Texas small town Mayor Dale Ross meets up with reality
In early January I wrote about “virtue signaling” by the mayor of a small Texas city who was wooed by none other than Al Gore because he used “facts” to sign long-term contracts committing his city to purchase 100% renewable energy.
He has had a long hard fall from grace.
Dale Ross set himself up as a “green” hero, and claimed his social media news has been seen by 2.1 billion people around the world. He was even touted as a celebrity and interviewed by CanWEA at their convention last fall.
At the time, I said this about Mr. Ross and his claim to fame:
“This unexpected cost will presumably have a detrimental effect on the services that the city will be able to deliver OR service costs (electricity, water and waste removal) will spike much higher! These are just a couple of ‘facts’ that will make Georgetown’s utility consumers upset.”
Well, it now appears the bad news is out: the city’s ratepayers are facing increases in their electricity bills of more than $1,200 USD per year.
I surmise Mr. Ross will not be greeted warmly by his constituents.
After seven years, the Ontario Energy Board has determined that a move by the McGuinty government to shift the burden of electricity costs to smaller ratepayers was “complicated and non-transparent.” What took them so long to find out that out, when it cost Ontario citizens billions?
Back in 2011, the Dalton McGuinty government introduced the Industrial Conservation Initiative (ICI) with the idea of changing the way Global Adjustment (GA) costs were allocated to different classes of consumers. “The stated purpose of the ICI is to provide large consumers with an incentive to reduce consumption at critical peak demand times. The resulting reductions in peak demand were expected to reduce the need to invest in new peaking generation and imports of electricity from coal-reliant jurisdictions.”
The government had been lobbied hard by the Association of Major Power Consumers of Ontario (AMPCO) who had been feeling the effects of climbing power rates brought on by the Green Energy Act (GEA) and the resulting FIT (feed-in-tariff) contracts for renewable energy (wind and solar).
Needless to say, the Liberal government caved, the ICI was born and officially started September 2011.
Just over a week ago the Ontario Energy Board released a report titled: The Industrial Conservation Initiative: Evaluating its Impact and Potential Alternative Approaches. What struck me immediately was this sentence in the Executive Summary: “In the Panel’s view, the ICI as presently structured is a complicated and non-transparent means of recovering costs, with limited efficiency benefits.”
It took the OEB seven years to come to this conclusion. And they are supposed to be the regulators for the energy sector. Their vision is: “The OEB supports and guides the continuing evolution of the Ontario energy sector by promoting outcomes and innovation that deliver value for all Ontario energy consumers.”
So, it took seven years to determine the ICI wasn’t delivering value?
The ICI was created via a change in the Regulations* and was posted August 27, 2010 on the Environmental Registry with this statement: “As a result of the consultation, there was general agreement that the proposed changes would result in a net benefit to electricity consumers, the electricity system and the broader Ontario economy.”
The new OEB report noted the Class B to Class A shift commencing in 2011 “has shifted nearly $5 billion in electricity costs from larger consumers to smaller ones. In 2017, the ICI shifted $1.2 billion in electricity costs to households and small businesses—nearly four times greater than the amount in 2011.”
Wondering what 2018 would bring in respect to the B to A shift and, knowing IESO now posts both consumption and costs of the GA by customer class on their website, it was worth an exercise to determine if the $1.2 billion shift of 2017 would increase or decrease. Using IESO’s data it appears the subsidy for the first 11 months was about $35.4 million per TWh (terawatt hour). Based on 36.9 TWh consumed by Class A ratepayers the cost shift is $1.306 billion. The 4,665,000 residential ratepayers who use 9 MW of electricity annually will absorb approximately 30% of those costs — in other words, it represents an annual subsidy to Class A customers of almost $100 from each ratepayer.
Small and medium sized businesses will pay a lot more absorbing the remaining 70%, or about $900 million!
Now you know why the price of that hamburger and everything else went up!
