Ontario’s electricity export tariff

Special to The PostMedia Network, June 14, 2018

BY PARKER GALLANT, GUEST COLUMNIST

Former Energy Minister Chiarelli and his claim of a $6B profit on surplus electricity exports. “You can verify it.” No, you can’t.

Many will recall Bob Chiarelli, when in the position as Ontario’s Minister of Energy, was questioned on the costs of exporting our surplus electricity on TVO and stated: “since 2008, the province of Ontario – and you can verify it with the IESO – has made a $6 billion profit on the trading of electricity.”

Needless to say Minister Chiarelli was called out by the media and opposition parties for making such a spurious claim.

Let’s look at Ontario’s 2017 electricity exports and see what he would claim about them. The U.S. Energy Administration Information (EIA) in a recent release, had the following information posted from data supplied by Canada’s National Energy Board (NEB):

“Electricity accounts for a small, but locally important, share of bilateral trade. In 2017, the value of U.S. imports of electricity from Canada increased for the second straight year, reaching $2.3 billion*. The United States imported 72 million megawatt hours of electricity from Canada in 2017 and exported 9.9 million megawatt hours, based on data from Canada’s National Energy Board.”

As it turns out, Ontario’s exports of 19.1 million megawatt hours (MWh) in 2017 represents 26.5% of the 72 million MWh reported as exported by the NEB and those 19.1 million MWh generated “revenue” of $496.6 million (approximately) made up of the $15.80/MWh of the yearly average HOEP (hourly Ontario energy price) as reported by IESO and another $10.20/MWh for transmission** costs.

The implied revenue generated represented 16.6%* of total Canadian electricity revenue versus 26.5% of total Canadian electricity exports. The Ontario based generators of that 19.1 TWh of power were paid a yearly average of $115.5 million/TWh (yearly average includes HOEP plus global adjustment based on the IESO’s December 2017 monthly summary.

That means the cost to Ontario ratepayers for exported power was $1,709.5 billion and the credit (net of the monies to Hydro One of $194.8 million for transmission) resulted in Ontario’s ratepayers picking up the missing revenue of $1,507.7. Anyone with a small math knowledge would not refer to that as a profit as it would represent a cost of about $300 per Ontario household.

Export tariff?

The cost to ratepayers of electricity exports in 2017 at over $1.5 billion and prior years played a significant role in driving up electricity rates and represented almost 10% of total generation costs. To put that in current context, Ontario’s ratepayers were slapped with an “export tariff” by our Ontario government of 88% which greatly exceeds the US tariffs recently announced by the US government on Canadian manufactured steel and aluminum.

Getting slapped with only a 10% or 25% tariff would be a net benefit to Ontario’s ratepayers.

*Presumably US dollars so would represent approximately $3 billion CDN dollars at a $1.30/$1.00 exchange rate.

**A large part of these revenues ($194.8 million estimated) went to Hydro One who control about 99% of all transmission in the province.

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Quarterly stats show wind power blowing Ontario electricity costs higher

A power project that began operating in 2017 … wind power causes waste of other, less expensive sources of clean power due to lucrative contracts

A cold, windy winter cost Ontario electricity consumers. And if the first quarter of 2018 is typical, we’ll pay even more…

The IESO (Independent Electricity System Operator) recently released the March Monthly Summary along with the Generator Output by Fuel Type Monthly Report, so that interested parties can see a year-to-year comparison for the first quarter of 2018 versus 2017.

What the “Generator Output” shows for the first three months of 2018 versus the same period in 2017 is, grid-connected generation output was up by over 600,000 MWh (+1.6%). That suggests the colder than normal winter created increased demand, which it did by just over 700,000 MWh.  As it turned out, gas generation increased year over year by about 750,000 MWh, while Hydro generation decreased by almost 200,000 MWh.

Grid-connected industrial-scale wind turbines (IWT) also generated almost 180,000 MWh* more in the first three months of 2018 versus 2017, and saw curtailed (paid for but not used) generation increase by over 50,000 MWh.

Both of those elements increased costs for ratepayers.

In 2017, the approximate cost of wind power generation in the first quarter, coupled with curtailed generation, was just shy of $532 million. In 2018 it was $30 million higher ($562 million). If the first quarter is typical, the cost to Ontario’s ratepayers for the full year could be over $2.2 billion — just for wind power! (Note the foregoing cost estimate does not include spilled water, steamed off nuclear or the high costs of back-up generation in the form of gas plants standing “at the ready” when the wind isn’t blowing.  On the latter issue a 2017 peer reviewed report by Marc Brouillette for the Council for Clean and Reliable Energy showed wind turbines produce power of value to the grid only 35% of the time.)

