The Fair Hydro Act: Ontario’s unfair future

Wynne government’s “Fair Hydro” plan: another $3 billion a year. Fair?

The Fair Hydro Act kicked in July 1, 2017: we can now look at the first month of the 25% reduction Premier Wynne and her Minister of Energy Glenn Thibeault, gave us, and determine if the projected costs look reasonable.

The cost forecast for the Act according to the Financial Accountability Office (FAO) of Ontario, was: “the Province is proposing to borrow an estimated average of $2.5 billion per year through 2027 to pay a portion of electricity costs, thereby temporarily reducing the amount paid by eligible ratepayers. The Province would recover the borrowed funds, including interest, from ratepayers over an estimated 18-year period starting in 2028.” 

The FAO’s estimate includes: the 8% provincial portion of the HST, the reduction of 17% in electricity costs and the additional 6% promised to 800,000 rural customers (principally Hydro One ratepayers) who will pay less. The latter is related to taxpayers picking up the costs of the RRRP (rural and remote rate protection plan) and the OESP (Ontario Electricity Support Program) under the Fair Hydro Act.

While the estimate by the FAO for the deferral appears significant at $189 million per month* (plus interest), it may turn out to be much higher, based on what we see in the very first month.

The first month’s deferral has been reported by IESO as $394.7 million. According to IESO it includes adjustments for May ($110.2 million) and June ($136.6 million) that represent the “partial reduction” granted by the OEB to “eligible customers.”  That puts the monthly costs for July 2017 at $147.9 million.

The IESO spokesperson also noted due to billing cycles of the various local distribution companies (LDC), the full monthly cost will not become evident until August submissions are made by the LDC.

The $147.9 million will obviously be higher in the months and years ahead and well exceed the FAO’s estimates. For example, the July deferred GA amount would not include monies related to the different billing cycles, or include the 8% provincial portion of the HST.   Making a calculated guess, these would add another $100 million, meaning the monthly cost will be approximately $250 million or $3 billion annually.  As well, the OEB April 30, 2017 RPP (regulated price plan) report noted rates would have increased 3.1% May 1st had the Fair Hydro Act not altered normal procedures.

The 3.1% increase mentioned in the OEB report becomes clearer from this report excerpt: “After taking into account the reduction in the forecast amount of the Global Adjustment of approximately $1B, the average supply cost drops by $13.79/MWh relative to May 2016 prices, or $17.28/MWh relative to what RPP consumers otherwise would have paid starting on May 1, 2017.”

That 3.1% increase we avoided (deferred) and other rate increases approved by the OEB over the next several years will also be deferred, but accrued to appear on our future electricity bills.

Hydro One alone has nine rate applications either before the OEB or in the hopper, so we should expect a future whiplash from rate increases that will make the recent past look good!

And to think we thought the gas plant moves were costly!

Parker Gallant,

August 27, 2017


* The FAO chart 6-1 estimates a monthly impact of $41.00 per “average” residential ratepayer per month so the math equation is: $41.00 X 4,612,551 residential ratepayers (OEB Yearbook of Distributors for 2016) = $189,114.591 or $2.3 billion annually plus interest.


Hydro One’s hype

The power monopoly claimed its advice influenced the Wynne government decision to lower electricity bills. What did the government really hear?

A year ago I wrote an article titled:  “And the winner is: Hydro One! Most expensive residential power rates in North America” and it was posted on my new blog.  The “most expensive” was a reference to what are classified by Hydro One as “low-density clients”.  The article itself drew thousands of viewers, dozens of links to other sites, and may have partially influenced a focus on Hydro One and hydro rates in general by the mainstream media.

On September 12, 2016 Premier Wynne’s government suddenly acknowledged rates were too high and announced the 8% provincial portion of the HST would no longer be charged on residential hydro bills.

The 8% was estimated to cost $1 billion dollars in lost tax revenue, but was a drop in the bucket when measured against the 100% plus rate increases occurring since the Liberals gained power. The pressure to do more built up and because it was top of mind on the list of voter concerns, the Wynne government declared they would do more.

