No hydro price rise today? Just wait

November 1, 2016

Ontario’s electricity ratepayers or customers were somewhat surprised when the OEB (Ontario Energy Board) announced on October 19 there would be no change to electricity rates for the following six months.  That announcement was only the third time out of the last 18 since 2007 where rates didn’t increase.

Many commentators said, however, this can’t hold and the government has simply punted a rate increase down the road. So, what is likely to happen come Spring 2017?

We have some clues in recently released information. The IESO (Independent Electricity System Operator) just published the September 2016 Monthly Market Report which provides the Class B weighted average of both HOEP (hourly Ontario energy price) and the Global Adjustment for the first nine months of the current year, representing the commodity cost.  For the first nine months of 2016, the raw commodity cost’s “weighted average” was $110.93 per megawatt hour (MWh) compared to $98.88/MWh in 2015.

So, that would be up: that signals a 12.2% increase year over year in the electricity1. generation cost.

The IESO has also been posting the consumption and costs of the HOEP and the GA for each of the two customer classes A and B; if you calculate the difference between Class A and Class B consumption and costs for the same period as noted above you discover this.

  • Class A ratepayers increased consumption by 2 terawatts (TWh) from 19 TWh to 21 TWh whereas Class B ratepayers decreased their consumption from 87 TWh in 2015 to 86 TWh year over year.
  • Class A ratepayers paid $70 million more for the additional 2 TWh which was at the bargain price of 3.5 cents per kWh. The raw commodity cost for Class A ratepayers declined from $65.42/MWh in 2015 to $62.50/MWh in 2016 for a 4.4% reduction.

Class B ratepayers may have reduced the electricity consumption (by 1 TWh or 1 billion kWh) but they paid an additional $893 million over 2015.   The extra cost for Class B ratepayers of 1.04 cents per kWh is equivalent to just over $90 a year for the “average” household.

That cost will presumably find its way to the next announcement in mid-April 2017 when the OEB tells us what households will be paying for the six months commencing May 1, 2017.

The Class B to Class A shift will increase further (implementation date has not been announced) in the future, based on Energy Minister Thibeault’s announcement in a press release on September 15, 2016, granting an additional 1,000 plus companies access to the Industrial Conservation Initiative (ICI) program.

The balancing act of trying to retain jobs while greening Ontario’s energy generation via the Class B to Class A subsidy (now approaching $1 billion annually) appears set to create more energy poverty in the Class B group despite removal of the 8% provincial portion of the HST.

The Spring forecast? Increased electricity rates.

Parker Gallant

1. This does not include transmission, regulatory, distribution, etc. costs.

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NAFTA wind farm decision shows need for onshore wind power research too

Related image

October 26, 2016

The events of the past few months have been difficult for new Minister of Energy Glenn Thibeault as he continues to try to defend his predecessors’ decisions. He has tried to justify: increased energy poverty, the fastest growing electricity rates in North America, the slow demise of energy intensive enterprises (manufacturing, mining, refining, pulp and paper production, etc.), gas plant cancellations and the privatization of Hydro One, to name a few.

Not to be ignored are the many challenges lodged by rural ratepayers against contract awards allowing construction of industrial-scale wind power projects in their communities. Thousands of those ratepayers have challenged the contracts and spent millions of personal after-tax dollars sitting in front of Environmental Review Tribunals, valiantly doing their best to protect the environment and wildlife from the highly invasive power projects. Only a very small percentage of the challenges have proven successful.

Just days ago another ruling was issued and once again it was in favour of an industrial wind developer. This time however, it came from a tribunal sanctioned under the North American Free Trade Agreement (NAFTA), and it was against the Government of Canada because of actions by the Ontario government.

The challenge by Windstream Energy LLC resulted in an award of $25 million and an additional $3 million in legal fees against the decision by the provincial governing party to place a moratorium on a contract granted to Windstream for an offshore 300-MW wind development.

The ruling by the tribunal “found that the Government of Ontario treated Windstream Energy LLC’s (Windstream) investments in Canada unfairly and inequitably” and also ruled “on the whole did relatively little to address the scientific uncertainty” surrounding offshore wind that it relied upon as the main publicly cited reason for the moratorium.