Electricity price increases have hit all classes of ratepayers in the province and now that we see the shift of costs, it is helpful to look at the cause!
Renewable energy in the form of wind and solar** power generation has played a big part in rising electricity bills, so it is an interesting exercise to do a simple calculation to determine what wind generation and curtailment have cost in the first 11 months of 2018. My friend, Scott Luft posts actual wind generation and curtailment for grid-connected (TX) and distributor-connected (DX)*** wind. Calculating the TX, wind generated (9.655 TWh) and curtailed (1.940 TWh) for the 11 months indicates costs were $1.305 billion for grid-accepted generation and $230 million for curtailed (paid for but not used) wind.
That brings total costs of intermittent and unreliable wind to more than $1.5 billion. ****
What this simple exercise really does of course is demonstrate how our costs would be much less without intermittent wind power generation, which is produced out-of-phase with demand in Ontario. Considering first-to-the-grid rights for wind power operators means it also results in spillage or waste of hydro (5.9 TWh in 2017) and nuclear steam-off (1 TWh in 2017) and must be backed up with gas generation — all of which we pay for — wind power simply increases our electricity bills without any significant benefit to the environment or power system.
If solar costs were also included in these calculations, we would be in the $3 to 4 billion range.
Short story: Without all that waste, all classes of Ontario ratepayers would have reasonable and cost-competitive electricity rates.
Conclusion The OEB should have stood up for consumers a lot sooner and called out the government for NOT delivering the “outcomes and innovation that deliver[d] value for all Ontario energy consumers.” Instead, the OEB simply watched while billions of dollars were removed from ratepayers’ pockets for foreign-owned wind power developments and stood by for seven years while residential, small and medium sized businesses provided increasing subsidies to large industrial companies for a program “with limited efficiency benefits.”
* Class A was limited to very large consumers with an average monthly peak demand of more than 5 MW (primarily large industrial consumers). Since then, the government has expanded eligibility such that Class A now includes all consumers with an average monthly peak demand of more than 1 MW, as well as consumers in certain manufacturing, industrial and agricultural sectors with an average monthly peak demand of more than 0.5 MW.
**IESO do not disclose solar generation until early the following year ***Estimated for grid connected but generally very close to actual generation.
****Generated wind at $135/MWH and curtailed at $120/MWh.
The quote “A lie told once remains a lie, but a lie told a thousand times becomes the truth” is attributed to Joseph Goebbels, the Minister of Propaganda in Nazi Germany from 1933 to 1945.
Ontarians have been lied to by politicians (although none has held the title “Minister of Propaganda”) particularly related to electricity. Here are some examples.
Job creation Deputy Premier and Minister of Energy and Infrastructure George Smitherman, in a speech to the Toronto Board of Trade February 20, 2009 at the launch of the Green Energy Act had this gem: “Mimicking the impressive employment growth in various European jurisdictions, economic modeling projects that the GEA will create more than 50,000 jobs in the next three years.”
Those jobs never materialized despite repeating that claim (lie?). Instead as electricity costs climbed many good manufacturing jobs were actually lost inOntario.
Low cost renewables Smitherman also made an interesting claim to the Ontario Standing Committee on Estimates on May 27, 2009. He said: “Through our projected investments and expenditures as part of the Green Energy Act, electricity prices are expected to rise approximately 1% annually, on average, over the next 15 years for ratepayers.”
Wow, 1% annually over the next 15 years! What really happened was that at the end of 2008, electricity prices were 5.2 cents/kWh, and by the end of 2017 they were 11.55 cents/kWh for an increase of 122% for residential ratepayers over the nine years. Not quite the 9% increase Smitherman promised (under oath) to the Committee. Needless to say, those claims were repeated over and over again to presumably make us believe it was the truth.