On March 2, 2017 Premier Wynne announced the Fair Hydro Plan declaring,  “I have heard from people around the province who are worried about the price they are asked to pay for electricity and the impact it has on their household budget. Electricity is a necessity.”

The Plan was to reduce residential bills by 25% (including the 8% Provincial tax) by deferring the costs of the reduction for four years. The debt generated would accumulate on the books of OPG and become a rate increase five years hence. What the Plan really does is discard accepted accounting standards! Once the “Plan” turned into an “Act,” local distribution companies were duty bound to make announcements. Hydro One was particularly gushy as noted in a bill insert:  “Our customers have been telling us that their electricity bills are too high. That’s why we advocated to government on their behalf for a more fair and affordable electricity bill.”

This insert also informed their monopolized customers, “the majority of our customers will see an average reduction of 31 per cent on their monthly bills, meaning an annual savings of about $600.”* The “asterisk” identifies a “majority” customer as one who consumes an average of 750 kWh monthly.

Now to explain why “average” Hydro One customers will see a 31 per cent reduction instead of the 25% touted by Premier Wynne and her Energy Minister, Glenn Thibeault! The first element is the Ontario Electricity Support Program (now taxpayer’s responsibility) and the second is the RRRP or Rural and Remote Rate Protection Plan.  Collectively, these two costs added close to $400 million to Hydro One’s delivery line on our bills and presumably make up the additional 6% reduction low-density and medium-density clients will experience.

As you can guess, Hydro One is happy. Taxpayers will pay a part of their bad debt allowances.

To suggest they influenced the decision when their low and medium density ratepayers were screaming is a bit disingenuous: the votes from those ratepayers was what Premier Wynne and Energy Minister Thibeault really heard.

Hydro One’s rates are still the highest in Canada and in five years those deferred costs* will force them even higher!




* A minimum of $25 billion for the whole province.

May power cost stats a harbinger of worse to come

If May is any indication, the Wynne government’s “Fair Hydro” plan costs will be considerable

The “Fair Hydro” plan ushered in by the Wynne government is setting up ratepayers for higher bills as soon as 2021 arrives. When the hiatus ends, limiting increases to ratepayer bills to no more than the “cost of living” (COL) over the next four years, the cumulative debt acquired by OPG to “refinance” the reported $50 billion of electricity assets will have to be repaid.

Early indications suggest the costs will be higher than the $2.5 billion being set aside for the next three years by Premier Wynne and Energy Minister, Glenn Thibeault.

Evidence? A look at May 2017 compared to May 2016 indicates the increase in the Global Adjustment (GA) costs for Class B ratepayers was 7.9% higher than 2016 and well above the May COL index of 1.4%.  Any increase in costs above the inflation rate will be added to the $2.5 billion being refinanced and become the responsibility of ratepayers to pay when the hiatus ends.

Demand drops but the cost goes UP

The IESO May 2017 Monthly Market Report indicates Ontario Class B ratepayers consumed 344,000 megawatt hours (MWh) less than they did in May 2016, which represents a 4% drop. That’s about the same as 460,000 average households would consume for the month. The Global Adjustment (GA) costs on the reduced amount of electricity consumed, however, increased by $82.7 million from $931.2 million in 2016 to $1,013.9 million in 2017.  Many will recall in May 2016, lower consumption during the prior six months caused the OEB to raise rates!

So, what caused the 7.9% spike ($82.7 million) in GA costs?   It appears there were two principal causes with one of them related to Ontario’s “Net Exports”.*

In 2017, net exports averaged 600 MW per hour higher than 2016, meaning they increased by 446,400 MWh (600MWh X 24 hours X 31 days) in May 2017 (enough to power almost 600,000 average households for the month). The buyers in New York, Michigan, Quebec, etc., paid only the Hourly Ontario Electricity Price (HOEP) of $3.17/MWh, while Ontario’s ratepayers were required to pay the GA costs of $54.8 million or $122.89/MWh.

The other major cause of the GA spike appears related to power generation from wind and its record curtailment in May 2017. My friend Scott Luft posts both the generation from TX (transmission connected) and DX (distributor connected) industrial wind turbines (IWT), and also conservatively estimates “curtailment”.  In May 2016 TX and DX connected IWT generated 699,371 MWh, not including 130,000 MWh of curtailed generation.

