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

IESO’s aim to be transparent reveals bad news for ratepayers

The Independent Electricity System Operator (IESO) is trying to become “transparent” as they now disclose consumption by the two classes* of Ontario ratepayers.  Along with consumption data they also disclose what each class, “A” and “B,” pay for the Global Adjustment (GA) component by month.

The Class A ratepayers were formerly customers with a peak demand greater than 5 MW, but that changed in June 2014 as noted in an IESO document:   “The change to the ICI expands Class A eligibility to customers with a peak demand greater than 3 MW and less than or equal to 5 MW.” (Class “B” is, basically, you.)

IESO disclosed that in the first six months of 2016, total Ontario consumption was 69.284 terawatts (TWh) with Class A consumption of 13.834 TWh (19.96%) and Class B consumption of 55.450 TWh (80,04%).  The total GA was $6.401 billion, and Class A customers paid 12.2% ($781.8 million) and Class B customers 87.8%  ($5.619.4 billion).

What that means: Class B customers subsidized Class A customers in the first six months of 2016 by picking up $496 million of the GA costs.

For the comparable period in 2015, total Ontario consumption was 70.823 TWh. In that six month period Class A consumption was 12.477 TWh (17.6%) and Class B was 58.346 TWh (82.4%).  The GA was $4.604 billion with Class A paying $441 million (9.58%) and Class B $4.163 billion (90.42%).  So, the Class B subsidy to support Class A industrials in 2015 was $369 million.

Use goes down, rates go up

It’s obvious: Class A consumption increased year over year by 1.357 TWh, whereas Class B consumption declined by 2.896 TWh. One would assume the almost 5% decline in consumption by Class B ratepayers would mean an upcoming decrease in the electricity rates come November 1, 2016.  Alas, a decrease does not appear to be on the horizon!

IESO also just released the June 2016 “Monthly Market Report” and on page 26 of the report they provide a six-month weighted average of the GA, hourly Ontario energy price (HOEP), transmission costs, etc., for the January 1st to June 30th period for Class B ratepayers.   The “weighted average” (removing the DRC or Debt Retirement Charge) per megawatt hour (MWh) is $127.79/MWH versus a weighted average for the first six months of 2015 of $111.92/MWh — resulting in an increase of $15.87 per MWh or 1.6 cents per kWh.  Not included in the above is any additional delivery costs as a result of rate increases for your local distribution company, including Hydro One who are currently seeking another increase, even though they received one in 2015 increasing their delivery rates.

A 14% jump year over year

The Class B increase is a 14.2% year over year jump in costs (for the electricity line only) paying for: contracted generation, conservation programs, curtailed generation, spilled hydro, export sales losses1.: etc. etc.  If the increase prevails for the next few months it will reflect itself in the OEB’s consistent and semi-annual announcments of rate increases (mid October). The anticipated increase will be paid by Class “B” ratepayers at an annual cost of $144.00 (plus HST) for the “average” ratepayer consuming 750 kWh per month and will start on November 1, 2016.

Effectively what the Ontario Liberal government has done is to create a subsidy for Class A ratepayers by picking the pockets of Class B ratepayers in order to protect jobs that might disappear if those large industrial companies decide to pack their bags and move elsewhere.

To sum up: Class B ratepayers are picking up “employment insurance” costs that might embarrass the Liberal government just like when Xstrada moved their refinery operations to Quebec back in 2010 due principally to high electricity costs. That caused the loss of 670 direct jobs and as many as 4,000 jobs, according to union groups.

The misguided focus of the Wynne government on unreliable and intermittent wind and solar generation has hit Class B ratepayers particularly hard, and calls on Ontario’s low and middle income taxpayers to pick up the subsidy cost to retain jobs while simultaneously creating more energy poverty.

It’s time to stop the train before Ontario goes over the cliff!

© Parker Gallant,

August 1, 2016

 

* Effective January 1, 2011, an amendment to Ontario Regulation 429/04 established two classes of consumers: Class A consumers, with average monthly demand greater than 5 MW, and Class B consumers.

  1. Net exports for June 2016 were 1,054,080 MWh and generated revenue of $19.7 million at the average HOEP of $18.69/MWh but cost ratepayers $140.36/MWh meaning the cost to ratepayers for those net exports was $148.3 million creating a loss of $128.2 million for the month.

 

Ontario’s costly electricity conservation program slams customers

On April 14, 2016 the Ontario Energy Board (OEB) issued a notice that electricity rates would rise effective May 1, 2016. The OEB also announced that they redefined “average” consumption for residential customers.

The explanation for the rising rates was that Ontarians hadn’t consumed enough electricity during the winter months, so the OEB needed to recover the cost of what we didn’t use.   Sure sounds like conservation planning failed to realize that a reduction in consumption would result in …  lower consumption!

The OEB told us the average residential ratepayer now consumes 750 kilowatts (kWh) monthly, a drop of 5.2% (.74% per annum since 2009) or 50 kWh per month. That’s a change from the previous 800 kWh (9.6 megawatt hours/MWh annually) set in 2009. The OEB report went on to claim it all had something to do with the former Minister of Energy’s “Conservation First” vision.

