Ontario summer day means low power demand, high costs for consumers

A windy, sunny August day: sounds nice? In Ontario, that costs you. [Photo: Dorothea Larsen]
August 5 2017 was an interesting day: the wind was blowing and the sun was shining, in part of Ontario, anyway.

Unfortunately for Ontario ratepayers that weather will cost them a lot of money.

Why? The cost stems from the fact Ontario’s demand for electricity on that day was only 317,000 megawatts (MWh),* according to the IESO Daily Market Summary, probably due to conservation efforts and mild temperatures.  Low demand doesn’t save money: in fact, it will cost Ontario ratepayers millions of dollars due to bad management of the electricity sector by the current government.

I was curious about this windy, sunny day, which led me to contact Scott Luft, a master at using IESO data to give us a real picture of market demand and its costs.  Scott occasionally produces “Daily Ontario Supply Estimates” which provide a picture of both our demand and generated sources, what it cost, how much was exported, how much was curtailed/spilled (wasted), etc., and even how much of the costs were picked up by Class B ratepayers versus Class A.

Scott also estimates curtailed wind, spilled hydro, etc., using a conservative approach; they are generally confirmed months later by IESO.

Scott’s daily estimate for August 5, 2017 confirmed my suspicions!   Emissions-free nuclear and hydro generators alone supplied the 340,000 MWh of power Ontario needed easily, even exceeding Ontario demand by 23,000 MWh.  The cost of that generation was $21.1 million. After allowing for the value of the surplus 23,000 MWh as exports at the average hourly Ontario energy price (HOEP) of $4.94/MWh the cost per MWh comes to $66.34/MWh or 6.6 cents/kWh.**

Double the cost — and you’re paying it

Part of Scott’s daily estimate includes additional costs in the form of all the other generation sources, plus curtailed wind and solar, spilled hydro, biofuel and idling costs of gas plants. When those are added to the $21.1 million of nuclear and hydro, the price billed to ratepayers for the day jumps to $37.8 million — $119.24/MWh or 11.9 cents/kWh.  The Class A to Class B subsidy results in the cost per kWh for the “B” Class (that’s you and me) jumping to $131.10/MWh or 13.1 cents/kWh.

The other generation sources on Scott’s August 5 daily estimates include transmission (TX) and distributor (DX) connected generation, along with curtailed/idled, etc. costs with gas at 9,123 MWh (cost $4.1 million), wind at 49,088 MWh (cost $6.3 million), solar at 13,002 MWh (cost $6.1 million), biofuel at 701 MWh (cost $368,000) and imports of 8,563 MWh (cost $52,000).

The costs to you are mounting

Are you with me so far? What this means is, those other generation sources (including curtailed wind, etc.) of 85,000 MWh cost $16.7 million — $196.47/MWh or 19.5 cents/kWh) and are billed to … you, Ontario’s ratepayers.

Approximately $8.1 million of the day’s costs will be allocated to the Fair Hydro Plan and wind up on future electricity bills. If August 5 was a typical day, the amount kicked down the road for the next four years by the Premier Wynne-led government will amount to $3 billion annually (plus interest).  (The $8.1 million estimate for this day comes from the use of what is referred to as the “Global Adjustment Modifier” set by the OEB at $32.90/MWh from July 1, 2017 to April 30, 2018 and will be reset at the later date. The $8.1 million was obtained by simply multiplying Class B consumption — 246,000 MWh — by the $32.90 “Modifier”.)

Mismanagement of the energy portfolio by the Wynne-led government on August 5 generated a cost for Class B ratepayers that was excessive. It will continue, and lead to an explosion of households living in “energy poverty”*** when the Fair Hydro Plan comes to an end in four years.

The Minister of Energy needs to recognize the problems caused by intermittent and unreliable renewable energy!  Once he understands the latter he should immediately cancel any wind and solar contracted projects that have not commenced construction, along with any in the early planning stages.

Kicking the can down the road via the Fair Hydro Act is anything but fair. Paying twice for non-emitting clean energy simply amplifies the bad management this portfolio has received from our government.

Parker Gallant

August 11, 2017

*   Some of the above MWh references are rounded to the nearest thousand.

