Where did our $50 billion go? Or, how Ontario citizens lost $18 mil in just 2 days

Premier Wynne making her announcement: no accounting for costs [Photo: PostMedia]
Almost a week after Premier Wynne announced her plan to reduce our electricity bills by 25%, the wind was blowing!  On March 8, six days after the cost shifting  announcement (from ratepayer to taxpayer), potential power generation from wind was forecast by IESO to produce at levels of 80/95% of their capacity, for many hours of the day.  IESO was concerned about grid stability and as a consequence, curtailed much of the forecasted generation.

When the Premier made her announcement about reducing hydro bills, she also claimed “Decades of under-investment in the electricity system by governments of all stripes resulted in the need to invest more than $50 billion in generation, transmission and distribution assets to ensure the system is clean and reliable.”

It is worth noting that much of that $50 billion was spent acquiring wind and solar generation and its associated spending on transmission, plus gas plants (to back them up because the power is intermittent), and distribution assets to hook them into the grid or embed them with the local distribution companies. It would have been informative if Premier Wynne had had Energy Minister Glen Thibeault provide an accounting of exactly what the $50 billion was spent on.

As it turned out the amount of curtailed wind generated on March 8 was 37,044 megawatt hours (MWh) was just short of the record of 38,018 MWh set almost a year ago on March 16, 2016 (estimated by my friend Scott Luft).  The curtailed wind on March 8, 2017 cost Ontario’s ratepayers $120/MWh or $4,445,280.

The cost on March 16, 2016 was $4,562,160.

What does it mean? Curtailing or restricting power output but paying for it anyway means a portion of the $50 billion spent was simply wasted money. It went to the corporate power developers that rushed to sign those above-market contracts for renewable power.

The other interesting aspect of the surplus power generation on March 16, 2016 and March 8, 2017 is revealed in IESO’s Daily Market Summaries: the hourly Ontario energy price (HOEP)  March 16, 2016 was negative at -$1.25/MWh and on March 8th, 2017 was also negative at -.49 cents/MWh. This meant ratepayers paid for surplus exports sold to our neighbours in New York and Michigan, etc. Net exports (exports minus imports) on March 16, 2016 were 52,368 MWh, and on March 8, 2017 were 37,944 MWh. Total costs of their generation (HOEP + GA) fell to Ontario’s ratepayers along with the cost of any spilled hydro, steamed off nuclear and idling gas plants.

Millions here, millions there = a whole lot of wasted money

So, bear with me here, if we price the cost of the net exports at $110/MWh for those two days, ratepayer costs were approximately $9.8 million with $5.7 million for March 16, 2016 net exports and $4.1 million for March 8, 2017 net exports, not including the $84,000 we paid our neighbours to take our power.

How much did it cost you? Two days out of 729 (2016 was a leap year) cost Ontario ratepayers about $18.1 million for power not delivered (curtailed wind) or needed (net exports).

I hope this helps Minister Thibeault in his calculations for a long overdue accounting to Ontario citizens as to where the other $49.982 billion went.

 

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Premier Wynne’s mistake: no real fixes ahead

November 25, 2016

A recent press release from Environmental Defence announced the launch of yet another effort to “green” Ontario via an organization formed by the usual cadre of environmental non-government organizations (ENGO).

This one, the 100% RE or Renewable Energy, pushes the insanity of suggesting Ontario’s “next energy plan should empower citizens and communities to join the global movement toward 100 per cent renewable energy.” It suggests Ontario “should follow the lead of communities, such as Oxford County, that are transitioning to clean and healthy 100 per cent renewable energy”.