Combined: wind power in May 2016 cost ratepayers about $113 million or $162/MWh.  May 2017 saw 669,011 MWh of wind power delivered either to the grid (TX) or to local distribution companies (DX). Curtailed wind in May 2017 was a record as Scott estimated almost 524,000 MWh (enough to power almost 700,000 average households for the month) were curtailed.   The cost for generated and curtailed wind increased to slightly more than $158 million for the month, which raised the cost of accepted wind generation to $236/MWh.

$100 million added … for just one month

What this means is, wind-generated and curtailed costs in May 2017 were $45 million higher. Coupled with the increase in net exports of surplus generation and related costs, $100 million was added to the GA … for just one month.  If May 2017 is in any way representative of the four years of the rate freeze (tied to the COL index), the costs of refinancing those assets will be much more than the March 2, 2017 press release suggested it would be:  “These new measures will cost the government up to $2.5 billion over the next three years.”

Based on past forecasts by the Ontario’s Liberal government, keeping the costs at $2.5 billion over the next three years may be a “stretch goal”!

Parker Gallant

*“Net Exports” are total exports less total imports.


Ontario Energy Board news release: cherry-picked facts and conflicting information

Glaring omissions from the OEB about the “Fair Hydro Plan”

Hydro One’s “low-density” customers pay more —way more

 The June 22, 2017 news release from the Ontario Energy Board tells Ontario ratepayers about the wonders of the “Fair Hydro Plan” and how much rates would have increased without it.

But other related information on the OEB website discloses cherry-picked data and, on examination, reveals shortcomings. One small example is a chart comparing Ontario residential rates with other cities in Canada and the U.S. San Francisco is at the top; Hydro One low-density in fourth place; and Toronto Hydro is in sixth place. The lowest five cities on the chart are all Canadian cities including Montreal; comparing their cost of electricity shows Hydro One’s (low density) costs are 232% higher!

The average monthly cost for U.S. cities are converted into Canadian dollars at $1.3046, pushing them up the scale to create the impression that Ontario’s electricity rates are competitive. What isn’t disclosed is average household income and what percentage of the income is consumed by electricity bill(s) on a comparative basis.  In San Francisco, 1.3% of household income (US$104,879) goes to pay for the comparable “average” electricity bill, whereas in Toronto (household income $75,270) it consumes over 2% of household income.  Household incomes in rural Ontario are lower (20% or more) than large urban centres such as Toronto, etc., as Statscan noted in an extensive report.  Hydro One’s billings in some cases, for their serviced areas, represents 5 to 10% of pre-tax household income.

The news release said if the Fair Hydro Plan hadn’t kicked in, rates per household were scheduled to increase 3.2% May 1st or about $33 annually for the “average” residential ratepayer.  That would have increased total costs of power (COP) by almost $200 million over 12 months for just residential ratepayers, and another $3/400 million (estimated) for the rest of the Class A and Class B ratepayers.  That money will now be part of the 30 year refinancing flowing from the “Fair Hydro Plan.”  Many of those “refinanced” assets will have reached their best before date so ratepayers will be paying for assets with little or no value requiring replacement.

Instead of the rate increase that would have occurred, the average household will see a monthly reduction of almost $22 ($263 a year) commencing July 1, 2017. The foregoing monthly decrease reflects the reduction in time-of-use (TOU) rates taking effect on that date based on the OEB’s standards of usage calculations.  The decrease includes prior announcements moving the OESP (Ontario Electricity Support Program) and the RRRP (Rural or Remote Rate Protection) allocation to the provincial treasury, instead of on the backs of ratepayers.  This was contained in the directive given to the OEB by Energy Minister Glenn Thibeault April 10, 2017.  The latter (OESP + RRRP) are estimated (by the writer) to have cost ratepayers about $5/600 million in 2016, and will increase as the OESP and the RRRP have both been expanded.  Those costs will become the responsibility of Ontario’s taxpayers.  Taxpayers will also bear the burden of the foregone revenue previously generated from the 8% provincial portion of the HST on electricity bills, removed as of January 1, 2017 the same time as “cap and trade” charges began.