The OEB’s report stated, “According to the IESO, conservation efforts achieved 1,184 GWh of cumulative energy savings among residential customers from 2011 to 2014.”   The 1,184 GW would suggest a savings of about 250 MW of capacity producing at 54% of rated capacity.  The estimated levelized cost of electricity (LCOE) from a combined cycle gas plant of that size is about $200 million according to the U.S. Energy Information Administration. That’s a far cry from the cost to Ontario ratepayers.

With approximately 4.9 million household connected to the grid in Ontario, the reduction of 50 kWh per month suggests a drop in demand of 2,940 GWh (gigawatt hours), or close to three times what the OEB claim. The remaining 1,756 GWh drop is ignored.

If we look at the “Minister’s Message” conveyed in the referenced Conservation First document from December 2015, one of Mr. Chiarelli’s messages was:  “Ontario has already made great strides in reducing electricity use. From 2005 to 2011, families and businesses across this province conserved enough to reduce demand by more than 1,900 megawatts, the equivalent of powering more than 600,000 homes. Investments in conservation allowed Ontario to avoid building new capacity that would have cost almost $4 billion, equivalent to four peaking natural gas generation plants.”

To put the foregoing message in context, 600,000 homes (at that time) would consume 5.7 million MWh (megawatt hours), meaning the 1,900 MW he refers to would only produce power at 34.2% of rated capacity. The 1,900 MW referenced by the former Minister, Bob Chiarelli, running at 100% of capacity could produce 16,644,000 MWh.  If they produced 5.7 million MWh, their capacity value would be 34.2% of capacity, which coincidently is about what the newer models of industrial wind turbines (IWT) are expected to produce annually.

It is perhaps also coincidental that about 1,200 MW of intermittent, unreliable power generation from wind was added to the Ontario grid from 2005 to 2011. If those 1,200 MW generated at only 30% of their capacity the cost to Ontario ratepayers is about $419 million annually, and $8.4 billion over 20 years.

Another claim in the Conservation First document was: “Between 2006 and 2011, investing $2 billion in conservation ($333 million annually) allowed Ontario to avoid more than $4 billion in new supply costs.” That math is really simple: $2 billion divided by 6 [years] = $333 million annually.

Another interesting sidebar found in “Conservation First” is this: “Since 1990, average household electricity consumption has declined by almost 25 per cent, representing about $350 in savings each year for the average household, based on current electricity costs.” 

Why the ministry picked 1990 is a mystery; it’s actually embarrassing! To explain, the following comes from a 2005 report prepared for the OPA: “Usage per household (intensity) fell from 12,474 kWh annually in 1990 to 10,445 kWh per year in 2003 (870 kWh per month).”

To put that into context, the decline in annual average household consumption for that period was 16.3% or 1.2% per annum, but former Energy Minister Bob Chiarelli actually brags about a 5.2% drop or a .74% annual decline.

Use less power, pay more: it’s Ontario

Needless to say, the latter decline hit ratepayers’ pocketbooks much harder than the bigger decline (1990 to 2003) and one would be hard pressed to defend the claim about $350 in savings each year, made in Conservation First. Unless, that is, you note the statement at the end of the claim which says “based on current electricity costs”.  Even then, the claim is not defensible!

What one should take from all this is that the money spent to convince us to conserve since the Ontario Liberal government came into power in 2003 has not achieved that claim or the one suggesting“for every $1 invested in energy efficiency, Ontario has avoided about $2 in costs to the electricity system.”

With that in mind one should ask, why would the average 1990 annual consumption of 12,474 kWh have cost $536.38 in 2002 (OEB Historical pricing) and in 2016 cost $1,564.50 (including HST of $179.99) for just the electricity?

If you consumed 9,000 kWh in 2016 (the new “average”) you are paying $1,128.80 (includes $129.80 for HST) annually for just the electricity!

To sum up: the Ontario Power Authority contracted for 1,200 MW of IWT capacity from 2005 to 2011 adding $400 million annually in generation costs, almost 2,000 MW of solar adding $1.3 billion in annual generation costs (generating at 15% of capacity), $2 billion on energy conservation programs ($333 million annually) and $2 billion on smart meters to allow imposition of time-of-use pricing.

Conservation spending, renewables boost electricity bills

Over those six years, increased ratepayer commodity costs were driven by adding intermittent and unreliable renewable capacity and conservation spending, collectively totalling $2 billion annually (not including smart meter spending) representing an increase of $461.00 (includes $53.00 HST) per annum per average household.

Since 2011 additional contracted renewables and conservation spending have further driven up the costs despite reduced consumption of 27.8% (3,474 kWh) since 1990 and the cost of electricity still went up.

Reduced consumption increased the “average” bill 110.4% or $592.42 since 2003 — not the $350.00 savings.

(c) Parker Gallant

July 27, 2016