To reflect on what the IESO report suggests: even though winter months are considered high demand, the grid-accepted wind power presents 65% of the time when it’s not needed. Wind power, in addition to causing waste of other (clean) sources of power such as spilled hydro, steamed off nuclear, etc., results in the IESO selling surplus power to our neighbours at prices well below the cost of wind power production due to their lucrative contracts.  Proof? Look at the grid-accepted wind power versus Ontario’s net exports.   Grid-accepted wind in the first three months of 2017 was 3.46 terawatts (TWh) and net exports (exports less imports) were 2.92 TWh; the comparable period for 2018 saw grid-accepted wind generation of 3.64 TWh and net exports of 2.86 TWh.  In other words, the wind power, if all exported, was done with only partial recovery of its costs and was excess to actual demand.

That raises the question:

Why did Ontario contract for it in the first place and why was it given “first to the grid” rights? And, why don’t we cancel any outstanding contracts** that haven’t been started if what it generates is surplus?

Paying over $500 million per quarter and as much as $2 billion annually for wind power generation increases energy poverty and sends Ontario’s manufacturing jobs south.

Parker Gallant                                                                                                                                 May 1, 2018

*Thanks to Scott Luft for his data on wind generation and curtailment!

** The government awarded five contracts for almost 300 megawatts of new wind power in 2016, one of which has reached Renewable Energy Approval. The contracts will add $1.3B to Ontario’s electricity costs.

 

Questions unanswered on northern Ontario transmission project

A much needed connection for remote First Nation communities brings questions about funding

What connection is there between Dutton Dunwich township in Southwestern Ontario and Deer Lake First Nation of Northern Ontario? Deer Lake First Nation is 180 km north of Red Lake, or 1,915 km from Dutton Dunwich by road, so the two communities are far apart. What connects them is how the Ontario government manages the electricity sector.

Ontario’s Energy Minister issued a directive to the Ontario Energy Board or OEB on July 29, 2016, stating “the construction of the Remotes Connection Project, including the Line to Pickle Lake, is needed as a priority project.”

Deer Lake First Nation and three other of the 16 First Nation communities to benefit from being connected to the recently announced $1.6-billion Wataynikaneyap (Watay) Power grid, are also named as partners in the Strong Breeze Wind Farm (57.5MW) in Dutton-Dunwich. They were brought into the project by U.S.-based Invenergy LLC which resulted in a points advantage in the procurement bid process administered by the Independent Electricity System Operator or IESO.

The Watay Power Project is a different story: it will be a much-needed connection for 16 First Nations to the Ontario power transmission grid. The 16 First Nations represent a population of over 14,000 who currently rely on diesel for power generation. It will be owned by 22 First Nations.

Who is putting up the cash, and is it a loan or a grant?                                                                                                                    

There appears to be a disconnect on the announcements associated with the $1.6-billion project as MP Bob Nault’s website stated: “Today, the Honourable Bob Nault, along with the Honourable Jane Philpott, Minister of Indigenous Services Canada, announced $1.6 billion in federal funding for Wataynikaneyap Power to connect 16 First Nations to the provincial power grid.”

The CBC’s report had a different view of the funding, however: “Premier Kathleen Wynne and Ontario Energy Minister Glenn Thibeault along with the Minister of Indigenous Services Canada, Jane Philpott, announced an investment of $1.6 billion dollars to connect 16 First Nations in Northwestern Ontario to the electrical grid.”

The report quoted Ontario’s Premier, who said “We are putting the money up front and then the federal government is coming in and back filling that money, so the province is putting up over $1.3 billion in order to facilitate the project … in order for the project to get going, someone had to take the risk.”

There is a lack of clarity for taxpayers in the federal and provincial statements. Who is really providing the money? And is it $1.6 or $1.3 billion? Is it a loan or is it a grant? Taxpayers should be told.

Delivery costs

Grid-connected electricity for the 14,000 residents of the 16 First Nations communities works out to about $114,000 each and (assuming 3.5 residents per household) $400,000 per household. If one assumes a lifespan of 40 years* for the transmission system the delivery cost annually is $10,000 per household, without factoring in either electricity or interest costs on the debt (if it is debt).  Somehow, I doubt the 14,000 residents of the 16 First Nations will get the bill; will it fall on the taxpayers or ratepayers in Ontario, or all Canadian taxpayers to pick up the bill?  If it is Ontario ratepayers, should not the cost of this initiative properly be part of an indigenous support and development program, rather than adding to already beleagured ratepayers’ bills? Clarity on this issue would be appreciated from both the federal and provincial governments.