It is apparent that the people at Environmental Defence — the same ENGO that was a participant in the creation of the Green Energy Act — somehow believe they are superior energy planners than those with qualifications. Beyond Environmental Defence, the 100%RE group includes the usual suspects such as the David Suzuki Foundation, Pembina, Greenpeace, the Ontario Clean Air Alliance, Physicians for the Environment, the Registered Nurses Association of Ontario and several lesser known names, including the Toronto Environmental Alliance and TREC. The latter were responsible for the Toronto Exhibition Place wind turbine used by countless Ontario Liberals as a photo-op but which generates almost no usable power and whose control now rests in the hands of Toronto Hydro. TREC have placed a plaque at the base of the turbine with the names of the people who invested in the turbine and have no hope of ever seeing a return on their money.  One of the names on the plaque is Dianne Saxe, the current Environmental Commissioner.  (It appears supporting industrial-scale wind turbines that kill birds and bats did not deter the Ontario Liberal government from appointing Ms. Saxe as commissioner of the environment.)

Now, with Premier Wynne’s recent mea culpa at the Ontario Liberal Party convention when she referred to Ontario citizens having to choose between heating their house or buying food, one has to wonder:  exactly why did it take her so long to admit to her mistake?  Maybe it’s because the Ontario media has recently noted rising electricity bills are causing energy poverty; the hard-luck stories in print and on TV are often heart-wrenching.  Those stories, and the relentless arrival of the monthly hydro bill, has had a lot to do with recent polling results showing that 67% disapprove of the job Premier Wynne is doing.

One of the obvious “mistakes” Premier Wynne made was not paying attention. When she was confronted by communities back in August 2013 declaring themselves “unwilling hosts” to industrial wind turbine developments, her response, as reported in the Ottawa Citizen, was to shrug it off: “Wynne has asked the Ontario Sustainable Energy Association to raise awareness in communities slated for the turbine projects about the benefits of hosting, including the financial gains that can come from being power generators in a cash-strapped economy.”

Was she so naive that she didn’t realize those “financial gains” would come from the pockets of average households, and that OSEA claimed responsibility for developing the Green Energy Act that had a role in rising electricity bills?

Her announcement on the repeal of the 8% provincial portion of the HST is at best comparable to sticking her finger in a dike to stop the flood.  It has apparently slipped her mind she was part of the team that placed the tax on our energy bills, while simultaneously blessing a 10% rebate known as the Ontario Clean Energy Benefit.

The net gain to households from those actions was a 2% reduction, at the same time as the Ontario Energy Board was approving rate increases for both the electricity and distribution lines on our bills that were multiples of the 2% net gain from the Liberal government actions.

The upcoming plan to add a “cap and trade” tax to households will quickly negate the latest 8% reduction.  On top of the new tax, Ontario Power Generation, which generates about 60% of the power we consume in the province, has submitted a rate application to the OEB that could add $63 to the average bill.

Premier Wynne’s “mistake” will continue to drive up our bills for some time. If she pays any attention to the dreamy musings of Environmental Defence and their ilk in the drive for 100% renewables, those heart-wrenching stories will become a daily occurrence.

Creating the Green Energy Act based on faulty ideology, and with no comprehensive cost-benefit analysis in place was a big mistake — one that remains fundamentally not corrected.

Don’t expect visionary long-term energy planning in Ontario

Calendar

November 7, 2016

The concept of “long term” for Ontario’s Liberal government and its energy ministers appears to be two or three years at best, or when a new minister is appointed.

Energy Minister Glenn Thibeault, who took over the reins last June, has now launched his version of “long-term” planning in the Long-Term Energy Plan (LTEP). Consultations on the new plan are being held throughout November in various locations.

Minister Thibeault’s vision differs widely from his predecessor’s. Chiarelli’s view in 2013 was: “Several factors are at play that are likely to put upward pressure on electricity prices over the next several years, including the costs of rebuilding and renewing the electricity system and the supply gap that is likely to emerge toward the end of the current decade.

Chiarelli added, “Although the global economic downturn of the past few years dampened electricity demand in Ontario and elsewhere, a shortfall in capacity may emerge as early as 2018.”

Chiarelli’s version was full of bad news like that about supply gaps, whereas Minister Thibeault’s preamble to the launch of a new plan suggests, three years later, everything is rosy: “We have a robust supply of all forms of energy for at least the next 10 years.”

Anyone looking at the two forecasts would wonder what happened in that three-year time frame to so dramatically alter the vision.  Let’s examine a few of the changes:

In 2012 we exported 14.6 terawatts (TWh) of surplus energy at an average price of $24.07 per MWh (megawatt). That cost Ontario’s ratepayers $73.30/MWh to generate, so exports added about $720 million to the commodity cost.

