Ontario’s premier fights New York’s “Buy American Act” while selling them subsidized electricity, costing the province’s citizens millions
On June 21, 2017 the New York State Senate passed the “Buy American Act” which restricts the use for all road and bridge capital projects of using imported iron and steel and requires New York government agencies to use only American-produced products.
Ontario’s Premier responded April 2, 2018 announcing Ontario is “restricting its government entities from entering into certain procurement contracts with suppliers from New York State, including provisions that restrict suppliers use of structural iron* from New York State.”
The Premier’s statement noted, “At this time of economic uncertainty, Ontario workers and businesses need to know that I am their number-one advocate.”
Ontario’s ratepayers should wonder why the Ontario government didn’t simply announce we would no longer subsidize the sale of cheap electricity to New York State — that would have had more severe implications, and been a more forceful economic response to sanctions.
In 2017, Ontario’s net exports (exports minus imports) were 8,242 GWh (gigawatts) to the State of New York and produced approximately $250 million in revenue from their sale. The cost to ratepayers, however, was about $950 million, meaning the subsidies cost Ontario ratepayers about $700 million.
If the Premier had stopped the electricity subsidies instead of restricting the import of “structural iron” it would have hit New York and the U.S. right in the pocketbook, at the same time saving Ontario’s ratepayers $700 million!
Parker Gallant, April 2, 2018
*Structural iron has much higher carbon levels than structural steel.
The province’s power agency has been found to use incorrect accounting methods and actively obstruct oversight… that’s a worry, considering their other goals
March 26, 2018
The Independent Electricity System Operator or IESO, which is responsible for managing Ontario’s electricity system, has again been called out on its abilities. Unlike prior occasions, this time the criticism is related to the manner in which the IESO engages in “irregular and improper accounting” discovered in a special audit and reported by the Ontario Auditor General.
From the report by the Globe and Mail: “Bonnie Lysyk, the Auditor-General, informed the province’s public accounts committee last week of problems uncovered during the audit, which began late last year and is now nearly complete. Her concerns included incorrect accounting, deceptive and obstructive behaviour by the IESO’s board and management, and poor financial controls.”
The dispute is related to the Fair Hydro Plan and the accounting treatment that surrounds it. Ms. Lysyk noted the accounting structure was designed to avoid including the costs on the province’s books thereby allowing the government to “falsely claim” it had a balanced budget. The claim was disputed by the Minister of Energy who said the practices are not new and are used in other jurisdictions and “endorsed” by major auditing firms.
The cost of the Fair Hydro Plan just to the end of February is in excess of $1.6 billion and is carried on the books of an OPG “trust” subsidiary — that means the debt incurred will not show on the Province’s books as debt.
Recovery of the monies will, however, become a future burden for Ontario’s electricity ratepayers, who will have to ante up the funds to repay it and the interest it accumulates. The Financial Accountability Office suggests it would be a minimum of $40 billion and perhaps as much as $90 billion depending on if the province manages to balance its budget.
Ms. Lysyk noted, according to the Globe story, “When a board or management in any other province recognizes that an AG’s office has issues with their accounting, they would have handled it differently,” the committee was also told, “They basically treated, I think, my audit team like we were subservient to KPMG. In terms of the law in Ontario, that would be the reverse.”
The AG ordered the IESO special audit when IESO’s auditors would not respond to queries about potential accounting changes and, when their financial statements were published, they used some radically different accounting practices. Those practices were used immediately for the Fair Hydro Plan. IESO’S Chief Financial Officer, Kimberly Marshall did not consult or notify the AG prior to adopting those practices! As a result, and because of the refusal by management and the board to sign key documents, the AG’s office was unable to provide an audit opinion.
Many followers of the electricity sector have expressed issues with IESO’s inability to provide correct or timely information related to the generation and consumption of electricity so it should come as no surprise the Auditor General is faced with the same dilemma on financial accounting issues.
IESO also has responsibility for managing data required to pay generators for their power and using data from smart meters.
