Ontario’s class distinction stings ordinary hydro customers

Electricity bill-payers are subsidizing business to the tune of over $1 billion, every year

 In early 2010, then Minister of Energy Brad Duguid issued a directive to the OPA (Ontario Power Authority) instructing them to create and deliver an “industrial energy efficiency program” specifically for large transmission connected (TX) ratepayers.

That directive led to the creation of the two classes of ratepayers that now exist in Ontario.

Originally, Class A ratepayers were only the largest industrial clients (TX) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new distinction in January 2011, Class A clients have evolved further under Energy Ministers Chiarelli and Thibeault, to allow those with peak demand exceeding 500 kilowatts (kW) per hour.

That move leave the great unwashed “B” Class – you and me — to pick up the subsidy costs for  Ontario’s larger employers. The concern was (is) that those companies without subsidies might exit the province and take their jobs with them.

The algorithm that determines what a Class A customer pays is related to how successful they are at picking the top five hours of Ontario’s peak demand. The “A” class companies who fire up their own generators (usually natural gas) or close their plants/operations down and reduce demand on Ontario’s generation sources during the five highest peak-demand hours over the 12 months, will get the biggest discount.

The focus on “conservation” during those hours carries the political hope of achieving “peak” demand reduction.  The theory is the reduction should result in reduced need for new generation.*

While that goal may have been the intent, at the same time Ministers Duguid, Chiarelli and Thibeault were (are!) giving orders to contract for more and more renewable wind and solar contracts to the point where the “market price” or HOEP (Hourly Ontario Electricity price) continued a slow descent due to surplus generation.   The HOEP in May 2017 achieved a new low of $3.17 per MWh or 32/100th of 1 cent/kWh. In June 2008, it was $62.30/MWh.

Both classes of ratepayer equally pick up the full cost of the HOEP on a per kWh basis!

With the focus on the cost shift of the ratepayer classes tied to the GA (Global Adjustment), the higher the latter the greater the cost shift.   The addition of so many more businesses to the Class A group simply amplified the cross-class subsidy!

For an example of the growth in the dollar value of that shift, let’s look at some June numbers, now that IESO has released the June 2017 summary report.

The first year the B to A shift happened was in 2011: for June of that year the GA was $423.1 million and Class A ratepayers picked up $46 million of that cost. Unfortunately, IESO did not start disclosing the consumption by ratepayer class until 2015, so it is not possible to determine what percentage of the GA was being paid by Class A versus Class B ratepayers.

The June 2015 IESO webpage discloses consumption of 11.004 terawatt hours** (TWh) with Class A consumption of 2.061 TWh (23%), and GA paid by Class A ratepayers of $90.4 million. That’s 9.6% out of total GA costs of $943.1 million.  So, Class B ratepayers picked up $126.5 million to subsidize Class A ratepayers that month.  That translates to a GA cost per kWh for Class A of 4.4 cents versus 9.5 cents for Class B ratepayers. HOEP for June 2015 was $15.31/MWh!

IESO discloses total consumption of 11.509 TWh for June 2016 with Class A consumption of 2.308 TWh (20.05%). The GA for Class A was $121.6 million out of GA costs of $995.3 million. Had the GA been allocated on the 20.05% Class A consumption, they would have paid $200.4 million meaning Class B ratepayers subsidies were $78.8 million for the month.  HOEP for that month was $20.17.

June 2017 total consumption was 11.617 TWh, of which 2.482 TWh (21.36%) was for Class A ratepayers. The Class A GA totaled $137.9 million, but if they had been allocated the 21.36% of their consumption on the GA of $1.208.8 billion instead of the 11.4%, they would have paid $258.2 million.  Class B ratepayers provided a subsidy of $120.3 million.

The 5,055,000 (2015 OEB Yearbook of distributors) Class B ratepayers in the province each picked up an average of $23.80 of subsidy costs for June 2017.

If that becomes the norm, those ratepayers will pony up around $1.4 billion annually. 

Back before former Energy Minister Duguid issued his directive, the Association of Major Power Consumers of Ontario, the Ontario Chamber of Commerce, and the Canadian Federation of Independent Business were lamenting the rising costs of electricity in Ontario. Some companies left the province due to costs, so it was inevitable the Ontario Liberal government would finally hear their pleas for relief.  The result? The creation of the two rate classes.

In effect, the creation of the two rate classes and the subsidy shift from Class B to Class A ratepayers should be labeled “employment insurance” as it was needed to simply retain jobs in jeopardy because many companies were threatening to leave the province due to high uncompetitive electricity rates.

Why can’t our Energy Ministers come to the realization they should cease contracting for new, unreliable and intermittent wind and solar generation that produces power out of phase with demand?

*   The claim by the government is that by not contracting for new capital investment in generation, we ratepayers save future rate increases

**1 terawatt is equal to 1 billion kilowatts

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Wind power waste not healthy for Ontario

A few days ago (July 11, 2017) Ontario’s Minister of Health and Long-Term Care Dr. Eric Hoskins issued a press release saying 131 hospitals would receive $175 million for “repairs and upgrades”.  That’s an average of $1.3 million per hospital to be doled out, apparently because the Wynne government finally produced a “balanced budget”.

The press release states: “Funding from the province allows hospitals to make critical improvements to their facilities, including upgrades or replacements to roofs, windows, heating and air conditioning systems, fire alarms and back-up generators.”