If one were to discuss the contracts awarded by the Ontario Power Authority or IESO with the people who have challenged wind power projects at Environmental Review Tribunals I suspect the words: unfairly and inequitably would be frequently heard.  Many rural Ontarians living in proximity to operating turbine installations and suffering the effects of audible and inaudible (infrasound) noise would raise the issue of the lack of research on the effects of the noise on humans.

“Relatively little” has been done to address the scientific uncertainty surrounding onshore wind turbines, as well.

Parker Gallant

Challenging CanWEA’s claim about wind power and electricity bills

October 16, 2016

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

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

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

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

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

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

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

Parker Gallant

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

How to reduce Ontario electricity bills with a minimum of pain

Much has been written recently about what’s wrong with Ontario’s electricity sector and the rising costs of a “necessity of life” to most Ontarians.   The pundits have generally failed, however, to offer a solution. The criticisms correctly point out the mistakes that have been made, including the Green Energy Act and the goal to cleanse Ontario of coal power generation. The result has taken a toll on our pocketbooks and Ontario’s attractiveness as a place to invest in. We now see a sizable increase in people living in “energy poverty.”

I will offer the Ontario Liberal government options that could alleviate rising electricity bills, with little impact on the budget deficit. As some of my suggestions/recommendations impact ministries other than Energy, it may be important for the government to review ministerial responsibilities.

  1. Reduce the Water Fuel Tax imposed on OPG’s hydroelectric units. This fuel tax is applied to both hydro generation and to spilled water (i.e., water not run through turbines). Reducing the tax would generate increased earnings by OPG mitigating further applications for increased revenue via Ontario Energy Board application for rate increases and should generate additional PIL (payments in lieu of taxes). It should reflect itself as a “net-zero” cost to the treasury but mitigate rate increases.   I recommend the fuel charge be reduced by 50% or approximately $170 million annually, based on 2015 fuel charges levied on OPG of $345 million. If applied to residential ratepayers their bills should drop about $40 annually for the average ratepayer.
  2. Move the Ontario Electricity Support Program or OESP: this was created to support low income households and commenced January 1, 2016. The estimated cost of the program was in the $200-million range and required both a staffing increase and advertising budget that will partially consume the budget. The program is funded by other ratepayers via the Global Adjustment pot, reflecting in increasing electricity costs. The program rightly belongs with the Ontario Ministry of Community and Social Services who have existing relationships with funding agencies such as the United Way and could easily accommodate the program as they do for LEAP (low-income energy assistance program). That would help reduce administration costs and place the program where it would be more effective. Cost savings for ratepayers would be $200 million, but would presumably increase the budget of the Ministry of Community and Social Services by only $180 million. Moving this program to where it belongs would drop the average residential bill by approximately $44 annually
  3. As noted in my letter of August 16, 2016 to Energy Minister Glen Thibeault I suggested a tax on wind generation due to two factors: wind turbines frequently provide electricity at times when it’s not needed and developers are paid above market rates and also for curtailment.   Taxing wind is a concept that could generate $150/$200 million annually (based on generation for the first six months of 2016 and a tax levied per megawatt hour [MWh]). The proposed tax could cost the owners of the wind developments $200 million or more, and reduce annual residential bills by $45.
  4. One of the easiest ways to mitigate future rate increases would be to cancel all of the 400 MW of older wind power contracts that have passed their key contract dates. That would save future rate increases over 20 years, from the addition of $3 billion to hydro bills. Future increases would be reduced by $35 annually
  5. Cancel the LRP II (large renewable procurement) immediately: the 600 MW of wind it seeks is not needed and would add annual costs (estimated) of $200 million and almost $4 billion to future electricity bills. The 300 MW of contracts handed out under LRP I should also be canceled and would save ratepayers another $100 million (estimated) per annum and $2 billion over 20 years.   Cancelling the 900 MW would mitigate future rate increases on the average residential bill by about $65 annually.
  6. Cancel 1,300 MW of wind power (600 MW of new + 300 MW from LRP 1 + 400 MW of projects past their key contract dates) would result in less steaming off of power from Bruce Nuclear.  IESO reported this occurred 472 times in 2015 and represented 897 GWh at a cost of about $60 million. Avoiding that would have meant an annual saving per average residential ratepayer of $15.
  7. Cut back surplus power generation: Cancelling the 1,300 MW of wind capacity would considerably slow the generation of “surplus” power meaning less water spillage of hydro (3.4 TWh) by OPG which cost ratepayers about $150 million in 2015, and resulted in an annual cost per average residential ratepayer of about $30.
  8. Should surplus generation flatten or reduce because of the cancellation of the 1,300 MW of wind capacity it would affect the market price (Hourly Ontario Energy Price or HOEP) favourably reducing subsidies. If the HOEP price increased, say, $20/MWh, it would reduce subsidies and generate additional revenue of $450 million (based on 2015 exports) and reduce average residential electricity bills annually by $100.
  9. Cancel spending on conservation: save more than $400 million a year on TV ads and mailers. Most ratepayers know if we conserve more it causes electricity bills to rise as happened with the recent rate increase announced by the OEB in April 2016. A halt in conservation spending would translate to annual savings per ratepayer of almost $90.
  10. Negotiating “Net Zero” wage settlements provided the Power Workers Union and the Society of Energy Professionals at Hydro One and OPG a wage settlement handing them a lump sum payment for the first two years of their contracts and annual awards of Hydro One shares equal to 2.7% of their wages. The annual awards of Hydro One shares alone will extract the value from their sale that should have gone to the province for “infrastructure” spending or deficit reduction. The value of the “Net Zero” contracts was approximately $250 million. The next contract should be “Zero” and would annually save residential ratepayer about $55.

