Hydro One and “demonstrable consumer value”

Sorting out fact from fiction among Hydro One claims

The current media attention focusing on Hydro One and its executives is reminiscent of the not so distant past when Andre Marin was Ontario’s Ombudsman. In May 2015 an article in the Globe and Mail noted as a result of his report: “Hydro One issued faulty bills to more than 100,000 customers, lied to the government and regulators in a bid to cover up the problem, then spent $88.3-million in public funds to repair the damage.”

Hydro One installed Mayo Schmidt as CEO in 2015. Recent media reports have focused on why Mr. Schmidt was given a big raise ($1.7 million) to $6.2 million and how his termination (without cause) would cost $10.7 million. The current government signaled they were unaware of either the pay increases for the executives or the increased termination amount and the raises the Board of Directors gave themselves.

These issues were two of the items Hydro One’s Board of Directors had on the agenda for the Annual General Meeting (AGM) that required shareholder approval. As Andrew Willis of the Globe and Mail reported: “Shareholders voted 92 per cent in favour of Hydro One Ltd.’s executive compensation plan, which has faced intense scrutiny during the lead up to Ontario’s election campaign.” It appears that, of the shareholders who actually voted, only 8 per cent were against the increases.   But if the province had participated in the voting (they abstained) and used their 47 per cent shareholding, the motion could have been defeated with 55 per cent voting against it.

One wonders why they chose not to participate.

Christie Blatchford of the National Post was present at Hydro One’s AGM and took part in a short scrum after the AGM ended, with other reporters. The Chairman of the Board, David Denison, along with CEO. Mayo Schmidt represented Hydro One.  Blatchford’s article notes questioning from one aggressive reporter! Asked if he’d take a pay cut or resign, Schmidt said, “It isn’t about pay cuts.” The hellion reporter snapped, “Of course it is.” He then reminded the motley press that the company is committed to “building this high-performing champion,” that Hydro One has reduced costs by 31 per cent, and “turned the power back on for the desperate people.”

Now the only allusion Schmidt made to where those reduced costs came from at the AGM was reported by Andrew Willis who noted “management said the main drivers of earnings growth will come from consolidating local distribution companies in Ontario and cutting costs — the company got rid of 1,000 vehicles over the past year.”

While Schmidt (according to media coverage) was subdued and apolitical during the AGM, a couple of days later he lashed out as reported in the Globe and Mail’s Report on Business in an article by Tim Kiladze. Mr. Kiladze reported that “Schmidt is warning that threats from politicians in Ontario’s election campaign are weighing on the business and will have consequences.” Later in the article reporter Kiladze noted: “Speaking to Hydro One’s latest quarterly earnings, he noted that profit was up by 33 per cent from the year prior, and that Hydro One has added 400 jobs while delivering $114 million in cost savings since its IPO. “Those are remarkable statistics for a company that’s in transition,” Schmidt is reported to have said.

Despite Mr. Schmidt’s claim of improving profits and generating cost savings, the market has moved Hydro’s One’s stock price in the opposite direction. It reached a new low of $18.93 and closed the week at $19.10.   It appears investors are not impressed with either the quarterly earnings jump or the reported “cost savings.”

Examining the first Quarter report tells some of the story.

As CEO Schmidt noted, profit was up by 33 per cent or $55 million above the first quarter of 2017. It appears almost all of the increase was related to rate approvals for the transmission part of the business which increased $54 million due to rate increases approved by the regulator — the Ontario Energy Board (OEB). Electricity transmitted in the quarter was up by only one tenth of one per cent!

Go further into the quarterly report to Note 10, the possible reason for investor concern is significant and relates to the OEB’s Decision and Order in respect to the “transition from the payments in lieu of tax regime under the Electricity Act (Ontario) to tax payments under the federal and provincial tax regime”.

The following comes from that note: “On November 9, 2017, the OEB issued a Decision and Order that calculated the portion of the tax savings that should be shared with ratepayers. The OEB’s calculation would result in an impairment of Hydro One Networks’ transmission deferred income tax regulatory asset of up to approximately $515 million. If the OEB were to apply the same calculation for sharing in Hydro One Networks’ 2018-2022 distribution rates, for which a decision is currently outstanding, it would result in an additional impairment of up to approximately $370 million related to Hydro One Networks’ distribution deferred income tax regulatory asset.”

