Ontario’s class distinction stings ordinary hydro customers

Electricity bill-payers are subsidizing business to the tune of over $1 billion, every year

 In early 2010, then Minister of Energy Brad Duguid 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.

That directive led to the creation of the two classes of ratepayers that now exist in Ontario.

Originally, Class A ratepayers were only the largest industrial clients (TX) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new distinction in January 2011, Class A clients have evolved further under Energy Ministers Chiarelli and Thibeault, to allow those with peak demand exceeding 500 kilowatts (kW) per hour.

That move leave the great unwashed “B” Class – you and me — to pick up the subsidy costs for  Ontario’s larger employers. The concern was (is) that those companies without subsidies might exit the province and take their jobs with them.

The algorithm that determines what a Class A customer pays is related to how successful they are at picking the top five hours of Ontario’s peak demand. The “A” class companies who fire up their own generators (usually natural gas) or close their plants/operations down and reduce demand on Ontario’s generation sources during the five highest peak-demand hours over the 12 months, will get the biggest discount.

The focus on “conservation” during those hours carries the political hope of achieving “peak” demand reduction.  The theory is the reduction should result in reduced need for new generation.*

While that goal may have been the intent, at the same time Ministers Duguid, Chiarelli and Thibeault were (are!) giving orders to contract for more and more renewable wind and solar contracts to the point where the “market price” or HOEP (Hourly Ontario Electricity price) continued a slow descent due to surplus generation.   The HOEP in May 2017 achieved a new low of $3.17 per MWh or 32/100th of 1 cent/kWh. In June 2008, it was $62.30/MWh.

Both classes of ratepayer equally pick up the full cost of the HOEP on a per kWh basis!

With the focus on the cost shift of the ratepayer classes tied to the GA (Global Adjustment), the higher the latter the greater the cost shift.   The addition of so many more businesses to the Class A group simply amplified the cross-class subsidy!

For an example of the growth in the dollar value of that shift, let’s look at some June numbers, now that IESO has released the June 2017 summary report.

The first year the B to A shift happened was in 2011: for June of that year the GA was $423.1 million and Class A ratepayers picked up $46 million of that cost. Unfortunately, IESO did not start disclosing the consumption by ratepayer class until 2015, so it is not possible to determine what percentage of the GA was being paid by Class A versus Class B ratepayers.

The June 2015 IESO webpage discloses consumption of 11.004 terawatt hours** (TWh) with Class A consumption of 2.061 TWh (23%), and GA paid by Class A ratepayers of $90.4 million. That’s 9.6% out of total GA costs of $943.1 million.  So, Class B ratepayers picked up $126.5 million to subsidize Class A ratepayers that month.  That translates to a GA cost per kWh for Class A of 4.4 cents versus 9.5 cents for Class B ratepayers. HOEP for June 2015 was $15.31/MWh!

IESO discloses total consumption of 11.509 TWh for June 2016 with Class A consumption of 2.308 TWh (20.05%). The GA for Class A was $121.6 million out of GA costs of $995.3 million. Had the GA been allocated on the 20.05% Class A consumption, they would have paid $200.4 million meaning Class B ratepayers subsidies were $78.8 million for the month.  HOEP for that month was $20.17.

June 2017 total consumption was 11.617 TWh, of which 2.482 TWh (21.36%) was for Class A ratepayers. The Class A GA totaled $137.9 million, but if they had been allocated the 21.36% of their consumption on the GA of $1.208.8 billion instead of the 11.4%, they would have paid $258.2 million.  Class B ratepayers provided a subsidy of $120.3 million.

The 5,055,000 (2015 OEB Yearbook of distributors) Class B ratepayers in the province each picked up an average of $23.80 of subsidy costs for June 2017.

If that becomes the norm, those ratepayers will pony up around $1.4 billion annually. 

Back before former Energy Minister Duguid issued his directive, the Association of Major Power Consumers of Ontario, the Ontario Chamber of Commerce, and the Canadian Federation of Independent Business were lamenting the rising costs of electricity in Ontario. Some companies left the province due to costs, so it was inevitable the Ontario Liberal government would finally hear their pleas for relief.  The result? The creation of the two rate classes.

In effect, the creation of the two rate classes and the subsidy shift from Class B to Class A ratepayers should be labeled “employment insurance” as it was needed to simply retain jobs in jeopardy because many companies were threatening to leave the province due to high uncompetitive electricity rates.

Why can’t our Energy Ministers come to the realization they should cease contracting for new, unreliable and intermittent wind and solar generation that produces power out of phase with demand?

*   The claim by the government is that by not contracting for new capital investment in generation, we ratepayers save future rate increases

**1 terawatt is equal to 1 billion kilowatts

April winds blow in high wind power costs

How badly were ratepayers hit? Millions upon millions for power produced out of phase with demand…

The Independent Electricity System Operator or IESO’s 18 month outlook report uses theirMethodology to Perform Long Term Assessments” to forecast what industrial wind turbines (IWT) are likely to generate as a percentage of their rated capacity.

The Methodology description follows.