CanWEA’s role One can only assume fabrications like these were developed as part of a communications strategy either by politicians or by stakeholders who stood to reap financial benefits from the passage of the Green Energy Act. The spin by lobbyist and trade association the Canadian Wind Energy Association (CanWEA) and by “environmentalists” has been constant in order to get buy-in from gullible politicians! The spin has been highlighted in the past by many including me. A couple of examples are:
A 2016 Pan Canadian Wind Integration Study (partially funded with tax dollars) in an article titled: Wind power industry claims Canada needs more wind power–with a hefty price tag for electricity customers and more recently another
One titled Wind Power in Panic Mode as a new Ontario Government signaled the end of lucrative wind energy contracts and another more recent one titled
CanWEA’s spin hasn’t stopped as their President Robert Hornung once again is singing the praises of that biased Pan Canadian Study in a recent posting on their website titled: Wind Energy: A Reliable Part of Today’s Energy Mix. Hornung’s article on wind power has Hornung describing it as “low-cost” twice, as “reliable” eight times and he even makes the claim that wind turbines would “help grid operators maintain reliability in the case of system imbalances or emergencies – services wind energy can often supply to the grid more quickly and cost-effectively than conventional generation.”
As if that wasn’t enough of a blatant distortion of reality, Hornung suggests the Pan Canadian “study found that if Alberta increased its wind energy capacity from 1,500 MW to 17,700 MW, reserves would need to increase by only 430 MW or 2.4 per cent of total wind energy capacity. In most of the rest of Canada the percentage would be even lower.”
What he doesn’t mention in the same context is the billions and billions of dollars needed to augment the grid via transmission spending for the many times wind turbines simply don’t generate sufficient power. The net result would mean Alberta and “most of Canada” would need to depend on neighbours to supply them with electricity should the wind be dormant—that would require those major transmission enhancements. As an alternative wind power could be backed up with gas plants as we do in Ontario and as elsewhere around the world.
It certainly appears CanWEA is hoping to convince Premier Notley or her successor that Alberta should believe his spin just as the Ontario government did under former Premiers McGuinty and Wynne. As if Alberta (and Canada) is not suffering enough due to the restricted ability for the province to build even one to pipeline to get a natural resource (oil) to a competitive market.
“Politics preys on people’s naivete,” wrote Bangambiki Habyarimana, in his book Pearls of Eternity.
Many people have taken advantage of Ontarians’ wish to do what’s right for the environment by using “feel good” promises and claims for power and profit.
In the future it is likely those who were preyed upon will realize the benefits promised by wind power proponents was simply “spin” meant to capitalize on their naivete.
Ontario Power Generation (OPG) released its 3rd Quarter report in mid-November, and it was impressive!
Revenue was up $156 million to $1,373 million (+12.8%) and after-tax income was 113% higher, increasing from $131 million to $279 million. For the first nine months of 2018, OPG reports RoE (return on equity) of 10.8% and will easily generate record after-tax profits for the full year of well over $1 billion. Nine-month profits sit at $948 million, up 84% or $433 million—that’s a record.
Revenue is also poised to crack the $5 billion-dollar level (nine-month revenue is $4,062 million) as it has many times in the past; however, after-tax profits have never been this high since the creation of OPG in 1999 when Ontario Hydro was broken up into several different entities.
What’s interesting about those record profits? OPG is record profits despite a substantial decline in generation.
Look at year-end December 31 2000: OPG generated and sold (into the grid) 139.8 TWh (terawatt hours) and earned revenue of $5,978 million for an after-tax profit of $605 million. What that means is, back in 2000, OPG’s approximate cost to generate 1 TWh was $42.7 million (4.3 cents/kWh). In 2018 (so far) the cost has jumped to $74.8 million (7.5 cents/kWh) for the 54.3 TWh delivered in the first 9 months.
The 54.3 TWh delivered so far in 2018 is down from the comparable 2017 period by 1.7 TWh or 3% and from 2000 (9 months) by 49.4 TWh* or 46%! Comparing the first nine months of 2018 to 2000, net income is up $405 million or 74.6%
With such significant drops in generation one would expect net income to drop so what happened?