The conclusion from the OEB’s decision is that they were simply doing their job and honouring their first listed mission statement which reads: “Strengthening the focus on demonstrable consumer value during a period of sector evolution.”

The decision is being challenged by Hydro One’s executives and (presumably) their Board of Directors who are upset the $885 million may not wind up in shareholders pockets. As a result, in October 2017 the Company filed a Motion to Review and Vary (Motion) the Decision and filed an appeal with the Divisional Court of Ontario (Appeal). On December 19, 2017, the OEB granted a hearing of the merits of the Motion which was held on February 12, 2018.

In both cases, the Company’s position is that the OEB made errors of fact and law in its determination of allocation of the tax savings between the shareholders and ratepayers. To put the $885 million in context; it exceeds the annual after-tax profit of Hydro One for a full year!  The results of the OEB hearing will determine whether Hydro One proceed with the appeal to the Divisional Court of Ontario.

Perhaps Hydro One’s Board of Directors and senior executives don’t comprehend they operate a monopoly that is regulated for the express purpose of ensuring their focus is “on demonstrable consumer value during a period of sector evolution.”

As ratepayers, we should hope the OEB continues to place an emphasis on “demonstrable consumer value.” Ordinary ratepayers do not enjoy the benefits Hydro One’s executive have awarded themselves.

Parker Gallant

May 22, 2018

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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

 

Multi-million-dollar power contracts IESO style

Or, how the IESO could have saved Ontario ratepayers more than $400 million by cancelling one wind power project, but didn’t 

Surplus power in Ontario: why not get out of a contract if you could?[Photo: IESO]
February 6, 2018

On March 10, 2016 the Independent Electricity System Operator or IESO announced the outcome of the “Competitive Bids for Large Renewable Projects” via a news release which, among other issues claimed, they said they would award “five wind contracts totalling 299.5 MW, with a weighted average price of 8.59 cents/kWh”. The news release also described the contracting process: “The LRP process was administered by the IESO and overseen by an external fairness advisor. Robust and transparent public procurement practices were followed throughout the process, and each proposal was carefully evaluated for compliance against a list of specific mandatory requirements and rated criteria.”

Fast forward to October 26, 2017 and the release of Energy Minister Glenn Thibeault’s “Long-Term Energy Plan 2017 Delivering Fairness and Choice,” which offers some context for power contracts currently.

“Due to the substantial decline in the cost of wind and solar technologies over the last decade, renewables are increasingly competitive with conventional energy sources and will continue to play a key role in helping Ontario meet its climate change goals.”

and

“Ontario is Canada’s leader in installed wind and solar power.”

Economics of power procurement

Further on in the Plan are examples of how the Ministry, via the institutions under it, is working with communities. This one suggests the IESO is cognizant of the costs affecting ratepayers: “Ontario Power Generation (OPG) and Gull Bay First Nation (GBFN) are in the early stages of building an advanced renewable microgrid on the GBFN reserve on the western shore of Lake Nipigon. GBFN has an on-reserve population of 300 people and is one of the four remote First Nation communities that the IESO has determined to be economically unfeasible to connect to the provincial grid at this time.”

IESO recently issued their 18-Month Outlook for the period January 2018 to June 2019 and this report also noted the situation in respect to surplus power: “Conditions for surplus baseload generation (SBG) will continue over the Outlook period. It is expected that SBG will continue to be managed effectively through existing market mechanisms, which include intertie scheduling, the dispatch of grid-connected renewable resources and nuclear manoeuvres or shutdowns.”

Those manoeuvres or shutdowns in 2017 caused over 10 TWh (terawatt hours) to be wasted, but their costs were added to ratepayers’ bills and included 3.3 TWh of curtailed wind.

So, the province has a surplus of power, and the costs of wind and solar have become more competitive. Why would the IESO then not seize upon the opportunity to deal with a high-cost industrial-scale wind power project, when they had the ability to cancel it due to non-compliance with the original contract? At the very least shouldn’t they have renegotiated the contract to reduce the impact on ratepayers?

They did neither.

The White Pines story is a curious exercise in contract law, to be sure. A successful appeal* to the Environmental Review Tribunal by the community group the Alliance to Protect Prince Edward County** resulted in the project being reduced from 59.45 MW to 18.45 MW last fall. IESO could have simply canceled it because it was clearly unable to meet a condition requiring delivery of 75% of the capacity agreed to in the contract. At the very least, IESO could have renegotiated the terms of the contract to fulfill the Energy Minister’s claim that “renewables are increasingly competitive”.

