart outlining their Delivery Rates for “Medium” and “Low Density” ratepayers — the differences are significant compared to “Urban High Density”.  As an example, the Distribution service charge for medium-density is $8.02 higher per month ($96.00 annually) and $20.46 higher ($245.00 annually) for low-density ratepayers.  On top of that the claimed “line losses” for low-density ratepayers is almost double that for urban ratepayers at over 10%. That means people are charged for kilowatt hours they didn’t consume.

Hydro One’s definitions of Medium and Low Density are: Medium Density – contains 100 or more customers, with at least 15 customers for every kilometer of power line used to supply energy to the zone. Low Density – the remaining area not covered by Urban or Medium Density areas.”

It’s not clear exactly how or when densities are reviewed to determine whether the rate classification should change as it is not outlined in OEB’s approvals for rate increases.

27 cents/kWh for the average user in Ontario today

Now examining just the delivery costs for the three “average”1. residential ratepayer definitions,  Urban customers pay 6.6 cents/kWh, medium-density pay 9.05 cents/kWh and low-density 12.55 cents/kWh.  The latter is a higher cost per kWh than the electricity supplied and as noted above combined with the cost of electricity and HST brings the price to over 27 cents/kWh for the “average” residential low-density ratepayer.

Looking back to an Ontario Energy Board (OEB) ruling on March 15, 2005 in respect to increased Hydro One Distribution rates, the OEB granted them rate increases related to regulatory assets and conservation spending.  The calculation of their delivery rates from the OEB’s approval disclosed:  urban customer rates were set at 3.4 cents/kWh, medium density at 4.25 cents/kWh and low density 8.2 cents/kWh.

Since then, delivery rates from Hydro One have jumped 94% for urban, 113% for medium-density and 53% for low-density ratepayers in that 11 years.

Not stopping here

We should expect more OEB-approved increases.

According to Hydro One’s annual report, the “net-zero” settlement claim with their workers will shortly become a submission for a further rate increase, that will again raise delivery rates as this excerpt from the Annual 2015 Report indicates: “Share-based Compensation-The Company recognizes costs associated with stock-based compensation in a regulatory asset as management considers it probable that stock-based compensation costs will be recovered in the future through the rate-setting process.”

No need to wonder what is causing “energy poverty”2. in Ontario — all you need to do is examine the books of Hydro One, their submissions to the OEB, and the blessing of all their requests by the OEB.

© Parker Gallant

August 10, 2016

  1. The average “residential” ratepayer is classified by the OEB as consuming 750 kWh per month or 9 megawatt hours (MWh) annually.
  2. Energy Poverty is generally defined as spending 10% of household income on home energy as this article link to the Homeless Hub notes: http://homelesshub.ca/toolkit/subchapter/what-energy-poverty