More conflicting information in the OEB news release was the sentence: “With the new RPP prices that will start to apply on July 1, the total bill for the proxy customer described under the Fair Hydro Act, 2017 will be about $121. That is about $41 or 25% lower than it would have been without the following mitigation*”  That suggests the “proxy customer” was paying $162 per month, yet the “chart” referenced in the second paragraph contains what is shown as a “Median Ontario Utility (OEB regulated)” with a monthly bill (as of November 2016) of $130.46.  The OEB does not clarify what a “proxy customer” is and the “Fair Hydro Act 2017” contains no reference to a “proxy customer”!

With all this conflicting information from the OEB, it is hard to understand how they are fulfilling item number three in their “Mission” statement which reads: “Making the consumer’s own usage, and the broader energy issues, easier to understand”.

If the OEB was attempting to add clarity to the messages from Premier Wynne and the Minister of Energy, Glenn Thibeault about the Fair Hydro Plan, they have failed!

Parker Gallant

* “Mitigation” includes the OESP, RRRP, removal of the 8% provincial portion of the HST and the “refinancing of a portion of the costs of the Global Adjustment”

Free power for a month for 4,000 Ontario families? Here’s how we missed that

How many homes could have benefitted from the excess power Ontario wastes, or sells off cheap?

Recently reading comments on an article related to the cost of wind power generation in Ontario, I was struck by a simple message.

The commenter had obviously visited the IESO “Data Directory”  and reviewed one item labeled Intertie Flows; he observed that IESO had exported 3,000 MWh (megawatt hours) in an hour.   He then observed that the exported power could have supplied 4,000 homes with free power for a month.  (Here’s the math: 3,000 MWh equals 3 million kWh; the “average” Ontario household consumes 750 kWh per month, so divide the 3 million by 750 and the answer is 4,000.)

This simple fact has not been picked up on by the media and yet, it is an easy way to shed more light on Premier Wynne’s “mistake” and our rising electricity rates.   The commenter also suggests going further and examining a full quarter to determine how many Ontario households would benefit from no exported power.

Excess wind and solar costs us

To be fair, while Ontario has frequently exported 3,000 MWh, we also import electricity generated elsewhere presumably at similar market prices. Those net exports or net imports (very infrequent for Ontario) are contained in the Intertie* hourly reports posted by IESO. Let’s look at the first three months of the current year.

To begin, IESO’s Monthly Market Reports for January, February and March of 2017 indicate Ontario’s “average net intertie schedule” for the first quarter of the current year totaled 2,909,000 MWh. While that was happening, industrial-scale wind turbines were generating over 3.9 million MWh in the same three months, and were also required (by IESO) to curtail (and be paid for) another 536,000 MWh.  So, the wind power developers picked up about $620 million for those three months.

To make matters worse, the average of the Hourly Ontario Electricity Price (HOEP) received (via the traded market) over those three months was only $22.72 per MWh or 2.27 cents per kWh.   That means Ontario received $66.1 million for the sale of the 2.9 million “intertie” MWh, while the average cost paid by ratepayers at 11.1 cents/kWh means the cost of those exports was almost $324 million.

Reducing power bills by 25% is peanuts—kill the contracts

Let’s go farther: if 1.3 million (28% of all residential households) of Ontario’s average ratepayers could have purchased those net exported kWh over the three months at the same price they were sold for, the 2250 kWh they consumed would have cost them $51 instead of the $250 they were billed. That would have reduced their cost of electricity by 390%. That makes Premier Wynne’s supposed 25% electricity bill reduction pale in comparison.

If the Premier really wants to lessen the burden on future ratepayer bills she should immediately cancel any wind and solar contracts that have not broken ground, and suspend any all future procurement of these unreliable and intermittent generation sources.


*Intertie is defined as an interconnection permitting passage of current between two or more utility systems.

Wynne spin and the Fair Hydro Plan, Part 3

The recent 2017/2018 budget speech from Finance Minister Sousa had this to say about the Fair Hydro Plan.