** The 6.6 cent rate, coincidentally, is close to our new off-peak rate of 6.5 cents/kWh (previously 8.7 cents/kWh) which came into effect July 1, 2017. The lower rate is a result of the “Fair Hydro Plan” instituted by the Premier Wynne that kicked 25% of the costs down the road for four years.  The Off-Peak rate back on May 1, 2007 was 3.2 cents/kWh so even after the recent reduction it is still up over 103% in the last 10 years.

*** Energy poverty is generally defined as utilizing 10% or more of a household’s disposal income to pay for their electricity and heating needs.

 

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Hydro One takeover of U.S. company a big negative for Ontarians

The Financial Post, August 10, 2017

Parker Gallant: Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it

PostMedia photo

By Parker Gallant
On March 28th, a few weeks after Ontario Premier Kathleen Wynne and Energy Minister Glenn Thibeault held their press conference about the “Fair Hydro Plan,” Andrea Horwath, leader of the NDP, delivered a motion to the Ontario legislature calling for a buy-back of Hydro One. The motion failed and later resulted in Thibeault calling the NDP motion “short on details and long on hollow promises.” He noted that many of the NDP’s proposals “rely on a vague and yet-to-be-determined ‘expert panel’ that will be convened in the future.” Buying back $4 billion in Hydro One shares is costly, the energy minister added, and “will not take one cent off electricity bills. What it will do is send billions to the stock market instead of making much needed infrastructure investments in communities across Ontario.”

Fast forward to July 19th, when Thibeault was beside himself with excitement because Hydro One will be paying US$5.3 billion ($6.7 billion) to purchase Avista, a much smaller electricity and natural gas utility headquartered in Spokane, Wash., 3,200 kilometres from Toronto. Hydro One offered a 24-per-cent premium on the traded value of the stock price over its July 18th closing and, based on Avista’s 2016 annual profit, it will take Hydro One 38 years to recoup the $6.7-billion price tag. Thibeault’s press release announcing the takeover carried this obtuse claim: “It is to the shared benefit of Hydro One’s customers, employees and shareholders to see the company strengthened and growing.” He also stated that, “In particular, we welcome the fact that this proposed acquisition will not impact the rates that Ontario customers pay. Neither will it have any impact on local jobs.”

The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet

 Based on that press release, and the requirement to get shareholder approval, we must assume Thibeault gave his blessings to the acquisition and dilution of the province’s holdings, which will decline from 49 per cent to 44 per cent. He presumably also blessed Hydro One’s borrowing program, which will add US$2.6 billion ($3.7 billion) in new debt, not including another $1.4 billion via a convertible debenture paying 12 per cent per annum in interest prior to its conversion to common shares.

Thibeault and Wynne believe it’s wrong for the province to borrow $4 billion, as the NDP suggested, to reacquire Hydro One shares, but OK for Hydro One to borrow $5.1 billion while diluting the province’s interest in it. The privatization of Hydro One and dilution of the province’s shareholding keep its debt off of the province’s balance sheet.

So, is the acquisition all that Thibeault and Hydro One’s CEO, Mayo Schmidt, claim it is or is the spin meant to distract ratepayers into believing the takeover will lessen pressure on future rate increases? Let’s examine a few facts:

— The acquisition of Avista will result in Hydro One’s debt (short and long term) increasing by 46 per cent, or $5.1 billion, to reach in excess of $16 billion. Should interest rates increase Hydro One will submit an application to the Ontario Energy Board (OEB) for a rate increase, an accepted OEB process.

— Hydro One’s 2017 first-quarter report notes it currently has five rate applications awaiting approval by the OEB and plans to file another nine rate applications over the next four years.

— Washington, where Avista’s electricity ratepayers are located, pays the second-lowest rates of any state on average, with all-in residential rates of 9.43 cents/kWh as of April 2017. Only Louisiana can claim lower rates at an average of 9.35 cents/kWh (U.S. rates expressed in U.S. currency).

— Based on the information in Avista’s 2016 annual report, it appears the all-in cost of a kilowatt-hour delivered to its ratepayers was 8.68 cents/kWh.