But the IESO amended the contract for the reduced project, and granted waivers to the original conditions of performance, it was learned in a Belleville courtroom recently.

Cancelling would save millions

If IESO had canceled the contract, the Ministry could have claimed they reduced future rate increases saving ratepayers $21 million annually or $420 million over the full 20-year term. Even if IESO had only renegotiated the contract to the 8.59 cents/kWh achieved via the competitive bidding process instead of the 13.5 cents/kWh of the original contract, the Ministry could have claimed savings of about $5 million over the full term of the contract based on the currently approved 18.45 MW of capacity.

Has the IESO forgotten this line in in its Mission Statement ?

“Planning for and competitively procuring the resources that meet Ontario’s electricity needs today and tomorrow”

Cancelling just this one project*** would have helped to reduce surplus baseload and therefore the costs kicked down the road under the Fair Hydro Plan to be paid for in the future.

 

 

*The appeal was one on the grounds that the project would cause serious and irreversible harm to wildlife

**Disclosure: I am a member of the community group

*** The IESO has five contracts for more wind power projects totaling $3 billion, for power Ontario does not need.

Numbers don’t lie: intermittent wind and solar surplus to Ontario’s energy needs

The IESO (Independent Electricity System Operator) released 2017 data for grid-connected* generation and consumption and, surprise! The data reveal that power from wind and solar is surplus to Ontario’s  energy needs.

IESO reported Ontario’s consumption/demand fell 4.9 TWh (terawatt hours) in 2017 to 132.1 TWh. That’s a drop equivalent to 3.6% from the prior year.

Nuclear (90.6 TWh) and hydro (37.7 TWh) power generation was 128.3 TWh, making up 97.1% of Ontario’s total demand (without including dispatched power from either nuclear or hydro). The cost to Ontario ratepayers for the 128.3 TWh was approximately $7.6 billion or 5.9 cents/kWh.

Spilled hydro (paid for by Ontario’s ratepayers but not used) reported by Ontario Power Generation or OPG was 4.5 TWh for the first nine months of 2017. Out that together with 511 nuclear manoeuvres and the number is 959.2 GWh (gigawatt hours) wasted but paid for by Ontario’s ratepayers. Add in three nuclear shutdowns and it means Ontario’s nuclear and hydro generation alone could have easily supplied more than 136 TWh of power or over 103% of demand.

That doesn’t include spilled hydro in the last quarter of 2017 which will probably exceed at least one TWh.

Nuclear and hydro does it all

Nuclear and hydro could also have supplied a large portion of net exports (exports less imports) had all the generation potential actually been delivered to the grid. Net exports totaled 12.5 TWh in 2017.  Grid connected wind (9.2 TWh) and solar (0.5 TWh) in 2017 supplied 9.7 TWh and their back-up generation: from gas plants, supplied 5.9 TWh.  In all, the latter three sources delivered 15.6 TWh or 124.8% of net exports.  Net exports were sold well below the average cost of generation. Exports brought in revenue of about $400 million, but here’s the kicker: that surplus power cost Ontario’s ratepayers $1.4 billion, which is really a loss of $1 billion.

Grid-connected wind, solar and gas generation collectively cost approximately $3.5 billion for the 15.6 TWh they delivered to the grid, included curtailed (paid for but not used) wind power generation of 3.3 TWh. The cost of the wind power was more than $220 million per TWh, or 22 cents/kWh. That’s almost double the Class B average rate of 11.55 cents/kWh cited in IESO’s 2017 year-end results.

The 9.7 TWh generated by wind and solar was unneeded. If it had been required, it could have been replaced by gas power generation at a cost of only around two cents per kWh. Why? Gas generators are guaranteed payment of  about $10K per MW (average) of their capacity per month to be at the ready and if called on to generate power are paid fuel costs plus a small markup.

Price tag: $2 billion

In other words, if no grid-connected wind or solar generation existed in Ontario in 2017 the bill to ratepayers would have been about $2 billion** less! Grid-connected wind generation (including curtailed) cost ratepayers in excess of $1.7 billion and grid-connected solar added another $250 million!

