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).”

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Boldface type on hydro bills doesn’t make statements true

 

The baby’s not smiling… he can see the future

If you just received your monthly electricity bill from Hydro One (presumably all local distribution companies will have the same message), you will be drawn to the boldface type declaring:  “Ontario’s Fair Hydro Plan saved you $XX.XX on your bill. This amount includes the 8% Provincial Rebate.”

The next paragraph elaborates on that message by telling you “Ontario’s Fair Hydro Plan substantially lowers electricity bills for typical residential consumers.  This includes the eight percent rebate introduced in January 2017 and builds on previous initiatives to deliver broad-based relief on all electricity bills.” (“Previous initiatives”? Huh?)

Also included with your bill is a leaflet (English on one side and French on the other) expanding on the wonders of the Fair Hydro Plan with a picture of a happy smiling family (mom and dad but not the one-year-old in mom’s lap) viewing a laptop computer. Right above the picture is a white on black square with the words “Ontario’s Fair Hydro Plan Bringing electricity bills down”.

The baby is right not to smile: the information on the bill and insert contain only selective facts.*

What’s missing: 

Missing on the bill and the brochure was an explanation on why our cost of electricity climbed well over 100% due to the Green Energy and Green Economy Act which handed out long-term, above market contracts for intermittent and unreliable wind and solar generation.

Missing was information about the cost of moving two gas plants to save Liberal seats in Oakville and Mississauga.

Missing was any information about why we pay gas plant generators hundreds of millions of dollars to sit idle to back up intermittent and unreliable wind and solar generation.

Missing was any mention about the Global Adjustment Mechanism (GA) forcing Ontario to export surplus generation to NY and Michigan for pennies on the dollar causing ratepayers to pick up hundreds of millions of missing dollars to cover the cost of surplus generation.

Missing was any mention of the hundreds of millions of dollars the curtailment of wind generation, steaming-off of nuclear or spilling of hydro costs ratepayers.

Missing is any mention of the costs of hundreds of millions of dollars to annually pay for discounts for LED lights, an energy-efficient furnace or a new energy-efficient refrigerator, etc., etc.

Missing was any mention of the hundreds of thousands of families placed in “energy poverty” who have had to choose to either buy food or pay their hydro bills.

Missing is any claim to the harm caused to humans and nature by the thousands of unreliable, intermittent wind turbines erected or any mention about how their installation is now affecting water aquifers in certain parts of the province.

Fairness is in the eye of the beholder and the current claim that the government is “Bringing electricity bills down” should be expanded to state what most Ontarians know: “Bringing electricity bills down” today, will cause them to rocket upwards in the near future due to our complete mismanagement of the energy portfolio.

(C) Parker Gallant

November 18, 2017

 

* Selective facts are “true” facts that only tell us part of the story.

 

 

 

 

 

Wind power lobby myth buster is busted

The opening sentence in a recent post on the Canadian Wind Energy Association’s (CanWEA) website states:  “Various pundits assert that the major reason for higher electricity bills in Ontario is the addition of renewable energy to the province’s electricity mix. This is a myth.”

The post was created by Brandy Giannetta, Ontario Regional Director of CanWEA. Ms. Giannetta holds a Master of Arts and Public Policy degree and was recently appointed to the Independent Electricity System Operator’s (IESO) Strategic Advisory Committee (SAC).  The Committee, says IESO, “gives senior stakeholder and community representatives the opportunity to provide policy-level advice and recommendations directly to the IESO Board of Directors and Executive on matters relating to the IESO’s mandate and other matters that may be of concern to stakeholders and the general public.”

I have trouble believing a representative of wind industry trade association CanWEA will represent the concerns of the general public.

Ms. Giannetta’s post on CanWEA’s website on April 24, 2017 underlines my worries.

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!

The second “study” cited is by Keith Brooks, Program Director at Environmental Defence (Masters degree in Environmental Studies from York) in which he claims “the average Ontario household pays about $11 per month for wind power, and $9 for solar power.”  Collectively it amounts to an annual cost of $240 for the “average Ontario household”.  Mr. Brooks and Ms. Giannetta apparently believe that, by providing a figure representing a small monthly amount, we will all buy into CanWEA’s spin that wind and solar are competitive with other generation sources.