Environmental and health impacts                                                                                                 

An IESO “Panel Discussion: Engagement at the Local Level indicated grid connection to Ontario’s remote First Nation’s communities would: “Save $1 billion compared to diesel generation (PWC Study)” and that $472 million of the social value includes the “present value” of 6.6 million tonnes of avoided CO2 equivalent and $304 million of “adverse health impacts” over 40 years in the $1 billion reputedly saved, according to the PWC report of June 17, 2015.

What Watay Power won’t provide                                                                                                  

The website for Watay Power has a “Frequently Asked Questions” page, where two interesting questions posed. One concerns future power outages and the other asks whether the $1.6-billion transmission system will connect to the undeveloped Ring of Fire?

The first intriguing question was, “What options do communities have for back-up power during outages?” The answer was “A back up study is being prepared to develop options on how each community local distribution plans to address outages. The Wataynikaneyap Transmission Project is solely responsible for transmission.”

The second question was: “Will this line connect to the Ring of Fire?”** The answer to that question was, “The Wataynikaneyap Transmission Project is not proposing a connection to the Ring of Fire at this time.”

So, it would appear no backup plan is included in the estimated $1.6 billion cost, nor is a connection planned to the Ring of Fire which is regarded as “ Ontario’s version of the Oil Sands, the deposit has been said to contain $60-billion in mineral wealth.”

The Watay Power project poses many questions for Ontarians and Canadians. While the project is worthy in connecting remote communities to the power grid, Queens Park and Ottawa need to provide more details on who is really paying for it.

Parker Gallant                                                                                                                                 April 16, 2018

* “Studies have shown that building the transmission infrastructure to these remote communities would save over $1 billion compared to continued diesel generation over the next 40 years.”

**”Ten years after a large chromite deposit in Ontario’s James Bay lowlands was first discovered and declared a “game-changer” for the Canadian economy, the Ring of Fire mining development is flaming out in a dispute over who is talking to whom.”

Parker Gallant is an independent commentator on energy issues

 

Class distinctions in Ontario’s electricity sector

Ordinary consumers try to conserve while …

Ontario: where the energy ministry robs Peter to benefit Paul

April 15, 2018

The data is out for the first two months of 2018 for both the consumption of electricity as well as the costs to Ontario’s upper and lower class of consumers.

According to Independent Electricity System Operator or IESO, consumption increased by 4.7% or 1.084 terawatts (TWh). That’s what 725,000 average households would consume for two months.

The annoying thing about the increase in consumption, however, is while Class B (that is, regular folks) ratepayers reduced consumption by 729,000 MWh Class A ratepayers (customers with higher demand such as businesses) increased their consumption by 1.813 million MWh.

So, why did consumption increase? If you guessed, Ontario’s energy ministry launched a “Black Friday” or a post “Boxing Day” sale, you would be heading in the right direction!  To explain: if one travels back to the days when Brad Duguid was the Minister of Energy he issued a directive to the OPA (Ontario Power Authority) instructing them to create and deliver an “industrial energy efficiency program” specifically for large transmission-connected (TX) ratepayers. He issued that directive and, as they say, the rest is history.   The resulting ICI (Industrial Conservation Initiative) granted the “A” ratepayers the ability to reduce their consumption during the “high five” peak hours and the reward was the GA (Global Adjustment) component would drop significantly for them.

Originally, Class A ratepayers were only the largest industrial clients (approximately 170) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new class distinction in January 2011, however, Class A clients have evolved further, to allow those with peak demand exceeding 500 kilowatts (kW) per hour. In other words, because industrial jobs were fleeing Ontario and various associations such as the Chamber of Commerce, the Canadian Federation of Independent Business, the Association of Major Power Consumers of Ontario, etc., made their concerns known, the ability to “opt in”’ to Class A was lowered. The results should have been obvious: Class B electricity costs would climb higher!

January and February 2018 saw the “B” to “A” Global Adjustment or GA subsidy transfer increase to $201 million compared to $179 million in the same two months of 2017. The full cost of the transfer and the extra $22 million (+ 12.3%) is allocated to Class B ratepayers, and probably includes some newly classified “A” ratepayers.