That $2 billion, coincidentally, is about the same cost estimate of the annual amount to be deferred, and paid by future rate increases via the Fair Hydro Plan! In other words the current government could have easily saved future generations the estimated $40 billion plus cost of the Fair Hydro Plan by having never contracted for wind and solar generation!

The IESO results for 2017 sure makes me wonder: why hasn’t the Ontario Ministry of Energy canceled all the wind power projects that have not yet broken ground?

 

*   Distributor connected solar (2,200 MW) and wind (600 MW) added over $1.4 billion to the GA.

** The first 6 months of the variance account under the Fair Hydro Plan in 2017 was $1,378.4 million.

 

Abracadabra! Now you see it, now you don’t on Hydro bills

No, wait: you’re never going to see it

[Getty images]
On December 12, 2017, Yvan Baker, Liberal MPP for Etobicoke Centre introduced Bill 190, An Act to amend the Consumer Protection Act, 2002. After the first reading he provided a short statement:

Mr. Yvan Baker: Speaker, we all know how terrible it feels when you expect to pay one price for something and end up paying a price that’s much higher than that. Consumers feel confused, misinformed and sometimes misled.  This bill, known as the What You See is What You Pay Act, amends the Consumer Protection Act by adding a new section that requires all suppliers of goods or services to ensure that any information provided to a consumer regarding the price of a good or service includes the all-inclusive price. The all-inclusive price is a total of all amounts that a consumer will have to pay for the good or service, including tax and other charges or fees.

This will ensure that consumers don’t have to worry about hidden taxes or fees and that they can make more informed choices. It will ensure that what you see is what you pay.”

So, a question: what will happen to our electricity bills in the future?

According to Hydro One they will have “A fresh new look to serve you better”.  Hydro One appears to be in the process of spending $15 million dollars to make that happen, as explained on page 2032 of one of the dozens of documents filed with the OEB seeking several rate increases. Those will cost $141 more per average ratepayer over the next four years.

Energy Minister Glenn Thibeault spoke to the billing issue in the Legislature December 12 stating:  “We have an LDC working group with the Electricity Distributors Association, which represents all local utilities across the province. They’re working with us, as part of the long-term energy plan, to create a bill redesign. They understand what needs to be done and how we need to ensure that we make it as clear as possible, for people to understand how our electricity system works and how our electricity bills work as well.”

A quick look at the sample “fresh” bill posted by Hydro One doesn’t show much difference from those currently used, although it promises we ratepayers will “Understand more about the electricity use, delivery and regulatory charges that make up your statement.”

I suspect there is much we won’t be told. The Yvan Baker bill will presumably bury the breakdown of what is in the key three lines “Electricity used,” “Delivery” and “Regulatory Changes” so we shouldn’t expect to be enlightened.

Here are several samples of what we won’t see as a breakdown on our bills:

  1. Cap and Trade costs—they are not allowed to appear on either our electricity or natural gas bills
  2. Fuel costs for water both running through turbines and being spilled when IESO instructs OPG to do the latter. Costs/fees paid to the province annually are in excess of $350 million.
  3. Costs for curtailed wind generation of over $400 million annually.
  4. Costs for spilled hydro of 4.5 TWh (terawatt hours) at a cost of about $200 million annually.
  5. Costs for various conservation programs estimated at $400 million annually.
  6. Costs for line losses of 5/6 TWh annually representing a cost of at least $500 million.
  7. Costs for steaming off Bruce Nuclear—annual costs unknown but believed to be $50/100 million annually.
  8. Costs for “gaming” the system by gas plant and coal plant operators estimated to be in excess of $350 million by the Auditor General of Ontario over a period of several years.
  9. Costs absorbed for exporting surplus generation annually in excess of $1 billion.
  10. Costs associated with the Class A to Class B transfer estimated to be around $1 billion annually.
  11. Interest costs (unknown) on borrowed funds related to the Fair Hydro Act’s 25% reduction.

Do the quick math on the above you will note the annual costs of what we won’t see itemized on our bill comes to $4 billion. Most of it represents no value to residential or small business ratepayers. The only value accrues to the Class A ratepayers and all the costs will be paid by residential and small business ratepayers.