“People from across the province shared their concerns about rising electricity bills. We listened and we are responding. Recognizing that there needed to be a fairer way to share the costs of building a cleaner, more modern and reliable electricity generation system, we are taking action to reduce electricity costs. Through Ontario’s Fair Hydro Plan, starting this summer, household electricity costs would be lowered by an average of 25 per cent. We are also capping rate  increases to inflation for the next four years. Low‐income families, and those living in rural, remote or on-reserve First Nation communities, would receive additional relief as well.”

Impressive words signaling reallocation of charges to taxpayers previously paid by ratepayers as well as direct relief. The budget’s forecast however doesn’t jibe with the words contained in the speech from Premier Wynne when she announced the relief March 2, 2017 and said, “Although the refinancing occurs within the electricity system and is accounted for separately, the overall fiscal impact of this relief and restructuring will cost the province about $2.5 billion over the next three years.”

The Premier’s remarks suggest relief will cost about $833 million annually but the budget notes the “Electricity Rate Relief Programs” are forecast to cost $1.438 billion.

The budget estimate(s) presumably include the costs associated with the OESP (Ontario Electricity Support Program) for low-income families. Those “heat or eat” households were driven to that situation by climbing electricity rates caused by lucrative contracts handed out by the current and past energy ministers.  As well, free delivery costs for First Nations communities will become standard and taxpayer supported as will the RRRP (Rural or Remote Rate Protection) in low-density regions.  Also added to the pot is an “Affordability Fund” for households who can’t afford energy efficiency upgrades.  Finance Minister Sousa’s budget obviously forecasts those costs to taxpayers at over $600 million more than the Premier!  So what are Ontario’s taxpayers/ratepayers to believe?

Based on the foregoing we must assume the Premier’s $2.5 billion over three years are to only cover the programs moved to other ministries and will cost taxpayers about $4.5 billion if the relief ends three years hence.  Based on the record of this government we shouldn’t expect the relief programs to end in three years!

The other part of the Premier’s statement was: “In addition, this rate relief is designed to last. After we bring bills down by 25% we will hold them there with rates rising only with inflation — or roughly 2% — for at least four years.”  Once again the Premier avoids telling us the whole story. Other associated documents the general public have a difficult time locating tell another story.  One such document was the “Technical Briefing” appendix attached to a directive dated March 2, 2017 sent to the OEB by Energy Minister Glenn Thibeault.  Under a heading labeled “Refinancing the Global Adjustment” we find:  “Under current forecasts, the immediate reduction (i.e., the financed portion) in the GA would be about $2.5 billion per year on average over the first ten years,  with a maximum annual interest cost of $1.4 billion.”

What that means is, they are “kicking the can down the road” by refinancing $25 billion of contract and adding $14 billion in interest costs. At some point in the not too distant future (year 5?) electricity rates will need to jump to accommodate the $39 billion of accumulated debt within the portfolio.  What is being refinanced are those 20-year contracts for wind, solar and gas generation, yet the contracts will have expired and should, yet we don’t know if they will still be operational!

Interestingly enough, if we include the taxpayer-related relief costs of at least $4.314 billion ($1,438 million X 3 years) “kicking the can down the road” will labour taxpayers/ratepayers with $43.3 billion in costs. That $43.3 billion exceeds what was supposed invested in electricity generation ($35 billion) and is only $6.7 billion short of what they claim has been invested in the electricity system as this quote from the “Technical Briefing” notes:  Between 2005 and 2015, government invested more than $50 billion in the electricity system, including $35 billion in electricity generation to restore reliability, replace coal and meet environmental objectives.

So what are taxpayers and ratepayers seeing when they look ahead? First, a new debt associated with the electricity system will burden us with an additional $43.3 billion on top of the reputed $50 billion the Premier Wynne led government claims has been invested.  That accumulated debt will require payback which will drive rates and taxes higher.   Secondly many of the $35 billion investments in electricity generation and the $15 billion of investments in the electricity system will have reached their end of life and will require replacement.

The forecast for ratepayers is they should expect to see a new charge on their future hydro bills. Logic suggests the new charge should be referred to as the LDRC (Liberal Debt Retirement Charge)!