It should be disconcerting to all ratepayers, big and small, to realize IESO are also spending hundreds of million to bring us a smart grid. A concern is that IESO may be working with MaRS Data Catalyst (liberally supported by the current government) who note, “We are working with industry, regulators, consumers and government to get that data into the hands of innovators in a secure, private and usable way to drive energy conservation and spur economic growth.
All ratepayers should be concerned as IESO may once again decide to use different standards when it comes to protecting ratepayers’ privacy, as they have done with IESO’s financial information.
Hydro One and a little distributor in Niagara On The Lake have different ways of doing business … and serving customers
February 20, 2018
It is interesting to compare a relatively small Ontario-based local electricity distribution company (LDC) against a much larger one such as Hydro One. If you do, you get some idea of what’s behind rate-paying electricity customers concerns.
Niagara-on-the-Lake Hydro (NOTL) had the gall recently to brazenly ask, Are we hypocrites? They asked that question because they installed 70 kW of solar panels on the roof of their building and it will, at 15% generation capacity, produce revenue of about $21,400 annually. Their news release made this bold statement:
“A reasonable question to ask is whether the Board of NOTL Energy can be considered hypocrites for accepting a FIT contract while they publicly called for the cancellation of the FIT and MicroFIT programs?
“The short answer is, yes, we are hypocrites.”
Now, contrast NOTL’s honesty with Hydro One and their efforts to convince U.S. electricity regulators they are deserving of acquiring Avista. It’s a strange path Hydro One is taking. Hydro One CEO Mayo Schmidt recently traveled to Juneau, Alaska to plea for approval in respect to Avista’s ownership of Alaska Electric Light & Power Company. Their appeal included a 444-page submission to the Regulatory Commission of Alaska, one of several required to convince regulators in four western states that the takeover of Avista would not negatively affect customers.
So it wasn’t a private island in the Caribbean Schmidt traveled to, but hopefully Ontario ratepayers won’t be picking up the tab for Schmidt et al in their efforts to win approval for Hydro One’s Avista takeover.
But we are paying: Hydro One’s December 31, 2017 Financial Statement was released February 13, 2018 and had an unusual “after tax” income claim of $36 million on page 34 referenced as: “Costs related to acquisition of Avista Corporation”. Accounting rules allow Hydro One to claim expenditures related to Schmidt’s travel costs along with consultant and legal fees plus prep time for submissions made to the regulators in the states where Avista operates. As a result, Hydro One reported “Adjusted Net Income” of $694 million versus $721 million in 2016. Putting aside the $36 million, net income was actually down $63 million, or 8.7%.
Also, as a result of the dividend increase announced in May 2017 (quarterly at 22 cents per share), the payout of the 4th Quarter net income of $155 million (net of the above Avista expenditures of $36 million) resulted in a payout ratio of 89% (in excess of the maximum of 80% announced) of quarterly income — that doesn’t leave much for the oft-touted reinvestment in infrastructure.
Also evident in the Financial Statement is the fact the Ontario Provincial Government received $150 million less by way of dividend payments in 2017 compared to 2016. That $150 million could have covered interest payments on over $4 billion of the provincial debt!
An interesting feature in Hydro One’s annual report is the first 15 pages are devoted to telling the reader how wonderful the company is and how much progress has been achieved. For example is the claim of customer satisfaction climbing to 71%. It is probably fair to assume this “climb” occurred after the launch of the “Fair Hydro Plan” which kicked up to 31% of “electricity costs” down the road, but promised electricity customers a 25% chop off their bills right now. As a de facto monopoly, perhaps 71% customer satisfaction is somehow good? Forgotten in the bragging process is the fact Hydro One are spending $15 million to give their customers prettier bills containing less information. The $15 million spend is included in one of several outstanding rate application increases filed with the Ontario Energy Board.
So brave little Niagara On the Lake Hydro will increase spending and increase revenues (slightly) meaning less pressure on increased delivery rates, but Hydro One spends on frills that will increase pressure on their clients’ delivery rates.
I will let the reader decide which of the two local distribution companies is the true hypocrite.
