Electricity planning in Ontario: bad and getting worse

Ontario Energy Minister Thibeault: he really believes this stuff?

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!

Parker Gallant

* 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 look back at Ontario Liberal promises: the true cost of bungling

Former Premier Dalton McGuinty: The Liberal promises of affordable electricity and politics-free policy were discarded [Photo: Huffington Post]
A Globe and Mail article 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 add tens of billions of dollars to the debt.

Parker Gallant

Wynne spin and the “Fair Hydro Plan”

Re-reading Premier Wynne’s statement of March 2, 2017 on her announcement of Ontario’s Fair Hydro Plan, one is struck by the avoidance of the truth, the sudden empathy displayed and her blatant claims.   As one example, she suddenly noticed “Electricity is not a frill — it’s an essential part of our daily lives.”

The Premier has obviously forgotten her party clearly treated it as a “frill” by taking advice from environmentalists who persuaded her (and predecessor Dalton McGuinty) that industrial wind turbines (IWT) and solar panels could easily replace the power generated by coal plants.  They were so taken by those claims the energy minister didn’t bother to do a cost-benefit analysis as noted by Ontario’s Auditor General (AG).  They also charged ahead installing “smart meters” at a cost of $2 billion (AG report) and instructed the OPA (Ontario Power Authority) to acquire 10,500 MW of renewable energy principally in the form of IWT and solar panels.

The year prior (2008) to the creation of the Green Energy Act, Ontario’s coal generation plants produced 23.2 TWh (terawatts) or enough electricity to supply 2.4 million (55%) average households .  In 2016 wind and solar* collectively and intermittently generated 14.2 TWh — 9 TWh less than coal plants generated in 2008.   The collective cost of wind and solar and their back-up (gas) in 2016 was approximately $3.8 billion or 27 cents per kilowatt (kWh,) whereas the cost per kWh of coal power generated in 2008 was 5.5 cents/kWh (OPG annual report).

Renewables: five times more costly

In short, the collective cost of electricity supplied by renewables and their back-up (gas) to replace coal generation turned out to be five times more which clearly raised the cost of the “frill,” but our Premier(s) and Energy Ministers were apparently unaware** costs were rising to that extent.

On the latter point the Premier in her statement claims: “But it’s not as if I’ve been unaware of the challenge. I have seen the rising rates. My family and I get a bill like anyone else.”  Premier Wynne’s salary in 2016 was $208,974.00 and in 2006 was $108,031.00 so she has seen a pay increase of 92% in 10 years.  It’s doubtful she was impacted by the $536,84 average annual increase she experienced in her cost of electricity as it represents less than one day’s pay at her current compensation level.

The Premier’s statement blames rate increases on past governments and claims since the Liberals regained power in 2003 they had to engage in “fixing a system that had been structured unwisely”.  Naturally, the 2003 blackout (caused by a fault in Northern Ohio) is blamed for the upgrade by the Premier to obscure their contracting of unreliable and intermittent wind and solar generation at above market prices.  The Premier now claims the “electricity grid” they created “is second to none.” And yet, the AG noted in  her December 2015 annual report that power outages increased 24% and lasted 30% longer!

Later in her statement the Premier notes “But the way we financed those investments was a mistake.”  The disturbing part of the statement about “those investments”, was Premier Wynne’s assertion “In the past few years we’ve invested more than $50 billion in electricity infrastructure — new dams in the south, new towers in the north, $13 billion to refurbish nuclear power plants alone and billions more to ensure new transmission and distribution lines everywhere.”

That part of the Premier’s spin will form the basis of Part 2, in this series, tomorrow.

 

* Wind and solar generation are classified as “base-load” generation whereas coal was strictly used for “peaking” (high demand periods) purposes.

** The writer has consistently sent Premier Wynne and her predecessor along with the various Energy Ministers a link to every article written no matter where it appeared.