In fact, Ms. Giannetta chose to ignore other more factual information that is readily available on other websites, including the Ontario Energy Board’s (OEB) semi-annual Regulated Price Plan, Price Report.  The following is a chart from the Price Report (May 1, 2017 to April 30, 2018) the OEB uses in setting TOU prices on a go-forward basis for the ensuing six months.  Note the chart provides a breakdown by percentage of generation supply and of the Global Adjustment (GA) and a per kWh cost of the specific generation:

Table 2: Total Electricity Supply Cost

  % of Total Supply % of Total GA Total unit cost (cents/kWh)
Nuclear 60% 40 6.9
Hydro 24% 12 5.8
Gas 6% 15 20.5
Wind 8% 18 17.3
Solar 2% 14 48.0
Bio Energy 0% 0 13.1

Source: Navigant NB: Hydro excludes NUGs and OPG non-prescribed generation. Gas includes Lennox, NUGs and OPG bioenergy facilities. Percentage (%) of Total GA excludes CDM costs.

Based on information in the OEB chart, it is relatively easy to calculate the individual generation supply costs* to the Global Adjustment or GA. The IESO provide the specific detail on the GA and for 2016 it totals $12.333 billion.  As noted, the chart indicates wind is forecast to represent 18% of the GA so the cost of wind should be around $2.220 billion, solar (14%) around $1.6 billion and gas (15%) $1.850 billion.

The OEB forecast is that wind and solar, (granted “base-load” status via their contacts) will cost ratepayers $3.820 billion over the next 12 months representing 32% of total GA costs, but will only deliver 10% of the power generation — often when it’s not needed!

To ensure wind and solar generation is backed up, gas plants (classified as “peaking plants”) stand at the ready and are estimated to impact the GA by $1.850 billion (15%) for a forecast 6 % of generation.

Collectively, wind solar and gas generation over the next 12 months are forecast to provide a meager 16% of total generation but will represent a cost of $5.670 billion of the Global Adjustment or 47% of total GA costs.

Most would agree $5.7 billion in annual costs is more than a “myth” and could have gone a long way in providing social, health, education and transit services for the people in Ontario, rather than creating wealth for wind and solar developers!

….

*In the prior year’s forecast wind was estimated to generate 8% of supply, solar 2% and gas 9% and represent 44% of the GA costs. Also note the IESO GA reports are on a calendar year (Jan. 1st to Dec. 31st) basis.

More Global Adjustment: what the costs are

February 21, 2017

The Global Adjustment (GA) charge in 2016 was responsible for 85% of the cost of electricity billed to all of Ontario’s ratepayers, less for large industrial clients.  The cost of the GA is for the cost of generation of electricity at the door (metaphorically) of the generation unit.  It does not include “line losses” which are found in the “delivery” lines of our bills and represented a cost of approximately $400 million at an average 3% line loss!

In dollar terms, IESO reported the 85% cost of the GA was $12.333 billion in 2016.  Because of the size of those GA costs the question on many minds is, what is it?   Steve Aplin of Canadian Energy Issues defines it this way: “It is simply a price recovery mechanism. It is the difference between the price the government promised any particular electricity generating company and the ‘market’ price of electricity.” 

So what are the relative parts of the GA which place the biggest burden on the climb in costs in the “electricity” line we have experienced.

The IESO published a News Release  on January 18, 2017 providing statistics on:  generation by fuel type and its percentage of contribution; ratepayer costs per kilowatt (kWh) for both the GA (9.66 cents per  kWh) and for the HOEP (1.66 cents/kWh) or market price;  and, imports and exports and provincial demand (137 TWh).  IESO don’t provide generation produced within the DX (distributor connected) sector.  The following are best estimates of some of the DX generated electricity and curtailed wind.