Or, how the IESO could have saved Ontario ratepayers more than $400 million by cancelling one wind power project, but didn’t
February 6, 2018
On March 10, 2016 the Independent Electricity System Operator or IESO announced the outcome of the “Competitive Bids for Large Renewable Projects” via a news release which, among other issues claimed, they said they would award “five wind contracts totalling 299.5 MW, with a weighted average price of 8.59 cents/kWh”. The news release also described the contracting process: “The LRP process was administered by the IESO and overseen by an external fairness advisor. Robust and transparent public procurement practices were followed throughout the process, and each proposal was carefully evaluated for compliance against a list of specific mandatory requirements and rated criteria.”
Fast forward to October 26, 2017 and the release of Energy Minister Glenn Thibeault’s “Long-Term Energy Plan 2017 Delivering Fairness and Choice,” which offers some context for power contracts currently.
“Due to the substantial decline in the cost of wind and solar technologies over the last decade, renewables are increasingly competitive with conventional energy sources and will continue to play a key role in helping Ontario meet its climate change goals.”
“Ontario is Canada’s leader in installed wind and solar power.”
Economics of power procurement
Further on in the Plan are examples of how the Ministry, via the institutions under it, is working with communities. This one suggests the IESO is cognizant of the costs affecting ratepayers: “Ontario Power Generation (OPG) and Gull Bay First Nation (GBFN) are in the early stages of building an advanced renewable microgrid on the GBFN reserve on the western shore of Lake Nipigon. GBFN has an on-reserve population of 300 people and is one of the four remote First Nation communities that the IESO has determined to be economically unfeasible to connect to the provincial grid at this time.”
IESO recently issued their 18-Month Outlook for the period January 2018 to June 2019 and this report also noted the situation in respect to surplus power: “Conditions for surplus baseload generation (SBG) will continue over the Outlook period. It is expected that SBG will continue to be managed effectively through existing market mechanisms, which include intertie scheduling, the dispatch of grid-connected renewable resources and nuclear manoeuvres or shutdowns.”
Those manoeuvres or shutdowns in 2017 caused over 10 TWh (terawatt hours) to be wasted, but their costs were added to ratepayers’ bills and included 3.3 TWh of curtailed wind.
So, the province has a surplus of power, and the costs of wind and solar have become more competitive. Why would the IESO then not seize upon the opportunity to deal with a high-cost industrial-scale wind power project, when they had the ability to cancel it due to non-compliance with the original contract? At the very least shouldn’t they have renegotiated the contract to reduce the impact on ratepayers?
They did neither.
The White Pines story is a curious exercise in contract law, to be sure. A successful appeal* to the Environmental Review Tribunal by the community group the Alliance to Protect Prince Edward County** resulted in the project being reduced from 59.45 MW to 18.45 MW last fall. IESO could have simply canceled it because it was clearly unable to meet a condition requiring delivery of 75% of the capacity agreed to in the contract. At the very least, IESO could have renegotiated the terms of the contract to fulfill the Energy Minister’s claim that “renewables are increasingly competitive”.
But the IESO amended the contract for the reduced project, and granted waivers to the original conditions of performance, it was learned in a Belleville courtroom recently.
Cancelling would save millions
If IESO had canceled the contract, the Ministry could have claimed they reduced future rate increases saving ratepayers $21 million annually or $420 million over the full 20-year term. Even if IESO had only renegotiated the contract to the 8.59 cents/kWh achieved via the competitive bidding process instead of the 13.5 cents/kWh of the original contract, the Ministry could have claimed savings of about $5 million over the full term of the contract based on the currently approved 18.45 MW of capacity.
Yesterday, I dealt with the government’s apparent interest in “energy poverty” and specifically noted a consumer survey currently being used by the OEB in an attempt to define how local distribution companies should deal with payments for accounts in arrears.
When the government released its Economic and Fiscal Review 2017: A Strong and Fair Ontario in November, the minister claimed, “Our plan is working. There are now more jobs in Ontario than ever before —more than 800,000 net new jobs since the depth of the recession”.
Impressive: but did those “800,000 net new jobs” have any effect on reducing Ontario’s energy poverty?