Some five years ago (December 4, 2013) an article I wrote for Energy Probe was headed up: “OPG-whipping boy for the Ministry of Energy” and it outlined how the GEA (Green Energy Act) had a detrimental effect on OPG’s electricity generation and its revenue, which resulted in declining profits.
I noted how their many “unregulated hydro” assets received only the HOEP (hourly Ontario energy prices) which produced revenue of just over 2 cents/kWh, and how they had been instructed to build “Big Becky” (cost of $1.5 billion) and the Mattagami run-of-river project (cost of $2.6 billion). Falling out of the GEA also was the rise in prices caused by wind and solar generation with first-to-the-grid rights and had resulted in declines in consumption. That meant much of OPG’s power generation was called on less and less.
OPG were also instructed by the Liberal Minister of Energy to convert power plants such as Atikokan and Thunder Bay from coal to biomass and to close the remaining coal-fired plants, one of which required a multi-million dollar write-down for prior expenditures on “scrubbers” to eliminate emissions.
As all this was happening, over the subsequent years, OPG applied for rate increases such as being paid “regulated prices” for all of their hydro assets and for revenue when they were forced to spill hydro. Those were eventually approved along with other increases to cover pension contribution shortfalls, increases in operational management and administrative costs (OMA), and for refurbishment of some nuclear plants.
OPG’s capacity has fallen from 25,800 MW in 2000** to 16,218 MW today, yet in 2000 they generated electricity at a capacity level of almost 62%. So far in 2018, they are operating at a capacity level of just under 51%.
OPG power could have eliminated excessive costs for wind and solar
If OPG were granted the rights to operate at the 62% level of capacity as they did in 2000, they could have generated 65.8 TWh easily, replacing all the generation produced by industrial wind turbines and solar panels. That generation would have resulted in a cost of electricity of less than 7.5 cents/kWh and eliminated the excessive costs for wind and solar under those 20-year contracts!
Today, OPG seems to no longer look like the “whipping boy” but still produces power at prices well below the costs of contracted generation under the GEA and should earn over $1 billion for 2018!
*Enough to power all of Ontario’s 4.9 million households for a full year with over 5 TWh left over. **Staffing levels have dropped from 12,250 (including 650 under contract) in 2000 to 7,700 in 2018 meaning the ratio of employees to capacity has remained static at 2.1 employees per MW.
The Hydro One press release immediately following the decision by the State of Washington’s regulator denying them the right to acquire Avista Corporation was short but expressed “extreme disappointment.”
“TORONTO and SPOKANE, WA, Dec. 5, 2018 /CNW/ – Hydro One Limited (“Hydro One”) (TSX: H) and Avista Corporation (“Avista”) today received a regulatory decision from the Washington Utilities and Transportation Commission (UTC), denying the proposed merger of the two companies. The companies are extremely disappointed in the UTC’s decision, are reviewing the order in detail and will determine the appropriate next steps.”
How did investors view the denial? Avista shareholders were definitely in the “extremely disappointed” crowd as their shares tumbled, but Hydro One investors were probably “extremely happy” as their shares had one of their very best days ever!
Remember, Hydro One offered to purchase Avista shares well over book value and at a high multiple to earnings ratio. While the prior Board of Directors of Hydro One and then CEO Mayo Schmidt, along with Glenn Thibeault, former Minister of Energy, were excited about the offer to purchase Avista, it certainly appears that shareholders weren’t!
Some media blame “political interference” by Premier Ford as the principal reason for the denial! One such individual was quoted in CBC article stating: “Ontario Liberal finance critic Mitzie Hunter said Ford’s “reckless conduct” at Hydro One continues to damage the province’s interests.” Apparently Hydro One’s investors are not buying Mitzie’s claim!
