The lesson of November 10: cancel the contracts Minister Thibeault

Ontario Energy Minister Thibeault: needs to look at reality for Ontario's electricity customers
Ontario Energy Minister Thibeault: needs to look at reality for Ontario’s electricity customers

November 12, 2016

November 10 appears to have set a record for both wind power generation and curtailment of wind power, based on data found on the IESO website.

The “average” household in Ontario (defined by the OEB) consumes 27 kilowatts (kWh) per day.   So with that in mind, the 50,000+  MWh of wind-generated and grid-accepted electricity on that day could have supplied 1.9 million households.  The 24,000 MWh of curtailed wind could have supplied another 900,000 households with their daily needs.

Imagine: over 60% of Ontario’s households could have had all their electricity needs met by industrial wind turbines for that day.

There is more to the story, however (there always is).

That generated and curtailed wind power represented a cost of just over $9.4 million; none of it was needed as IESO were busy exporting our surplus generation which averaged 2,628 MW per hour and for the day totaled more than 63,000 MWh.  According to the IESO daily summary we were paid $2.28 per MWh meaning gross revenue for those exported MWh generated only $144,000 or the equivalent of 2/10th of 1 cent per kWh. Meanwhile, those “average” Ontario electricity customers were paying an average of 11.1 cents/kWh.

It sure pays to be on the other side of the Ontario border!

November 10th serves as a perfect example of what’s happening to electricity customers in Ontario: that day, the government’s electricity policy shows we reward huge corporate wind power developers and it also highlights the intermittent nature of power generation from wind — it is out of phase with demand.

November 10 should be the basis of a message to the Minister of Energy, Glenn Thibeault on the Large Renewable Procurement (LRP) program: Ontario should cancel both the LRP I contracts awarded last April and cancel the now “suspended” LRP II process.  The Minister has already admitted our electricity supply is more than adequate for the next 10 years (“robust” in fact, he says) so acquiring more wind generated power (and solar) should be immediately suspended. It does nothing other than drive up the costs for “average” households.

The $9.4 million of ratepayer dollars handed out November 10 neither reduced emissions nor provided useful electricity. Time for a complete overhaul of electricity policy in Ontario, starting with those contracts and the LRP process.

 

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Wynne government in panic mode

First in a series of three

In July, Energy Minister Glenn Thibeault was pressed by Shirlee Engel of Global TV on the rising cost of electricity bills. He said, “While I’m still not using the word crisis,” said Thibeault. “I know it’s important. For one family if it’s a hundred bucks out of their own pocket that’s a crisis for them and I get that.”

In September Premier Wynne mentioned the word “hydro” at an international plowing match, and was instantly booed.

Now it appears we have a government in a panic mode trying to deal with a crisis of their own making.

The Throne Speech held promises about getting rid of the provincial portion of the HST on electricity bills. Then on September 13, 2016 a press release from Minister Thibeault confirmed the 8% reduction reducing bills $130 annually, and announced other actions such as, “Providing eligible rural ratepayers with additional relief, decreasing total electricity bills by an average of $540 a year or $45 each month”.

The press release did not detail what constitutes an “eligible” rural ratepayer; however, if it is just the 329,000 or so who are Hydro One’s “low-density” ratepayers the annual cost will be approximately $150 million. The press release went on to say: “Empowering businesses to reduce their bill by up to 34 per cent through the expansion of the Industrial Conservation Initiative” (ICI). 

Neither the Throne Speech nor the press releases say where the government is getting the money to pay for those initiatives, but removal of the 8% provincial portion of the HST will be on the backs of the taxpayers.

The electricity sector in the province is a $20-billion (before HST) business. That means $1.6 billion previously allocated to other ministries will now be unavailable, or the government will need to forgo balancing the budget or raise taxes/fees, etc. to cover off the lost tax revenue.

Minister Thibeault issued another press release in September related to “Empowering businesses to reduce their bill”.  This one had a “Customer Impact Example”:

“With more than a thousand new businesses soon eligible for ICI, cost impact across sectors and industries will vary. As an illustrative example of the impact, a plastics manufacturer with an average peak demand of 2 MW that participates in the ICI program could see its electricity price reduced from $154 per MWh to as low as $102 per MWh. This would result in energy cost savings of up to $42,000 per month.”

If you do the quick math on the above and assume each of those 1,000 plus businesses save $42,000 a month the reduction may be $500 million but once again, there is no indication where the funds will come from to cover those costs.

The above electricity bill reductions promised by the government total almost $2.2 billion and considerably more than the $1.5 billion in funds allocated to balancing the budget currently in dispute between the Ontario Auditor General and Liz Sandals, Ontario’s Treasury Board President.

So exactly how the governing party plans to pull off these bill reductions is not known.

Perhaps to create confusion amongst voters/taxpayers and inattentive media, Minister Thibeault issued another press release  September 27th announcing the “suspension” of LRP II to acquire 1,000 MW of renewable energy, principally in the form of wind, solar and biomass.  The press release declared  “This decision is expected to save up to $3.8 billion in electricity system costs relative to Ontario’s 2013 Long-Term Energy Plan (LTEP) forecast. This would save the typical residential electricity consumer an average of approximately $2.45 per month on their electricity bill, relative to previous forecasts.

It is unclear if Minister Thibeault is suggesting suspending future rate increases will somehow cover off the costs of his promises to reduce our electricity bills by $2.3 billion.

Or is it somehow related to the accounting dispute the government is engaged in with the Auditor General?

Parker Gallant

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