— Hydro One, on the other hand, has the highest rates in Canada and in most of North America. It is difficult to see how Washington ratepayers will see any benefit from this acquisition. Based on the data supplied by Hydro One to the OEB for 2015, its average cost of a kilowatt-hour was almost double Avista’s at 17 cents/kWh.

It is difficult to believe several of the claims in Hydro One’s news release

It is difficult to believe several of the claims in Hydro One’s July 19th news release. As an example, it states the acquisition of Avista “will be accretive to earnings per share in the mid-single digits in the first full year of operation.” Politicians and regulators in Washington may be tougher than those in Ontario when Hydro One seeks a rate increase! It gains increases in Ontario from the OEB and via political tampering, which recently resulted in a requirement that taxpayers pick up a part of Hydro One’s bad debt allocations via the Ontario Electricity Support Program.

Another quote is also a stretch: “Efficiencies through enhanced scale, innovation, shared IT systems and increased purchasing power provides cost savings for customers and better customer service, complementing both organization’s commitment to excellence.” This claim comes from the company that had the distinction of being singled out by Ontario’s ombudsman for issuing over 100,000 faulty hydro bills. Moreover, last October Global TV found Hydro One had almost 226,000 clients in arrears, which represented 20 per cent of all its residential clients and 40 per cent of all ratepayers in arrears in the province.

Ratepayers and taxpayers should view the Hydro One takeover of Avista as negative. To re-purpose Thibeault’s comment to the NDP leader, this action “will not take one cent off electricity bills.”

Financial Post

Parker Gallant is a retired bank executive who looked at his power bill and didn’t like what he saw.

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.

 

Where did the $50 billion go, Premier Wynne?

He said, she said: we say, where did the money GO? [Photo: Toronto Star]
Last September 13, Minister of Energy Glenn Thibeault issued a press release announcing the  Ontario Liberal government would reduce electricity bills for five million families, farms and small businesses.  The relief granted was equivalent to the 8% provincial portion of the HST. The press release also claimed Ontario had “invested more than $35 billion” in new and refurbished generation.

Fast forward to March 2, 2017 and that $35 billion jumped to $50 billion in a press conference the Premier jointly held with Minister Thibeault. An increase of $15 billion in six months!

The press conference was to inform us the 8% relief announced by Minister Thibeault would be added to, with a further 17% reduction. A Toronto Star op-ed Premier Wynne wrote March 7, 2017 reaffirmed the $50 billion investment claim made the previous week, and further claimed: “By delivering the biggest rate cut in Ontario’s history and holding rate increases to inflation for at least four years, this plan provides an overdue solution.”

That made history alright, but not the way she meant. What the Premier forgot to say was that her government had brought us the biggest rate increases in Ontario’s history.  In March 2011 the Ontario Energy Board (OEB) website shows the average electricity rate was 6.84 cents per kilowatt hour (kWh) and on May 1, 2016 it had increased to 11.1cents/kWh.  In just over five years, the price of the commodity — electricity — increased 62%, a multiple of the inflation rate during that five years, which added about $400 to the average consumer bill.

Electricity price goes down, your bills go UP

From 2010 to 2015 Ontario demand fell by 5 TWh (terawatt hours) to 137 TWh.* That is enough to provide electricity to 550,000 “average” Ontario households for a year, yet the price for residential consumers increased 62%.   The increase was not driven by the trading value via the hourly Ontario electricity price (HOEP) market.  In fact, the market treated Ontario generated electricity badly as it fell from an average of 3.79 cents/kWh in 2010 to 1.66 cents/kWh in value for 2016 —  a 56.2% drop.

As to how they were achieving this “relief,” Wynne and Thibeault told us they were pushing the payback period for the 20-year contracts (wind and solar) out another 10 years. Those generation sources are the principal cause of the increase in electricity prices.  (For further proof of that, read  Scott Luft’s recent analysis on the costs of “other” generation in 2016 which confirms its effect on our rising electricity rates.)

Where did the money go?