A rough estimate of the costs of the above to the average residential ratepayer who consumes 9 MWh (megawatt hour) annually is approximately $27.00 per/MWh (2.7 cents/kWh) and represents $243.00 annually ($27,00 X 9 MWh) for no benefit!

For Ontario ratepayers “What You See is What You Pay” has been a fact of life under the current government. Hydro One’s $15-million spend to give us a bill without a proper breakdown will do nothing to “to ensure that we make it as clear as possible” despite Minister Thibeault’s claim!

Transparency will continue to elude the Energy Ministry and ratepayers will still feel misinformed.

Ontario summer day means low power demand, high costs for consumers

A windy, sunny August day: sounds nice? In Ontario, that costs you. [Photo: Dorothea Larsen]
August 5 2017 was an interesting day: the wind was blowing and the sun was shining, in part of Ontario, anyway.

Unfortunately for Ontario ratepayers that weather will cost them a lot of money.

Why? The cost stems from the fact Ontario’s demand for electricity on that day was only 317,000 megawatts (MWh),* according to the IESO Daily Market Summary, probably due to conservation efforts and mild temperatures.  Low demand doesn’t save money: in fact, it will cost Ontario ratepayers millions of dollars due to bad management of the electricity sector by the current government.

I was curious about this windy, sunny day, which led me to contact Scott Luft, a master at using IESO data to give us a real picture of market demand and its costs.  Scott occasionally produces “Daily Ontario Supply Estimates” which provide a picture of both our demand and generated sources, what it cost, how much was exported, how much was curtailed/spilled (wasted), etc., and even how much of the costs were picked up by Class B ratepayers versus Class A.

Scott also estimates curtailed wind, spilled hydro, etc., using a conservative approach; they are generally confirmed months later by IESO.

Scott’s daily estimate for August 5, 2017 confirmed my suspicions!   Emissions-free nuclear and hydro generators alone supplied the 340,000 MWh of power Ontario needed easily, even exceeding Ontario demand by 23,000 MWh.  The cost of that generation was $21.1 million. After allowing for the value of the surplus 23,000 MWh as exports at the average hourly Ontario energy price (HOEP) of $4.94/MWh the cost per MWh comes to $66.34/MWh or 6.6 cents/kWh.**

Double the cost — and you’re paying it

Part of Scott’s daily estimate includes additional costs in the form of all the other generation sources, plus curtailed wind and solar, spilled hydro, biofuel and idling costs of gas plants. When those are added to the $21.1 million of nuclear and hydro, the price billed to ratepayers for the day jumps to $37.8 million — $119.24/MWh or 11.9 cents/kWh.  The Class A to Class B subsidy results in the cost per kWh for the “B” Class (that’s you and me) jumping to $131.10/MWh or 13.1 cents/kWh.

The other generation sources on Scott’s August 5 daily estimates include transmission (TX) and distributor (DX) connected generation, along with curtailed/idled, etc. costs with gas at 9,123 MWh (cost $4.1 million), wind at 49,088 MWh (cost $6.3 million), solar at 13,002 MWh (cost $6.1 million), biofuel at 701 MWh (cost $368,000) and imports of 8,563 MWh (cost $52,000).

The costs to you are mounting

Are you with me so far? What this means is, those other generation sources (including curtailed wind, etc.) of 85,000 MWh cost $16.7 million — $196.47/MWh or 19.5 cents/kWh) and are billed to … you, Ontario’s ratepayers.

Approximately $8.1 million of the day’s costs will be allocated to the Fair Hydro Plan and wind up on future electricity bills. If August 5 was a typical day, the amount kicked down the road for the next four years by the Premier Wynne-led government will amount to $3 billion annually (plus interest).  (The $8.1 million estimate for this day comes from the use of what is referred to as the “Global Adjustment Modifier” set by the OEB at $32.90/MWh from July 1, 2017 to April 30, 2018 and will be reset at the later date. The $8.1 million was obtained by simply multiplying Class B consumption — 246,000 MWh — by the $32.90 “Modifier”.)

Mismanagement of the energy portfolio by the Wynne-led government on August 5 generated a cost for Class B ratepayers that was excessive. It will continue, and lead to an explosion of households living in “energy poverty”*** when the Fair Hydro Plan comes to an end in four years.

The Minister of Energy needs to recognize the problems caused by intermittent and unreliable renewable energy!  Once he understands the latter he should immediately cancel any wind and solar contracted projects that have not commenced construction, along with any in the early planning stages.