TOTAL potential savings for the “average” Ontario electricity ratepayer? $519 per year

If the Wynne government undertook these actions, immediate ratepayer relief would be approximately $265.00 annually, and mitigate future rate increases by $220.00 annually.   The PST could have been left on ratepayers’ electricity bills reducing the immediate relief to $135.00. The foregoing would have a marginal effect on annual Provincial revenue reducing the borrowing needs from $1.3 billion to less than $300 million to cover the costs of the OESP shift to the Ministry of Community and Social Services and the marginal drop in the water tax payments from OPG.

Why hasn’t the government done these things? Maybe it’s just easier to transfer $1.3 billion in costs to Ontario’s taxpayers. Or maybe promises were made to those who lobbied the Premier and some of her ministers at special access fund-raising events.

Time will tell.

Parker Gallant

September 18, 2016

 

 

Hydro bill assistance programs not enough

Here is a link to an interview I did with CBC radio host and journalist Jason Turnbull on “Up North.” This interview followed Jason’s interview with Ontario Energy Minister Glenn Thibeault in which the minister, among other not quite accurate statements, said that government assistance programs should help people cope with Ontario’s rising electricity bills.

Listen here.

In the billions: the cost of closing Ontario’s coal power plants

The annual cost of closing Ontario’s coal plants 

The first article in respect to Ontario’s decision to close our coal plants examined the MW (megawatt) capacity and the type of generating capacity added to our electricity grid since 2011. The added capacity replaced the 4,484 MW of coal-fired generation at the end of 2011 in anticipation of increasing demand.

What I’ve done is approximate the costs of the added capacity versus the 4.1 TWh generated by the 4,484 MW of coal-fired plants, which cost only $135 million (3.3 cents/kWh) in 2011. 

Nuclear instead of wind and solar

As an example, the 1,532 MW of emissions-free Bruce Nuclear refurbished generation, at a capacity factor of 90% supplying 12.08 TWh, easily covered the loss of 4.1 TWh of coal-fired generation and left 8.7 TWh for added demand due to its flexibility to steam off or bypass the turbines. The 12.08 TWh could have supplied most of the 2015 solar generation of 3.04 TWh and the 10.2 TWh of wind, which proved to be unneeded.   The latter two alone in 2015 added an additional $2.7 billion to generation costs before curtailment (wind) costs of $88 million.

Bruce Power supplies from the 1,532 MW would have cost ratepayers $800 million, reducing the ratepayer burden by almost $2 billion annually.  Additionally “nuclear maneuvers” (reductions),  of 897 gigawatt hours added about $60 million during surplus baseload periods, caused mainly by (unreliable) intermittent power generation from wind.

Too much gas? 

Let’s look at the gas plant addition of 602 MW:  In 2011 the 9,549 MW of gas generation produced 22 TWh,  operating at a capacity factor of 26.3%.  Fast forward to 2015: the 10,151 MW generated 15.5 TWh  operating at a capacity factor of 17.5%.  Gas plants are quite capable of operating at a capacity factor of 40% to 60% (combined or single cycle).  In either case, they are regarded as peaking plants and for that reason investors know they will be called on when needed. Their contracts pay them for simply being “at the ready.”  Those costs vary but generally payments are $7,000 to $15,000 per MW per month.  The additional 602 MW of gas added about $100 million annually to the costs.  With gas generation falling from 22 TWh in 2011 to 15.5 TWh in 2015, ratepayers were burdened with the costs of the drop of 6.5 TWh at a cost of approximately $100 million per TWh, raising the cost of gas generation by $750 million since 2011.