When you review the GA subsidy Class B ratepayers provided in 2017 compared to 2016, the increase year over year is up $369 million or 30%.   In 2016 Class B ratepayers absorbed $1.222 billion of the GA subsidizing Class A ratepayers and that support jumped to $1.591 billion in 2017. The $369 million increase occurred despite Class B ratepayers reducing their consumption by 9,976,000 MWh (what 1.1 million average households would consume in a full year) while Class A consumption went up by 5.146 million MWh.

No doubt most of this increase can be attributed to the lower “A” qualification level but IESO does not disclose that information.

For those of you who like to “connect the dots” here’s the puzzle: the almost $1.6 billion annual Class B subsidy added to the $400 million spent on “conservation” comes to $2 billion.   That $2 billion annual cost of 2017 comes very close to the Financial Accountability Office’s estimate of the annual cost of the Fair Hydro Plan at $2.1 billion.

Coincidence?

As it turns out, the outcry from Class B ratepayers about high electricity costs started to result in negative media attention which presumably brought about the concept of the “Fair Hydro Plan” which actually kicks about $2 billion of annual costs down the road for the next ten years.

Despite the obvious Class B to Class A subsidy highlighted above, the Fraser Institute’s* recent report on Ontario’s electricity system notes in the Executive Summary: “In 2016, large industrial users paid almost three times more than consumers in Montreal and Calgary and almost twice the prices paid by large consumers in Vancouver.” So, even though Class B ratepayers contributed $1.222 billion in 2016 to help reduce electricity rates for Ontario’s large industrial users, they still paid almost three times more than their counterparts in Montreal and Calgary.

Parker Gallant

*From the Fraser Institute report: “The centerpiece of the GEA was a Feed-In-Tariff program, which provides long-term guaranteed contracts to generators with renewable sources (wind, solar, etc.) at a fixed price above market rates. In order to fund these commitments, as well as the cost of conservation programs, Ontario levied a non-market surcharge on electricity called the Global Adjustment (GA).”

Ontario’s IESO: electricity customers should be concerned

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.

Stuff that drives me crazy…

Tall tales about electricity management in Ontario

March 13, 2018

What drives me crazy are false claims from the proponents of renewable energy (wind and solar) and bureaucrats running Ontario’s electricity system. Here are a few examples of false claims and, dare I say, “fake news.”