There will, however, be a cost to Hydro One. When the purchase was negotiated, they agreed to a “termination fee” of US$ 103 million (CAD$ 139 million) and will have to pay that to Avista for distribution to their shareholders. Hydro One will also have to unwind foreign exchange forward contracts and accumulated acquisition costs which will be expensed. They also have to deal with the large convertible debenture issue ($1,540 million) which has a 10-year maturity and interest payments above market rates prior to conversion.
I assume we ratepayers will have to sit on the sidelines until Hydro One’s year-end report in early 2019 is issued before we get an estimate on the costs of the denial by the State of Washington’s regulator.
We can then hope our regulator, the Ontario Energy Board (OEB), doesn’t grant a rate increase to Hydro One to cover the costs of their ill-considered attempt to acquire a company 3,200 kilometres away at an inflated price.
Or, how she might have benefitted from listening to opinions (and saved Ontario millions)…
The following tweet from TVO reporter John Michael McGrath reflects the attitude of former Premier Kathleen Wynne to a question she was asked about an estimate of energy costs from yours truly:
“John Michael McGrath @jm_mcgrath Tories introduce an estimate of energy costs from Parker Gallant, Wynne declines to comment on “one person’s opinion, one person’s research.” 10:20 AM – 3 Dec 2018”
The Select Committee on Financial Transparency questioning Wynne is/was attempting to determine the actual reason (e.g., hide debt and push the current cost of energy generation into the future) behind the creation of the Fair Hydro Plan (FHP) by the former Ontario Premier and her Cabinet.
Ontario is now one and a half years into the FHP which provides an opportunity to review the estimated costs of the 10 years of deferral by the Financial Accountability Office (FAO) of Ontario and see what has actually happened so far.
The FAO’s forecast estimated the deferral would cost $18.4 billion over 10 years plus another $21 billion for interest. The average monthly deferral (before interest costs) would therefore average $153 million. Since the FHP first kicked in, IESO has posted monthly, what they call; the “Global Adjustment Modifier” (GAM) so, it is a relatively simple task to determine how the FAO’s estimates have played out, versus actual deferrals.
So far GAM deferrals (without interest costs) are $3,843 million for the 18 months — that’s about $770 per ratepayer. What that indicates is, the monthly average, so far, has been $214 million for the 17% of the GAM deferral versus the estimated $153 million in the FA0 forecast. Should those averages continue for the next 10 years the deferred amount will be $25.7 billion or $5,140 per Class B ratepayer without interest costs. The additional $7.3 billion of the GAM deferral would also drive up interest costs to approximately $29 billion adding another $5,800 per ratepayer that would need to be repaid.
What that means is, future ratepayers could be on the hook for as much as $54.7 billion!
How could that $54.7 billion transfer to future ratepayers have been avoided?
The numbers are up in IESO’s website reflecting how much grid-connected wind power generation has been delivered for the first 9 months of the current year. My friend Scott Luft has provided the estimate of curtailed wind: the collective 8.98 TWh (terawatt hours)** translate to costs of $1,190.7 million. If one extrapolates the first nine months to a full year, the estimate of costs are $1,587.6 million for wind power. IESO does not publish solar output (except for grid-connected) as most of solar is embedded within the distribution system. Despite the lack of data, one can assume solar will have generated 15% of its capacity (380MW are grid-connected [TX] and 2,081 are distribution connected [DX]) meaning the 2,461 MW of capacity should generate approximately 3.23 TWh annually at an average cost of $448/MWh. That adds about $1,450 million to renewable’s costs. Wind and solar together will therefore add $3.038 billion (rounded) annually to electricity costs assuming their capacity levels and annual generation remain at current levels.