Adding costly hydro

The bulk of the 754 MW added to the grid since 2011 came from the Niagara tunnel, (“Big Becky”) with a promise of 150 MW, and the Mattagami expansion added 438 MW of run-of-river hydro. Both of these projects by OPG were hugely expensive, costing ratepayers $4.1 billion plus interest on the money borrowed to fund the projects. If one amortizes those costs over 50 years it adds about $80 annually to ratepayer bills and the interest costs annually add about $120 million at 3% per annum. So that is $200 million for those two projects, without adding their OMA (operations, management and administration) costs.

As well, OPG is frequently forced to “spill” water under SBG (surplus baseload generation) periods mainly due to excessive intermittent wind and solar generation. In 2015 the latter was 3.4 TWh which cost ratepayers $150 million.  The other event affecting hydro costs was an amendment to change “unregulated” hydro to regulated pricing.  This change added $474 million to ratepayers’ bills for 2015 for the 30.4 TWh generated by OPG versus 2011.  So hydro costs in the four years from 2011 jumped from a cost of $37.7 million/TWh to $53.3/TWh.  The total additional costs of hydro (OPG only) in 2015 was therefore over $800 million.

Coal conversion 

The Ontario Energy ministers also issued directives instructing conversion of the 200-MW Atikokan and the 300-MW Thunder Bay coal plants operated by OPG.  A 2005 directive from Dwight Duncan was the first and told OPG to convert Thunder Bay “to operate using a fuel source other than coal”.  Later on when Brad Duguid sat in the energy chair he ordered it converted to gas but in the end it became a shareholder direction from Bob Chiarelli, ordering it to be converted to “advanced biomass” and agreed to cover the annual $30 million operating costs.  As disclosed by the Auditor General, if Thunder Bay produces any power, it will cost $1,500 per megawatt hour (MWh).  In respect to the conversion of Atikokan it may produce cheaper power in the 20 cents/kWh range but will probably operate at 10% of capacity and generate an annual cost of about $35 million.  So collectively, both of these conversions will produce almost no power but will add approximately $65 million annually to ratepayers’ bills.

Conservation is expensive 

The long-term conservation budget for 2015-2020 is $2.6 billion, meaning IESO will allocate spending of $433 million annually to local distribution companies (LDC) to reduce consumption by 7 TWh.   Should the LDC be successful, their delivery revenue will drop.  Assuming the delivery charge represents about 35% (on average) the revenue drop for all LDC would be approximately $300 million.  Then the LDC will be entitled to apply for a rate increase based on the drop in revenue, meaning the $300 million may be fully recovered.  Adding that to the monies spent annually convincing us to reduce our electricity consumption via the “conservation budget” adds another $483 million annually ($433 million + [$300/6 years = $50 million] = $483 million).

$4 billion … a year

So the cost of replacing the 4.1 TWh of coal generated at a cost of about $135 million in 2011 is in excess of $4 billion annually.

Confirmation of the foregoing cost can be simply calculated. If one reviews the “average” cost of a kWh on the OEB “Historical Electricity Prices” as of November 1, 2011 was 7.57 cents/kWh versus 10.70 cents/kWh on November 1, 2015.  The increase of 3.13 cents/kWh (+41.3%) translates to an increase of $31.3 million per TWh and applied to the 143.6 TWh consumed in 2015 provides an annual cost increase of $4.5 billion to ratepayers since 2011.

The cost blows away the purported healthcare costs supposedly caused by coal generation.   At the same time, it removes about $1,000 of after-tax money from the pockets of the 4.5 million ratepayers in the province every year.

This is a sad commentary on what the Ontario Liberal government has done to Ontarians.

Parker Gallant,

August 29, 2016

 

Replacing coal power in Ontario: what the government really did

There is so much mythology now around Ontario’s coal plants for power generation, it really is time to set the record straight on what really happened, how much it cost, and what was actually achieved. This is the first in a two-part series.