“Monthly Wind Capacity Contribution (WCC) values are used to forecast the contribution from wind generators. WCC values in percentage of installed capacity are determined from actual historic median wind generator contribution over the last 10 years at the top 5 contiguous demand hours of the day for each winter and summer season, or shoulder period month. The top 5 contiguous demand hours are determined by the frequency of demand peak occurrences over the last 12 months.”

 The most recent 18-month outlook forecast wind production at an average (capacity 4,000 MW growing to 4,500 MW) over 12 months at 22.2%, which is well under the assumed 29-30 % capacity claimed by wind developers. For the month of April, IESO forecast wind generation at 33.2% of capacity.

April 2017 has now passed; my friend Scott Luft has posted the actual generation and estimated the curtailed generation produced by Ontario’s contracted IWT.   For April, IESO reported grid- and distribution-connected IWT generated almost 703,000 megawatt hours (MWh), or approximately 24% of their generation capacity. Scott also estimated they curtailed 521,000 MWh or 18 % of generation capacity.

So, actual generation could have been 42% of rated capacity as a result of Ontario’s very windy month of April 2017, but Ontario’s demand for power wasn’t sufficient to absorb it! April is typically a “shoulder” month with low demand, but at the same time it is a high generation month for wind turbines.

How badly did Ontario’s ratepayers get hit? In April, they paid the costs to pay wind developers – that doesn’t include the cost of back-up from gas plants or spilled or steamed off emissions-free hydro and nuclear or losses on exported surpluses.

Wind cost=22.9 cents per kWh

For the 703,000 MWh, the cost* of grid accepted generation at $140/MWh was $98.4 million and the cost of the “curtailed” generation at $120/MWh was $62.5 million making the total cost of wind for the month of April $160.9 million.   That translates to a cost per MWh of grid accepted wind of $229.50 or 22.9 cents per kWh.

Despite clear evidence that wind turbines fail to provide competitively priced electricity when it is actually needed, the Premier Wynne-led government continues to allow more capacity to be added instead of killing the Green Energy Act and cancelling contracts that have not commenced installation.

* Most wind contracts are priced at 13.5 cents/kilowatt (kWh) and the contracts include a cost of living (COL) annual increase to a maximum of 20% so the current cost is expected to be in the range of $140/MWh or 14cents/kWh.

Energy Minister Thibeault manipulates public health data

The reason given by the McGuinty and Wynne governments for their ambitious (and now seen as economically disastrous) green energy program, instituted without any cost-benefit analysis, is the need for clean air in Ontario.

Energy Minister Glenn Thibeault was interviewed in his home riding recently, and had this to say in defence of the program, and to boost his party’s record to voters: “There’s lots of positives that are happening that we need to start talking about. Even, for example, when I talk about energy, we don’t [talk] about the fact we haven’t had a smog day in three years. Our air pollution hospitalizations are down by 41 per cent, deaths are down 23 per cent.

Deaths down 23 per cent”?

That statement seemed dramatic to me and a few others who regularly analyze and comment on energy in Ontario. So, I queried the Minister in an e-mail about his source of the information.

What I received back was a link to a charity called “Toronto Foundation” and a 265-page report they called “Toronto’s Vital(R.) Report” which contained this statement:

“Premature deaths and hospitalizations as a result of air pollution have dropped by 23% and 41% respectively since 2004.[16]

The figures Minister Thibeault used during his interview were apparently taken from that line in the report and the referenced link “[16]” to the actual source of the information which was a Toronto Public Health (TPH) report of April 2014.

What it actually said had nothing to do with the Energy Minister’s spin.

Here is that section from the TPH report:


Based on the most current information available, TPH estimates that air pollution in Toronto from all sources currently gives rise to 1,300 premature deaths and 3,550 hospitalizations annually (see Table 1). These estimates include the impact of pollution originating in other parts of Ontario and the United States and represent a decrease of 23% in premature deaths and 41% in hospitalizations as compared with 2004 estimates. Air pollution in Toronto comes mainly from traffic, industrial sources, residential and commercial sources, and off-road mobile sources such as rail, air, and marine sources. Of these sources, traffic has the greatest impact on health, contributing to about 280 premature deaths and 1,090 hospitalizations each year, or about 20% of all premature deaths and 30% of all hospitalizations due to air pollution.

The report contained no reference to the coal plants or their closing as Minister Thibeault’s “energy” inference suggests as the source of either causing premature deaths or hospitalizations!

As Guelph University economics professor Ross McKitrick recently reported, “Turns out Ontario’s painful coal phase-out didn’t help pollution—and Queens Park even knew it wouldn’t”.

It is a very serious matter when the government of the day manipulates public health data to suit its public relations agenda.

Where did our $50 billion go? Or, how Ontario citizens lost $18 mil in just 2 days

Premier Wynne making her announcement: no accounting for costs [Photo: PostMedia]
Almost a week after Premier Wynne announced her plan to reduce our electricity bills by 25%, the wind was blowing!  On March 8, six days after the cost shifting  announcement (from ratepayer to taxpayer), potential power generation from wind was forecast by IESO to produce at levels of 80/95% of their capacity, for many hours of the day.  IESO was concerned about grid stability and as a consequence, curtailed much of the forecasted generation.