What the Wynne/Thibeault announcement means is, ratepayers will pay for the intermittent and unreliable power for their 20-year contracted term(s), and continue to pay for the same contracts which, by that time use equipment that will be heading for, or already in the scrap yard.

It is time for Minister Thibeault to disclose what is behind his claim of $35 billion invested and for Premier Wynne to disclose the details of the $50 billion she says went to “necessary renovations” to rebuild “the system.”

Time to come clean.

* Ontario consumption remained at 137 TWh in 2016.

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.

 

Hydro One bills driving people into poverty

August 17, 2016

Thanks to the persistence of Global TV it appears the Ontario Energy Board (OEB) was obligated (transparency?) to release information on rising electricity bills and how people are being driven into energy poverty.

While the information contained in the PDF file shows a variety of arrears*-related information, and covers all of the local distribution companies (LDC) in the province, the Hydro One data is particularly striking. It is also in keeping with some of the 2015 Ombudsman’s report.

It is important to realize that Hydro One claimed 1,141,369 residential ratepaying customers as of December 31, 2015, representing exactly 25% of total Ontario residential ratepayers according to the Yearbook of Electricity Distributors on the OEB website.

So, focusing on Hydro One only, here are some of the interesting statistics gleaned from the OEB “arrears” report as of December 31, 2015:

  • Hydro One had 59,233 ratepayers in arrears which represented 7.1% of their residential customer base and 68.8% of all residential ratepayers in arrears (86,090) as of that date.
  • Hydro One claimed just over $97 million1. of billing arrears which represented 89% of the total billing arrears reported by all LDC (just over $109 million) as of December 31, 2015.
  • Hydro One’s arrears of $97 million represented 12.5% of their outstanding receivables as at the date of their year end.
  • Hydro One had 17,811 canceled “arrears payment agreements” due to non-payment out of 25,670 for all LDC and that represented 69.4% of all cancellations.
  • Hydro One wrote off $16,504,125.00 of receivables which represented 46.9% out of $35,172,817.00 in arrears written off by all LDC.
  • Hydro One had 7,570 eligible “low-income” households out of 19,914 households for all LDC which represented only 38% of those presumably eligible for the Ontario Electricity Support Program (OESP) which came into effect January 1, 2016

Why…?

Based on the above one would have to ask some pertinent questions such as:

Why did Hydro One have so many ratepayers in arrears when they identified only 7,570 customers as low-income and eligible for the OESP?

Why did Hydro One have such dominance of the number of ratepayers in arrears?

Why did Hydro One represent such a huge portion (89%) of the dollar value in arrears?

If you believe it is related to Hydro One’s excessive delivery rates you would be entirely correct. That was recently reported by writer Scott Luft.

A quick glance at the second Quarter results for Hydro One shows they distributed 6.2 terawatt hours (TWh) versus 6.7 TWh in the comparable 2015 Quarter — that’s a drop of 8% — yet their distribution revenue showed a slight increase of $2 million year over year. What we can determine from those results is in 2015 the “distribution” business of Hydro One generated $51.8 million per TWh and it increased to $56.3 million/TWh in 2016 for an increase of 8.7% per TWh.

The upside-down world of Ontario

In other words, for Hydro One declining demand results in increased revenue. Thanks to their monopoly and the unique cooperation of the OEB, Hydro One has turned the economic model of  “supply and demand” on its head.

One has to wonder now if the sale of shares in Hydro One was driven not only to help achieve a balanced budget in 2018, but also to rid the Ontario Liberal government of even more anticipated bad news about the electricity file and their ownership of Hydro One. Holding a minority interest at the date of the next election might have the Ontario Liberals pointing the finger at the OEB for constantly granting Hydro One’s distribution arm rate increases exceeding inflation by a wide margin.  With that in mind they might just pretend they would do something to right the wrong if re-elected.

Only time will tell if Hydro One is allowed to maintain their lofty position as the generator of the highest arrears levels amongst the ratepayers of the province and continue to be granted the rate increases applied for.

Parker Gallant

  • Average arrears level for Hydro One’s residential ratepayers as at December 31, 2015 was $1,638.59 and the OEB defines arrears as:  “ … an account that is 30 or more days past the 16-day minimum payment period .”