Back in 2011, Ontario had coal plant capacity of 4,484 MW but the plants really operated only occasionally, producing 4.1 terawatts (TWh) of power — just 10.5% of their capacity. The 4.1 TWh they generated in 2011 represented 2.7% of total power generation in Ontario of 149.8 TWh.  The cost  per TWh was $33 million or 3.3 cents/kWh, making the ratepayers’ bill for those 4.1 TWh $135 million.

As most Ontarians know, those coal plants were either closed (Lambton and Nanticoke) or converted to biomass (Atikokan and Thunder Bay). We were continually told closing or converting those coal plants would save Ontario’s health care system $4.4 billion, based on a study completed while Dwight Duncan was Ontario’s Energy Minister.  Duncan’s claim was a fictitious interpretation of the actual study, but it was repeated so often by Liberal ministers and MPPs that they all believed it and presumably felt the public believed it, too.  

Good PR but … the truth?

Whether one believes the Duncan claim, the fact is the coal plants were closed or converted and the ruling Ontario Liberal government made a big deal of it even to the point of obtaining an endorsement from Al Gore as the first jurisdiction in North America to end coal fired power generation.

The government never disclosed how much it cost the ratepayers/taxpayers of the province to close or convert those coal plants, and we certainly haven’t seen any improvement in our healthcare system since it happened, as one would expect from saving billions. So, was the claim of savings a falsehood? And what did closing the plants really cost?

Let’s start with looking at our electricity consumption level in 2011 and compare it to 2015. In 2011 Ontario generated 149.8 TWh and consumed 141.5 TWh.  In 2015 we generated 159.6 TWh, including 5.9 TWh of embedded generation, and we reportedly consumed 137 TWh, not including the 5.9 TWh of embedded generation consumed within the confines of your local distribution company (LDC).

The difference of 8.3 TWh in 2011 and 16.7 TWh in 2015 was exported.

Replacing coal-fired generation 

As noted, coal capacity was 4,484 MW in 2011 and in 2015 was zero — so what did we replace it with?   According to the Independent Electricity System Operator (IESO) Ontario Energy Report for Q4 2015, since the end of 2011 we have added:

  1. Nuclear supply increased by 1,532 MW (Bruce Power)
  2. 754 MW of hydro
  3. Natural gas generation increased 602 MW
  4. 2,580 more MW capacity of industrial wind turbines (IWT)
  5. Solar up by 2,078 MW
  6. Bio-mass increased by 481 MW (principally conversions of Atikokan and Thunder Bay from coal)
  7. “Other” increased by 10 MW

As well, residential ratepayers conserved 1.184 GWh1. , equivalent to 450 MW of wind turbines operating at 30% of capacity (generating electricity intermittently and out-of-phase with demand).

So altogether, Ontario added 8,037 MW of capacity to cover the loss of 4,484 MW of coal which, in 2011, operated at only 10.5% of capacity.

Ratepayers also reduced consumption by 6,553 GWh with residential ratepayers representing 1,184 GWh of that reduction.

It would appear the variations of long-term energy planning emanating from the Ontario energy portfolio continually overestimated future demand by a wide margin. Their numerous ministerial directives to the Ontario Power Authority (merged with IESO January 1, 2015) with instructions to contract more and more unreliable intermittent wind and solar generation with “first-to- the-grid” rights at high prices produced surplus energy.

This stream of directives and the acquisition of excess capacity resulted in increasing electricity costs for ratepayers due to surplus generation and payment guarantees for displaced generation.

They also added other expensive policies such as conservation initiatives that simply piled on unneeded costs.

NEXT: The second in this series will examine the additional costs associated with the various policies applied and how generation additions to Ontario’s energy mix continue to drive up Ontario’s electricity costs

Parker Gallant

August 28, 2016

  1. Interestingly, the OEB in a revision to the “average” residential ratepayers monthly consumption reduced it from 800 kWh to 750 kWh, yet suggests conservation achieved (2011 to 2014) was 1,184 gigawatts (GWh).   The total number of residential ratepayers suggests that consumption has declined by 2,739 GWh (4,564,835 residential ratepayers at December 31, 2015 X 50kWh [montly] X 12 = 2,739 GWh) since 2009.
Replacing coal power generation (which only operated at 10% capacity) resulted in a doubling of Ontario power exports
Replacing coal power generation (which only operated at 10% capacity) resulted in a doubling of Ontario power exports