CanWEA gets it wrong on energy costs: university professor

University professor in engineering and environment says CanWEA guilty of “willful blindness”; quotes him incorrectly in statement on energy costs

Just a few days ago, I wrote that the Canadian Wind Energy Association (the trade association for the wind power industry, also known as CanWEA) posted a statement by its Ontario representative that people who say wind power is adding to Ontario’s electricity bills are misleading the public. Ms Gianetta referred to University of Waterloo professor Natin Jathwani to support her views.

Professor Nathwani e-mailed me in response to the claims made by Ms. Giannetta’s in her recent post on CanWEA’s website, which I repeated in “Wind power lobby myth buster is busted”.

Professor Nathwani’s email:

Dear Mr Gallant:

In your Blog, you have cited Ms. Giannetta’s post on CanWEA’s website on April 24, 2017 as quoted below:

Her article points to two articles that purportedly support the “myth” she is “busting,” but both require closer examination. She cites Waterloo professor Natin Nathwani’s, (PhD in chemical engineering and a 2016 “Sunshine list” salary of $184,550) article of March 6, 2017, posted on the TVO website, which supports Premier Wynne’s dubious claims of “a massive investment, on the order of $50 billion, for the renewal of Ontario’s aging electricity infrastructure.” Professor Nathwani offers no breakdown of the investment which suggests he simply took Premier Wynne’s assertion from her “Fair Hydro Plan” statement as a fact! It would be easy to tear apart Professor Nathwani’s math calculations — for example, “The total electricity bill for Ontario consumers has increased at 3.2 per cent per year on average” — but anyone reading that blatant claim knows his math is flawed!

First and foremost, the record needs to be corrected since Ms Giannetta’s assertions are simply incorrect and should not be allowed to stand.

If she has better information on the $50 billion investment provided in the Ministry of Energy’s Technical Briefing, she should make that available.

The breakdown of the investment pattern in generation for the period 2008-2014 is as follows:

Wind Energy $6 Billion (Installed Capacity 2600 MW)

Solar Energy $5.8 Billion (Installed Capacity 1400 MW)

Bio-energy $1.3 Billion (Installed 325MW)

Natural Gas $5.8 Billion

Water Power $5 Billion (installed Capacity 1980 MW)

Nuclear $5.2 Billion

Total Installed Capacity Added to the Ontario Grid from 2008-2014 was 12,731 MW of which Renewable Power Capacity was 6298MW at a cost of $18.2 Billion.

For the complete investment pattern from 2005 to 2015, please see data available at the IESO Website.

In sum, generation additions (plus removal of coal costs) are in the order of $35 billion and additional investments relate to transmission and distribution assets.

I take strong exception to her last statement suggesting that the 3.2 percent per year (on average) increase in total electricity cost from 2006 to 2015 in real 2016$. The source for this information is a matter of public record and is available at the IESO website.

Ms Giannetta’s assertion is complete nonsense because she does not understand the difference between electricity bill and generation cost. Let Ms Gianetta identify the “blatant flaw.”

As for the electricity bill that the consumer sees, there is a wide variation across Ontario and this is primarily related to Distribution.

The Ontario Energy Board report on Electricity Rates in different cities provides a view across Ontario:

For example, the average bill for a for a typical 750kWh home Ontario comes is $130 per month.

In Toronto it is $142, Waterloo at $130 and Cornwall at $106. On the high side is Hydro One networks is $182 and this is primarily related to cost of service for low density, rural areas.

Your Table 2 Total Electricty Supply Cost is helpful and correctly highlights the cost differences of different generation supply.

Only wilful blindness on Ms Giannetta’s part would suggest that wind and solar are coming in at a low cost.

Warmest regards,

Jatin Nathwani, PhD, P.Eng

Professor and Ontario Research Chair in Public Policy for Sustainable Energy Executive Director, Waterloo Institute for Sustainable Energy (WISE)

Faculty of Engineering and Faculty of Environment Fellow, Balsillie School of International Affairs (BSIA)

University of Waterloo, Waterloo, ON