As you can see, the estimated cost of wind and solar at $3.038 billion exceeds the adjusted annual GAM costs of $2.562 billion (18-month costs of $3,843 million/18 months X 12 months = $2,562 million) by $476 million. At the same time TX- and DX-accepted wind (7.52 TWh) and solar (3.23 TWh) is assumed to come in at 10.75 TWh which presumably would need replacement. In that regard the Ontario Power Generation 2018 3rd Quarter report indicates they spilled 2.4 TWh in the first nine months, which will probably transition to 3.2 TWh for the full year (ratepayers pay for spilled hydro so no additional costs) leaving a shortfall of just 7.55 TWh to be supplied to replace ALL wind and solar generation!
Without knowing, at this point, if nuclear generation had been steamed-off or exports could have been reduced, the question becomes: could gas plants*** have provided the 7.55 TWh (net after allowing for spilled hydro) wind and solar will probably provide for 2018?
Gas plants for the first nine months of 2018 generated 7.89 TWh; If extrapolated to 12 months, gas could generate 9.22 TWh and represent about 12.4% of its total capacity (8,500 MW). Adding another 7.55 TWh of generation would mean they would be required to operate at 22.5% of capacity so they could have easily replaced wind and solar generation. The additional costs of that generation would be fuel costs plus a small mark-up. Even if fuel costs and the mark-up were as much as $50/MWh the costs of the 7.55 TWh would amount to slightly less than $400 million.
What the foregoing suggests is that with no wind and solar generation, the costs of generation could have been reduced by $2,638 million (wind and solar costs of $3.038 billion less $400 million for additional gas generation of 7.55 TWh).
Coincidentally, the cost reduction of $2.638 billion per annum is remarkably close to the above noted GAM costs of $2.562 billion that will accumulate in the OPG Trust every year for the next 10 years along with the interest on that debt.
So, without wind and solar, former Premier Wynne might have avoided the public outcry about electricity costs and her party might have been re-elected.
Just “one person’s opinion, one person’s research”!
*Based on 5 million ratepaying households and Class B business consumers. **Grid accepted: 7.52 TWh plus curtailed of 1.46 TWh = 8.98 TWh at a cost of $135/MWh for grid accepted and $120/MWh for curtailed. ***Gas plants are paid to idle at a rate as low as $4,200/MW per month (Lennox) to over $15,000/MW per month.
IESO wants residential ratepayers to “Set the mood”
It’s true! Ontario’s Independent Electricity System Operator (IESO) in a recent posting on their SaveOnEnergy site suggested we “Cut the lights and light some candles to set the mood for a cozy evening.”
IESO spends approximately $400 million annually on conservation initiatives, and they come up with this? They even go so far as to describe the event as a “Hygge, a Danish word: (pronounced hue-guh not hoo-gah) used when acknowledging a feeling or moment, whether alone or with friends, at home or out, ordinary or extraordinary as cosy, charming or special.”
I personally find it ironic that the word chosen by IESO is Danish. Denmark is where electricity prices for residential homes is the most expensive in Europe* at EURO per kWh of 0.3126 or Canadian 0.48 cents per kWh. Doesn’t that make all Ontario residents feel cosy!
Denmark is home to VESTAS and their product line is exclusively wind turbines. Vestas employs over 24,000 people which makes them one of the 10 largest employers in the country. Vestas’s website claim they have installed 97 GW (97,000 MW) of industrial wind turbines (IWT) globally. All those noise-emitting, bird- and bat-killing, intermittent and unreliable wind turbines might make the Danes “cosy” but somehow I doubt it, with the price they are paying for electricity.
The IESO post suggests we: turn off the phone, unplug appliances and devices, eat comfort food and use energy-efficient cooking methods like a pressure cooker! ** The message to the reader goes on to suggest pulling on wool socks and using our favourite blanket to get cosy and then to “get lost in the moment” by reading our favourite book!
IESO should stop the wasted spending on conservation efforts of this ilk. Does IESO not understand we are all billed monthly for our cost of electricity usage and have been doing our best to “stay cosy”? For many it has been an effort to simply avoid energy poverty.
Stop lecturing us, stop wasting our money and focus your efforts on managing the grid in a manner that will reduce the costs of electricity.