In 2015 we exported 22.6 TWh (up 54.8% from 2012 and 16.5% of Ontario’s demand) of surplus energy at an average price of $23.58/MWh. That cost Ontario ratepayers $101.38/MWh to generate, so exports added about $1.8 billion to the commodity cost.

Save on energy … and pay more anyway

It is worth noting Ontario ratepayers reduced consumption from 2013 to 2015 by 3% (4.3 TWh) but saw their cost of electricity soar by 32%, principally due to contracts for the addition of about 3,000 MW of intermittent and unreliable power from industrial wind turbines and solar panels. The average commodity cost in July 2013 at the launch of Minister Chiarelli’s “Conservation First” long-term plan was 8.4 cents per kilowatt (kWh); at the launch of Minister Thibeault’s planning document it is 11.1 cents/kWh.

At this point in time it is obvious former Energy Minister Bob Chiarelli’s “gap” perhaps lay in the ability of his ministry to recognize that one of his predecessors (Dwight Duncan) had agreed to Bruce Nuclear refurbishing as many as four of their nuclear units. The Auditor General in a “special report” for the Ministry noted: A Limited Partnership (Bruce A LP), was formed, to not only refurbish Units 1 and 2 but also take over Cameco’s interest in Units 3 and 4 and make future improvements to them. Bruce A LP would thus ulti­mately be operating and maintaining all four Bruce A units. Those four units represent about 3,200 MW of reliable baseload power!

It seems obvious there are serious flaws in the planning process if we can go from a “shortfall” to a “robust supply” in only three years, knowing major generation supply sources take years of planning, development and construction.

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.

Sousa’s impossible task

October 2, 2016

Part 3 in a series

The first in this three-part series dealt with laudatory comments bestowed by Premier Wynne on Finance Minister Charles Sousa, but now I will simply look at one unachievable demand.

This article has nothing to do with the energy sector but I had to comment on a section of the Mandate Letter the Premier issued to the Finance Minister — it is completely out of touch with reality.

In the section under the subheading, “Delivering on the Balanced Budget Plan” there is one instruction that will require many magic tricks from Minister Sousa: “Lowering the net debt-to-GDP ratio to its pre-recession level of 27 per cent.”NB

The Province provides information disclosing our GDP growth along with our climbing debt levels and recently the Premier took an occasion to brag how Ontario reputedly “posted higher real GDP growth in the first quarter of 2016 than Canada, the U.S. and all other G7 countries. The province’s real GDP grew by 0.8 per cent in the quarter, or a 3.0 per cent annualized rate.”  The braggadocio, however, needs to be examined in relation to the Premier’s direction to Minister Sousa.

The Ontario Finance Authority (OFINA) posted the Province’s debt information indicating that, as of March 31, 2016, publicly held debt was $313.4 billion.   OFINA also included a chart showing Ontario’s debt-to-GDP ratio was 39.5%.

Using the foregoing data it is easy to discern at that point in time, Ontario’s Gross Domestic Product (GDP) was approximately $794 billion. Extrapolating the foregoing information and using it to calculate how challenged Minister Sousa will be to reduce that ratio to the pre-recession level is also an easy task.  If  the books were balanced as of March 31, 2016 and the debt level remained at $313.4 billion for the future, the GDP required to meet Premier Wynne’s 27% target would need to grow by $367 billion. That’s a 46% increase from its current level.

In the current global economy the Premier’s challenge is impossible to achieve in a reasonable timeframe.

Looking at a Royal Bank of Canada September 2016 report it becomes obvious Minister Sousa is destined to fail miserably in achieving the Premier’s target.  The RBC report indicates Ontario’s GDP is forecast to grow at a rate of 2.7% in 2016 and 2.4% in 2017.  This anticipated growth is a far cry from the 46% increase the Premier expects her Finance Minister to achieve.