The statistics betray a sad situation for Ontario citizens struggling to pay power bills. Two weeks after the launch of the OEB survey and two months before the 2017 Fiscal Review, an interesting 29-page report appeared on OEB’s website. Named “Data reported to the Ontario Energy Board by Electricity Distributors” it was full of bad news for the period from 2013 to the end of 2016.
The bad news included the number of ratepayers who had been disconnected, the accounts in arrears (up 85,141 or 27.7% since 2013,) and the amount of arrears at year-end. It included customers with “arrears payment agreements,” the amount of those and those cancelled (up 96.4% since 2013). It has data on write-offs, accounts enrolled in equal or monthly payment plans, etc. etc. It also has data on security deposits, customers with “load limiting devices,” those with “timed load interrupter devices,” the number of “eligible low-income customers” (Hydro One’s increased by 520% since 2013), and those disconnected for nonpayment (up 180% since 2013), etc. etc.
New jobs? No effect on poverty
Based on the “data” in the report (kept under wraps by the OEB), it certainly appears the economic policies of the government may have created “800,000 net new jobs” but it hasn’t done much to counteract “energy poverty” — that has escalated since 2013.
It’s also unclear why the OEB didn’t issue a press release in respect to the data. My queries to them about the 2016 results of the OESP (Ontario Energy Support Program) and LEAP (Low-income Energy Assistance Program) also remain unanswered.
It appears the government has ignored facts and focused attention instead on more spending to make people believe they can have more “free” stuff. The August launch of the Green Ontario Fund was one such event; the government plans to “invest” $377 million in proceeds from its carbon market to establish the fund.
The minister was quoted in the press release: “Taking strong action on climate change means making it as easy as possible for people and businesses to reduce greenhouse gas emissions at home and work, while also saving money.”
Programs (rebates) offered via the “Green Ontario Fund” can be in the tens of thousands of dollars, but the homeowner or small business owner must have funds of an almost equal amount and must work with a “qualified” contractor. One should assume those who have fallen in arrears on their hydro bills don’t have the cash required to insulate their home or install a heat pump to save money, or they would have been able to pay their monthly energy bill. The $377 million in cap and trade dollars will clearly be handed out to only those who can afford to spend to reduce emissions.
One wonders how much those individuals and institutions helped by way of paying electricity bills and if the contributions exceeded the “write-offs” ($50.9 million in 2016) by the local distribution companies? One also wonders how many single parent families, seniors, disabled, etc. are living in freezing homes or apartments trying to keep their electricity bills at affordable levels? The recent record low temperatures throughout the province will surely exacerbate the problems associated with their electricity bills being experienced by so many caused by the government’s energy policies.
That $377 million the government is spending could have gone a long way to alleviate the true cost of the Green Energy Act, as could the approximately $400 million paid to corporate wind power developers in 2017 for power they didn’t produce (it was “curtailed” or not added to the grid, but paid for).
I hope the people occupying those 800,000 new jobs are doing their part in generously donating to the charities, food banks, churches, etc. to keep Ontarians living in “energy poverty” warm and fed!
(C) Parker Gallant
NB: You can find out how your LDC is doing in respect to “energy poverty” by reviewing the OEB data report. Link is here: https://www.oeb.ca/sites/default/files/2013–2016-disconnection-late-payment%20data-by-utility_20170921.pdf
A quick review of IESO data for Christmas Day 2017 shows our Energy Ministry delivered lumps of coal to all Ontario’s electricity ratepayers, whether they were good or bad. Those lumps of coal can be seen as a gift from all past and present Energy ministers who signed contracts for the industrial wind turbines liberally sprinkled throughout the province.
This year, the IESO data shows about 54,327 MWh* was curtailed (paid for but not delivered to the grid) and paid $120/MWH. That means wind power corporations were paid over $6.5 million ($6,519,240 to be more precise) for NOT delivering that power.
The curtailed or wasted power was enough to supply almost 2.2 million average homes with power for the day, free.
Meanwhile, the IESO accepted about 25,680 MWh, so the curtailed/suspended generation was actually 2.1 times as much as grid-accepted wind power. Wind power corporations were paid $135 per MWh — that’s another $3,467,800 so the total bill for wind power for the day was $9,987,040.