Wind

IESO report wind generated 9.3 TWh and Scott Luft reported 1.7 TWh were generated by DX connected wind turbines making total generated generation 11 TWh at a cost of $135 million per TWH (3.5 cents/kWh). An additional 2.2 TWh were curtailed at a cost of $120 million/TWh.

Total cost of wind capacity in 2016

11 TWh @ $135MM/TWh: $1,485 MM

2.2 TWh curtailed wind @$120MM/TWh: $264MM

TOTAL cost wind: $1,749 MM

LESS HOEP value of 11 TWh @$16.6MM/TWh: $183 MM

NET COST of wind to GA $1,566 MM

Solar

IESO reported solar generated .46 TWh in 2016 and the best estimate of DX generated solar at 15% of rated capacity for the 2,100 MW is 2.76 TWh for a total of 3.22 TWh. The average cost of solar generation in the province (roof and ground mounted) is about $480 million per TWh (48 cents/kWh).

Total cost of solar capacity in 2016:

3.22 TWh @480MM/TWh: $1,546MM

LESS HOEP value of 3.22 TWh @$16.6 MM/TWh: $53MM

NET COST of solar to GA: $1,493 MM         

Gas

Due to the intermittent and unreliable nature of wind and solar generation it must be backed up by other reliable generation capable of providing generation when the wind isn’t blowing or the clouds cover the sky. The back-up is generally provided by gas plants.  With 6,800 MW of wind and solar capacity the suggested replacement is 90% of capacity or about 6,120 MW of gas generation representing about 62% of its installed capacity (9,943 MW per IESO).  Gas plants are viewed as “peaking” plant capacity so contracts call for a monthly payment related to the amortized cost per MW and reputedly ranges from $10/15,000 per month per MW.   This calculation will use $10,000 per month/MW!

Total cost of gas generation as back-up for Wind and Solar in 2016

 6,120 MW @ $10,000 per month (6,120 X $10,000 X 12): $ 734 MM

Conservation

Another portion of money included in the GA is conservation spending allocated to all of the LDC based on commitments to reduce their demand over the 2015-2020 period. The total budget over those six years is about $2 billion so equates to $300 million per annum with a significant portion allocated to businesses and upgrades for low-income households.  The LDCs are allowed to apply for rate increases associated with their decline in revenue as a result of the conservation once achieved.

Total cost of conservation spending in 2016

Estimate based on 2015-2020 budget of $2B over 6 years: $ 300 MM

Ontario Electricity Support Program

The Ontario Electricity Support Program (OESP) launched on January 1, 2016 is aimed at low-income households who have suffered from the climb in electricity rates. The OEB study released in late 2014 estimated the cost of the program at $200/$225 million.  Logically, if the province was responsible for driving an estimated 571,000 ratepayers into energy poverty, the program’s cost should have been allocated to the Ontario Ministry of  Community and Social Services, but instead it has become another cost to all Ontario ratepayers.  At this point, the estimate of the first year’s costs are unknown, but if one assumes the OEB’s estimates were close they will impact all ratepayers.

Total cost of the OESP

 Estimate based on OEB’s study: $ 200 MM

GRAND TOTAL COST all of the above: $4,293 MM

Cost per terawatt hour of 14.22 TWh from wind, solar, conservation and OESP added to the GA  $302 million/TWh or 30.2 cents per kWh

 Missing from the above calculation is spilled hydro and nuclear power steamed off at Bruce Nuclear due to surplus base-load generation from wind and solar. The latter would add about another 5 TWh and another $300 million driving the per kWh cost to 32.5 cents per kWh.

If one deducts the 14.22 TWh from total Ontario generation (including DX) in 2016 one is left with 140.1 TWh and if the $4,293 million is deducted from the $12.333 billion of the 2014 GA cost the 140.1 terawatts from nuclear, hydro and gas generation cost was 19% of the GA or                   $57.38 million/TWh or 5.74 cents per kWh

The time has come to kill the Green Energy Act and return to sanity!

IESO’s aim to be transparent reveals bad news for ratepayers

The Independent Electricity System Operator (IESO) is trying to become “transparent” as they now disclose consumption by the two classes* of Ontario ratepayers.  Along with consumption data they also disclose what each class, “A” and “B,” pay for the Global Adjustment (GA) component by month.