The foregoing should remind everyone of George Smitherman’s 2009 forecast that the Green Energy and Green Economy Act would only increase electricity prices by 1% per annum. The Premier failed to see the electricity crisis arrive until her party lost a by-election and she was booed at a plowing match when she mentioned hydro rates in her speech.

It appears the ability to forecast the future is a major flaw in the current government in Ontario so we should expect this mandated one to Minister Sousa by the Premier is simply another unrealistic one.

Premier Wynne and Minister Sousa should prepare themselves for additional booing that may soon come from credit rating agencies.

 

NB: Ontario’s debt-to-GDP ratio has never been as high as it currently is. The Bob Rae NDP government of the early 1990s had to deal with high inflation and a recession that cut the GDP by 3.2%

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.

Michigan outperforms Ontario. And why not? They have our cheap power

Boating - St. Joseph. Courtesy of SW Michgan Tourist Council

Across the lake: cheap cheap power. [Photo Michigan Outdoors]

The state of Michigan is outperforming Ontario. That’s according to a recent study by the Fraser Institute. Since the end of the “’Great Recession” Michigan has out performed Ontario, increasing their GDP in 2013 by 2.8% versus Ontario’s growth of only 1.3%.  Unemployment levels in Michigan are currently at 4.6% versus Ontario’s 6.4%. Those are two very important  economic indicators.

That news plus the fact Ontario has become a “have not” province in Canada, it seems policies adopted by the Ontario Liberal government to “build Ontario up” is having the opposite effect.

One of those policies resulted in Ontario’s electricity sector focusing on acquisition of renewable energy from industrial-scale wind turbines, solar panels and biomass. The passing of the Green Energy Act (GEA) in 2009 resulted in adding intermittent and unreliable renewable energy that is unresponsive to demand (wind power is produced out-of-phase with demand in Ontario).   This had the effect of driving down the price of electricity.

The free market trading (HOEP) of electricity has resulted in Ontario exporting a rising percentage of our generation to buyers in Quebec, NY and Michigan, with the latter the biggest buyer.   In 2015 Michigan purchased 10,248 gigawatts (GWh) or enough to power1.1 million “average” Ontario residential households. We sold it at an average of 2.36 cents per kilowatt hour (kWh) and were paid $242 million, but it cost Ontario’s ratepayers just over $1 billion.

Michigan doesn’t have to pay the Global Adjustment. You do.

Michigan appears delighted to be able to purchase our cheap subsidized electricity. Now they are seeking further transmission links to Ontario with an eye on the grid out of Sault Ste Marie.  Hydro One earlier this year announced they “entered into a purchase agreement to acquire Great Lakes Power Transmission LP from Brookfield Infrastructure for $222 million in cash plus the assumption of approximately $151 million in outstanding indebtedness.” One has to wonder, did Hydro One know about this, and see it as an opportunity to increase transmission revenue? 

This new transmission line could send both cheap hydro and expensive bio-mass generation to Michigan.

Ontario Power Generation (OPG) operates 11 hydro stations with 680 MW of capacity and also two bio-mass facilities (Atikokan and Thunder Bay) converted from burning coal and now using wood pellets with a combined capacity of 358 MW in the region.   The latter two facilities were focused on by the Auditor General (AG) in her November 2015 report. In the case of Thunder Bay, the report indicated the cost of generation was “$1,600/MWh—25 times higher than the average cost at other biomass facilities in Ontario.”  For Atikokan the AG had this to say: “The plant is expected to generate 140,000 MWh for $74 million per year, putting the cost of electricity from this facility at $528/MWh—about eight times higher than the average cost of existing biomass from other facilities in Ontario.” Industrial wind turbines have also invaded the beautiful landscapes painted by the Group of Seven.

For the sake of Ontario ratepayers, one hopes Michigan will not access electricity from either of the two biomass plants as it will fall on us ratepayers to pick up the costs in excess of the HOEP price. In the case of Thunder Bay the cost to ratepayers could approach $1.60/kWh and for Atikokan it would be 55 cents/kWh.

Maybe the Ontario government staffers in communications should change their PR Slogan to “Building Michigan up”!

Parker Gallant

September 5, 2016