When the Premier made her announcement about reducing hydro bills, she also claimed “Decades of under-investment in the electricity system by governments of all stripes resulted in the need to invest more than $50 billion in generation, transmission and distribution assets to ensure the system is clean and reliable.”

It is worth noting that much of that $50 billion was spent acquiring wind and solar generation and its associated spending on transmission, plus gas plants (to back them up because the power is intermittent), and distribution assets to hook them into the grid or embed them with the local distribution companies. It would have been informative if Premier Wynne had had Energy Minister Glen Thibeault provide an accounting of exactly what the $50 billion was spent on.

As it turned out the amount of curtailed wind generated on March 8 was 37,044 megawatt hours (MWh) was just short of the record of 38,018 MWh set almost a year ago on March 16, 2016 (estimated by my friend Scott Luft).  The curtailed wind on March 8, 2017 cost Ontario’s ratepayers $120/MWh or $4,445,280.

The cost on March 16, 2016 was $4,562,160.

What does it mean? Curtailing or restricting power output but paying for it anyway means a portion of the $50 billion spent was simply wasted money. It went to the corporate power developers that rushed to sign those above-market contracts for renewable power.

The other interesting aspect of the surplus power generation on March 16, 2016 and March 8, 2017 is revealed in IESO’s Daily Market Summaries: the hourly Ontario energy price (HOEP)  March 16, 2016 was negative at -$1.25/MWh and on March 8th, 2017 was also negative at -.49 cents/MWh. This meant ratepayers paid for surplus exports sold to our neighbours in New York and Michigan, etc. Net exports (exports minus imports) on March 16, 2016 were 52,368 MWh, and on March 8, 2017 were 37,944 MWh. Total costs of their generation (HOEP + GA) fell to Ontario’s ratepayers along with the cost of any spilled hydro, steamed off nuclear and idling gas plants.

Millions here, millions there = a whole lot of wasted money

So, bear with me here, if we price the cost of the net exports at $110/MWh for those two days, ratepayer costs were approximately $9.8 million with $5.7 million for March 16, 2016 net exports and $4.1 million for March 8, 2017 net exports, not including the $84,000 we paid our neighbours to take our power.

How much did it cost you? Two days out of 729 (2016 was a leap year) cost Ontario ratepayers about $18.1 million for power not delivered (curtailed wind) or needed (net exports).

I hope this helps Minister Thibeault in his calculations for a long overdue accounting to Ontario citizens as to where the other $49.982 billion went.


Challenging CanWEA’s claim about wind power and electricity bills

October 16, 2016

The Canadian Wind Energy Association (CanWEA), the wind power development lobbyist and trade association, posted a declaration last week defending wind power, saying it has no role in Ontario’s rising electricity bills. CanWEA’s Regional Director for Ontario Brandy Giannetta posted an article on their website claiming she has facts showing that wind power is a minor factor in the raft of electricity bill increases we have seen in Ontario.

Her chief source of information is a study conducted in 2014 by Power Advisory for “environmental action organization” Environmental Defence; this study has been very influential on the Wynne government’s energy policy.

The claim by CanWEA needs to be challenged.  Let’s look at real facts from the Independent Electricity System Operator (IESO).  Scott Luft collects wind data from IESO and posts it monthly on his energy analysis website.  His estimates of “curtailed” generation are indeed estimates; however, they have proven to be conservative over the past couple of years.

Luft posted data on wind power in Ontario in the first nine months of the current year; wind generated 7,035,901 megawatt hours (MWh) of electricity and curtailed* another 1,558,555 MWh.  The power restricted or curtailed actually represents slightly more than 18% of total power generation from wind.  

Together (assuming an average price of $123.50/MWh), the cost of the 8,594,456  MWh of generated and curtailed wind cost ratepayers about $1,061,415.000.   What Luft has also done is use IESO data to determine the HOEP (hourly Ontario energy price) during the generation and curtailment times and, based on that data, the market valuation of that almost 8.6 terawatt hours (TWh) was just shy of $87 million.  What that clearly indicates is the market value of 8.6 million of generated and curtailed wind contracted as a result of the GEA cost Ontario ratepayers $974 million for unneeded power that was principally exported or curtailed because it was surplus to our needs.

The data from the first nine months of the current year suggest approximately 90% of the costs associated with generating unneeded electricity from industrial wind turbines (curtailed and exported)  were costs adding no value to Ontario’s ratepayers (except for the 1 cent per kilowatt hour they would have received in a truly competitive market environment).

What this means is, the Auditor General’s observation that the government of Ontario needed to do a cost/benefit study for its non-hydro renewable energy program has become patently obvious. The wind power lobby can claim what it wants about wind power’s role in electricity bills, but the figures speak for themselves.

Parker Gallant

*IESO definition: curtailment means the involuntary curtailment of non-dispatchable load as a result of insufficient generation capacity, of a limitation in the capacity of a transmission system or of actions taken by the IESO pursuant to Chapter 5 to maintain the reliability of the IESO-controlled grid or of the electricity system