The Class A ratepayers were formerly customers with a peak demand greater than 5 MW, but that changed in June 2014 as noted in an IESO document:   “The change to the ICI expands Class A eligibility to customers with a peak demand greater than 3 MW and less than or equal to 5 MW.” (Class “B” is, basically, you.)

IESO disclosed that in the first six months of 2016, total Ontario consumption was 69.284 terawatts (TWh) with Class A consumption of 13.834 TWh (19.96%) and Class B consumption of 55.450 TWh (80,04%).  The total GA was $6.401 billion, and Class A customers paid 12.2% ($781.8 million) and Class B customers 87.8%  ($5.619.4 billion).

What that means: Class B customers subsidized Class A customers in the first six months of 2016 by picking up $496 million of the GA costs.

For the comparable period in 2015, total Ontario consumption was 70.823 TWh. In that six month period Class A consumption was 12.477 TWh (17.6%) and Class B was 58.346 TWh (82.4%).  The GA was $4.604 billion with Class A paying $441 million (9.58%) and Class B $4.163 billion (90.42%).  So, the Class B subsidy to support Class A industrials in 2015 was $369 million.

Use goes down, rates go up

It’s obvious: Class A consumption increased year over year by 1.357 TWh, whereas Class B consumption declined by 2.896 TWh. One would assume the almost 5% decline in consumption by Class B ratepayers would mean an upcoming decrease in the electricity rates come November 1, 2016.  Alas, a decrease does not appear to be on the horizon!

IESO also just released the June 2016 “Monthly Market Report” and on page 26 of the report they provide a six-month weighted average of the GA, hourly Ontario energy price (HOEP), transmission costs, etc., for the January 1st to June 30th period for Class B ratepayers.   The “weighted average” (removing the DRC or Debt Retirement Charge) per megawatt hour (MWh) is $127.79/MWH versus a weighted average for the first six months of 2015 of $111.92/MWh — resulting in an increase of $15.87 per MWh or 1.6 cents per kWh.  Not included in the above is any additional delivery costs as a result of rate increases for your local distribution company, including Hydro One who are currently seeking another increase, even though they received one in 2015 increasing their delivery rates.

A 14% jump year over year

The Class B increase is a 14.2% year over year jump in costs (for the electricity line only) paying for: contracted generation, conservation programs, curtailed generation, spilled hydro, export sales losses1.: etc. etc.  If the increase prevails for the next few months it will reflect itself in the OEB’s consistent and semi-annual announcments of rate increases (mid October). The anticipated increase will be paid by Class “B” ratepayers at an annual cost of $144.00 (plus HST) for the “average” ratepayer consuming 750 kWh per month and will start on November 1, 2016.

Effectively what the Ontario Liberal government has done is to create a subsidy for Class A ratepayers by picking the pockets of Class B ratepayers in order to protect jobs that might disappear if those large industrial companies decide to pack their bags and move elsewhere.

To sum up: Class B ratepayers are picking up “employment insurance” costs that might embarrass the Liberal government just like when Xstrada moved their refinery operations to Quebec back in 2010 due principally to high electricity costs. That caused the loss of 670 direct jobs and as many as 4,000 jobs, according to union groups.

The misguided focus of the Wynne government on unreliable and intermittent wind and solar generation has hit Class B ratepayers particularly hard, and calls on Ontario’s low and middle income taxpayers to pick up the subsidy cost to retain jobs while simultaneously creating more energy poverty.

It’s time to stop the train before Ontario goes over the cliff!

© Parker Gallant,

August 1, 2016

 

* Effective January 1, 2011, an amendment to Ontario Regulation 429/04 established two classes of consumers: Class A consumers, with average monthly demand greater than 5 MW, and Class B consumers.

  1. Net exports for June 2016 were 1,054,080 MWh and generated revenue of $19.7 million at the average HOEP of $18.69/MWh but cost ratepayers $140.36/MWh meaning the cost to ratepayers for those net exports was $148.3 million creating a loss of $128.2 million for the month.