Kicking the can down the road via the Fair Hydro Act is anything but fair. Paying twice for non-emitting clean energy simply amplifies the bad management this portfolio has received from our government.

Parker Gallant

August 11, 2017

*   Some of the above MWh references are rounded to the nearest thousand.

** The 6.6 cent rate, coincidentally, is close to our new off-peak rate of 6.5 cents/kWh (previously 8.7 cents/kWh) which came into effect July 1, 2017. The lower rate is a result of the “Fair Hydro Plan” instituted by the Premier Wynne that kicked 25% of the costs down the road for four years.  The Off-Peak rate back on May 1, 2007 was 3.2 cents/kWh so even after the recent reduction it is still up over 103% in the last 10 years.

*** Energy poverty is generally defined as utilizing 10% or more of a household’s disposal income to pay for their electricity and heating needs.

 

Wynne spin and the “Fair Hydro Plan”

Re-reading Premier Wynne’s statement of March 2, 2017 on her announcement of Ontario’s Fair Hydro Plan, one is struck by the avoidance of the truth, the sudden empathy displayed and her blatant claims.   As one example, she suddenly noticed “Electricity is not a frill — it’s an essential part of our daily lives.”

The Premier has obviously forgotten her party clearly treated it as a “frill” by taking advice from environmentalists who persuaded her (and predecessor Dalton McGuinty) that industrial wind turbines (IWT) and solar panels could easily replace the power generated by coal plants.  They were so taken by those claims the energy minister didn’t bother to do a cost-benefit analysis as noted by Ontario’s Auditor General (AG).  They also charged ahead installing “smart meters” at a cost of $2 billion (AG report) and instructed the OPA (Ontario Power Authority) to acquire 10,500 MW of renewable energy principally in the form of IWT and solar panels.

The year prior (2008) to the creation of the Green Energy Act, Ontario’s coal generation plants produced 23.2 TWh (terawatts) or enough electricity to supply 2.4 million (55%) average households .  In 2016 wind and solar* collectively and intermittently generated 14.2 TWh — 9 TWh less than coal plants generated in 2008.   The collective cost of wind and solar and their back-up (gas) in 2016 was approximately $3.8 billion or 27 cents per kilowatt (kWh,) whereas the cost per kWh of coal power generated in 2008 was 5.5 cents/kWh (OPG annual report).

Renewables: five times more costly

In short, the collective cost of electricity supplied by renewables and their back-up (gas) to replace coal generation turned out to be five times more which clearly raised the cost of the “frill,” but our Premier(s) and Energy Ministers were apparently unaware** costs were rising to that extent.

On the latter point the Premier in her statement claims: “But it’s not as if I’ve been unaware of the challenge. I have seen the rising rates. My family and I get a bill like anyone else.”  Premier Wynne’s salary in 2016 was $208,974.00 and in 2006 was $108,031.00 so she has seen a pay increase of 92% in 10 years.  It’s doubtful she was impacted by the $536,84 average annual increase she experienced in her cost of electricity as it represents less than one day’s pay at her current compensation level.

The Premier’s statement blames rate increases on past governments and claims since the Liberals regained power in 2003 they had to engage in “fixing a system that had been structured unwisely”.  Naturally, the 2003 blackout (caused by a fault in Northern Ohio) is blamed for the upgrade by the Premier to obscure their contracting of unreliable and intermittent wind and solar generation at above market prices.  The Premier now claims the “electricity grid” they created “is second to none.” And yet, the AG noted in  her December 2015 annual report that power outages increased 24% and lasted 30% longer!

Later in her statement the Premier notes “But the way we financed those investments was a mistake.”  The disturbing part of the statement about “those investments”, was Premier Wynne’s assertion “In the past few years we’ve invested more than $50 billion in electricity infrastructure — new dams in the south, new towers in the north, $13 billion to refurbish nuclear power plants alone and billions more to ensure new transmission and distribution lines everywhere.”

That part of the Premier’s spin will form the basis of Part 2, in this series, tomorrow.

 

* Wind and solar generation are classified as “base-load” generation whereas coal was strictly used for “peaking” (high demand periods) purposes.

** The writer has consistently sent Premier Wynne and her predecessor along with the various Energy Ministers a link to every article written no matter where it appeared.