What you paid them: 39 cents a kWh
Here’s what else it means: the 25,680 MWh of power actually accepted by IESO into the grid cost $388.77/MWh* or 39 cents a kWh! And, that 39 cents a kWh doesn’t include the costs of gas plant backup, spilled hydro or steamed-off nuclear, all of which applied on Christmas Day.
What you got paid: 1.9 cents
That’s not all: at the same time, the IESO was busy exporting surplus power to our neighbours in New York and Michigan at an average of 1,993MW (net-total exports less imports) per hour. We practically gave away 48,000MWh (rounded) at a cost to Ontario ratepayers of over $4 million. So, Christmas Day, the day of giving, ratepayers coughed up $14 million for unneeded power whether they could afford it or not! That $14 million raised the cost to electricity customers by about $40/MWh or 4 cents/kWh.
Christmas Day is supposed to be a day of joy and giving. In Ontario though, it was a day when the result of government energy policies and mismanagement furthered hardship for many.
Shortly after Glenn Thibeault was appointed Ontario Energy Minister, he was at an Ottawa press conference. When asked about electricity service “disconnections” he feigned ignorance saying, “I continue to drink from the firehose” suggesting he couldn’t answer the question due to the complexity of the portfolio.
One and a half years later, it now appears he knows more than the folks at the Ontario Energy Board (OEB).
Minister Thibeault recently announced he is “launching a review” of the OEB via a panel headed up by Richard Dicerni, a former acting CEO of Ontario Power Generation (appointed to that position by Dwight Duncan when he served as Minister of Energy under Premier McGuinty).
The press release announcing the panel review noted, “The OEB is responsible for establishing energy rates and prices that are reasonable, setting rules for energy companies operating in Ontario, and making the energy system easier to navigate and understand for consumers.”
It also mentioned “The panel will have a broad mandate including reviewing how the OEB can continue to protect consumers amidst a rapidly changing sector, support innovation and new technologies, and how the OEB should be structured and resourced to deliver on its changing role. The panel will seek feedback from the public starting in spring 2018, examine best practices from other jurisdictions and report back to government by the end of 2018.”
OEB under government’s thumb
The OEB was stripped of its authority by Premier Wynne and Minister Thibeault when they decreed, under the Fair Hydro Act, that electricity rates for residential ratepayers would be reduced by 25%. That decree followed 18 directives and letters of instruction to the OEB by a variety of Ontario’s Energy Ministers since 2003. Five of those directives/letters were issued by the current Minister.
So, the question today is, what is the panel likely to find and what are they likely to recommend?
More to the point, what won’t they find out?
Ontario ratepayers expecting the panel to find the OEB was responsible for the rate increases we have experienced will be disappointed. If ratepayers expect the panel to recommend the OEB be given back their regulatory authority as one would hope, that won’t happen either, or at least not before the 2018 election is over. The panel, as noted above, has been instructed to report by the end of 2018 or about six months after the upcoming election in June 2018.
As an observer of the electricity portfolio, I think the objective of establishing this panel is it to give the Ontario government talking points to deflect mismanagement. Minister Thibeault’s quote in the press release carried this message: “Utilities and regulators need to respond by renewing their focus on efficiency, reliability, affordability and looking at new cutting-edge ways of keeping electricity consumers as their top priority.”
Never mind that the “focus” of utilities and regulators over the past decade has been to execute policies dictated by their masters—the various Energy Ministers who have arbitrarily decreed their views via directives, specific acts and regulatory changes on how the electricity sector should function.
Down a very long road
When Liberal candidates are questioned about the energy file by media and voters leading up to the election day in June next year, they will surely say we need to wait for the panel conclusions later in the year, and that the government expects the OEB to help us move to an equitable and “fair” price for electricity in the province. They will claim they have told the utilities and the regulators they need to focus on the electricity consumer and that they expect “fairness” will be the outcome!
The panel could become a very useful deflection tool ward off criticism and escape allegations of the harm caused to ratepayers and the Ontario economy.
It is clear the Minister of Energy has learned a lot since his appointment.