  1. Hydro One and all other electricity distributors submit an annual report to the OEB and the information is posted under the heading “Yearbook of Distributors”. Hydro One’s 2016 filing states “Total Service Area (sq km) 962,274 sq km”. In a video Ferio Pugliese, VP Customer Care & Corporate Affairs, clearly states during a Regulatory Commission of Alaska special public conference/panel discussion that “we have a very large base in Ontario with over 650,000 square kilometers of territory”! Mr. Pugliese was trying to convince the Alaska regulator and the concerned citizens that nothing related to their electricity bills would change if, and when, they acquire Avista. I think most would agree that losing 362,000 sq. km of service area is major.
  2. CanWEA the wind power trade association claims “Wind is delivering clean, reliable and low-cost electricity,” but express their unmitigated thanks for the recent Federal Budget by noting: “The Canadian Wind Energy Association commends the federal government for extending the ability of investors to utilize Class 43.2 of the Income Tax Act by five years, from 2020 to 2025. This fiscal measure allows investors to accelerate deductions of eligible capital costs associated with clean energy generation. This helps renewable energy developers to lower their costs”! This effectively means owners of industrial wind projects get to write off their capital costs fast and don’t have to pay income taxes. One must assume they need taxpayer support to deliver their claimed “low-cost electricity.”
  3. The government suggests “cap and trade” revenue is being handed back to us: “We’re investing all of our carbon market proceeds into projects to reduce greenhouse gas pollution.”   When the announcement was made in May 2009 about passing legislation, the press release noted: “The United States is moving to put a national program in place that could begin as early as 2012.” But that never happened, so Ontario has little company in North America with only Quebec and California also collecting this tax. The press release from the MOECC on February 28, 2018 bragged about the first joint auction with Quebec & California stating: “Ontario is now part of the largest carbon market in North America.” To the best of this writer’s knowledge it is the only carbon market in North America! Reviewing the Ontario-based companies on the recent auction list, one notes those compelled to purchase allowances include Hydro One, OPG, greenhouse operators and municipalities amongst others. Those allowances will find their way into the cost of living stream resulting in increases to electricity bills and any product emitting CO2; and will even raise your municipal taxes. The Cap & Trade tax will touch our lives in many ways. While the press release said, “All of the proceeds raised from the carbon market are being invested into Ontario’s economy through green initiatives that fight climate change and help make life better for Ontario residents.” Most taxpayers would disagree the “cap and trade” tax will make life better!
  4. IESO, which manages Ontario’s electricity grid and negotiates generation contracts with private and public companies, seems to talk out of both sides of their mouth. As an example, their forward looking planning documents suggest wind generation’s capability of delivering power (referred to as “capacity factor”) to the grid during peak demand periods is a miserly 12.9% whereas CanWEA claims: “Capacity factors of potential wind plants range from 34 per cent in British Columbia to 40 per cent in Nova Scotia.”. Additionally L. Kula, IESO’s COO and VP Planning Acquisition and Operations in a February 28, 2018 speech stated: “Ontario is at the forefront of decarbonizing our grid, something we should be proud of.   In the almost two decades since the market was established, we have retired coal as a generation source. In doing so, we have increased the amount of variable generation on the transmission system and on the distribution system. At the wholesale level alone, wind and solar combined met about seven percent of Ontario’s supply needs in 2017.” While generating 7% of Ontario’s supply wind represented 12.5% of installed capacity and performed poorly during our summer’s high demand periods. During June, July and August of 2017 it generated an average of only 4% of demand and generally when it wasn’t needed in the middle of the night! Decarbonizing our grid at a huge cost to ratepayers should not be something IESO brags about.
  5. IESO also makes claims which support the 100+ “directives” from the Minister of Energy responsible for driving up energy prices as the following example illustrates. Terry Young’s (VP, Policy, Engagement and Innovation), speech of January 23, 2018  to ROMA stated: “The conservation and energy-efficiency programs we offer help consumers of all types take greater control of their energy use and reduce energy costs. This is the most cost-effective supply resource available, at less than four cents per kilowatt-hour. Conservation savings, growing embedded generation and demand reduction programs have offset increased demand.” Mr. Young has obviously not noticed “increased demand” is fake news as it has fallen 10.7% since 2008, but the average price for Class B ratepayers has increased 99%. Most voters are under the impression bureaucrats are supposed to be neutral and just execute the directions of their political bosses and not brag about results. Spending $400 million annually on “conservation” is a direct hit to ratepayer’s pocketbooks.
  6. IESO now considers it is better to pacify their political masters rather than work to keep costs from rising. Recent examples include their ability to cancel contracts for non-compliance but for some reason they ignored their legal right to do so. Examples include: the Windlectric 75 MW wind development on Amherst Island (a major pathway for migratory birds and bats) and an 18.4 MW wind project known as White Pines in Prince Edward County. Those two projects alone will cost ratepayers almost $700 million over the 20 years in their contracts. Generation from wind turbines continues to be a waste of ratepayer dollars as easily seen in 2017 data. During the high demand months of June, July and August, wind power generation amounted to 4% of demand despite representing over 12% of Ontario’s generating capacity. During those three months turbines generated 1.355 TWh, yet Ontario exported 4.731 TWh to our neighbours in New York, Michigan, etc. at bargain basement prices. Despite the obvious, IESO’s current President and CEO Peter Gregg of IESO said in a speech to the Ontario Energy Network on January 19, 2018: “With respect to the development of new resources, we are cognizant of some of the concerns expressed by representatives of renewable resources like wind and solar and emerging technologies like storage.” Perhaps Mr. Gregg could be more “cognizant” of the effects of wind turbines on such things as human health, the killing of birds and bats and the economic hardship caused by electricity prices that have climbed by over 100% over the past few years caused by the addition of wind and solar generation being added to the grid and embedded within local distribution companies.

The points I’ve raised are not all the fake or false news emanating from the electricity bureaucrats, but hopefully the reader will understand the gist of what has happened to the electricity sector in Ontario.

Parker Gallant

How much does wind power cost us?

March 5, 2018

Ontario turbines near Comber: wind is not free

Being asked to do a presentation at Wind Concerns Ontario’s annual conference this past Saturday to describe the costs associated with industrial wind turbines was something I relished!

The presentation I developed used IESO information for 2017.

Discovered in the preparation of my presentation was the fact that nuclear and hydro power alone could have supplied over 100% of all grid-connected consumption for 2017, at a average cost of about 5.9 cents per kilowatt hour.

The cost for Class B ratepayers in 2017 however, was almost double, coming in at 11.55 cents per kwh.

So why the big jump? Have a look at the presentation to see why and look at Slide 6 in particular where you get an inkling of how IESO views the reliability of industrial wind generation in their forward planning process!

presentationparkerppt-final