One wonders if Minister Hoskins ever chats with Minister of Energy Glenn Thibeault who doles out money to industrial wind turbine (IWT) developments at a pace that would make his $1.3 million per hospital look like small potatoes!   In the first six months of 2017, the bill to Ontario ratepayers was approximately $1.089 billion for accepted and curtailed industrial wind.  That works out to approximately $475,000 per turbine … for six months!  (That assumes there are about 2300 turbines with an average capacity of 2 MW or megawatts currently operating in the province.)

Also in the first six months of 2017, grid-connected and distributor-connected IWT collectively generated 6,143,000 MWh and curtailed 1,906,000 MWh* according to IESO data and curtailed estimates by Scott Luft.  That means the cost per grid-accepted MWh was about $177 or 17.7 cents/kWh! If the next six months are similar to the first six, each average 2-MW wind turbine will cost $950,000** generating or curtailing the intermittent and unreliable power they are famous for.

Those wind turbines require back-up by gas plants and frequently cause the spilling of hydro power and the steam-off of nuclear plants. The costs of these grid managing activities to ratepayers easily drive the costs per turbine well past the hospital repair allocations.

Kicking the can down the road under the Fair Hydro Act will see the foregoing incredible waste of ratepayer dollars accumulate within OPG, and result in rate increases as high as those we have experienced over the past 10 years, once 2021 arrives.

Try to imagine how much better our health care system would be with that estimated annual waste of $2 billion ($40 billion over the 20-year terms of the contracts) allocated towards health care instead of handing it over to mainly foreign industrial wind developers.

The time has come to stop signing those contracts!

Parker Gallant

* The average curtailed wind for the first 6 months of 2017 was 23.6% and for May was 43.8%.

** This assumes accepted generation is paid $140/MWh and curtailed wind is paid $120/MWh.

May power cost stats a harbinger of worse to come

If May is any indication, the Wynne government’s “Fair Hydro” plan costs will be considerable

The “Fair Hydro” plan ushered in by the Wynne government is setting up ratepayers for higher bills as soon as 2021 arrives. When the hiatus ends, limiting increases to ratepayer bills to no more than the “cost of living” (COL) over the next four years, the cumulative debt acquired by OPG to “refinance” the reported $50 billion of electricity assets will have to be repaid.

Early indications suggest the costs will be higher than the $2.5 billion being set aside for the next three years by Premier Wynne and Energy Minister, Glenn Thibeault.

Evidence? A look at May 2017 compared to May 2016 indicates the increase in the Global Adjustment (GA) costs for Class B ratepayers was 7.9% higher than 2016 and well above the May COL index of 1.4%.  Any increase in costs above the inflation rate will be added to the $2.5 billion being refinanced and become the responsibility of ratepayers to pay when the hiatus ends.

Demand drops but the cost goes UP

The IESO May 2017 Monthly Market Report indicates Ontario Class B ratepayers consumed 344,000 megawatt hours (MWh) less than they did in May 2016, which represents a 4% drop. That’s about the same as 460,000 average households would consume for the month. The Global Adjustment (GA) costs on the reduced amount of electricity consumed, however, increased by $82.7 million from $931.2 million in 2016 to $1,013.9 million in 2017.  Many will recall in May 2016, lower consumption during the prior six months caused the OEB to raise rates!

So, what caused the 7.9% spike ($82.7 million) in GA costs?   It appears there were two principal causes with one of them related to Ontario’s “Net Exports”.*

In 2017, net exports averaged 600 MW per hour higher than 2016, meaning they increased by 446,400 MWh (600MWh X 24 hours X 31 days) in May 2017 (enough to power almost 600,000 average households for the month). The buyers in New York, Michigan, Quebec, etc., paid only the Hourly Ontario Electricity Price (HOEP) of $3.17/MWh, while Ontario’s ratepayers were required to pay the GA costs of $54.8 million or $122.89/MWh.

The other major cause of the GA spike appears related to power generation from wind and its record curtailment in May 2017. My friend Scott Luft posts both the generation from TX (transmission connected) and DX (distributor connected) industrial wind turbines (IWT), and also conservatively estimates “curtailment”.  In May 2016 TX and DX connected IWT generated 699,371 MWh, not including 130,000 MWh of curtailed generation.

Combined: wind power in May 2016 cost ratepayers about $113 million or $162/MWh.  May 2017 saw 669,011 MWh of wind power delivered either to the grid (TX) or to local distribution companies (DX). Curtailed wind in May 2017 was a record as Scott estimated almost 524,000 MWh (enough to power almost 700,000 average households for the month) were curtailed.   The cost for generated and curtailed wind increased to slightly more than $158 million for the month, which raised the cost of accepted wind generation to $236/MWh.

$100 million added … for just one month

What this means is, wind-generated and curtailed costs in May 2017 were $45 million higher. Coupled with the increase in net exports of surplus generation and related costs, $100 million was added to the GA … for just one month.  If May 2017 is in any way representative of the four years of the rate freeze (tied to the COL index), the costs of refinancing those assets will be much more than the March 2, 2017 press release suggested it would be:  “These new measures will cost the government up to $2.5 billion over the next three years.”

Based on past forecasts by the Ontario’s Liberal government, keeping the costs at $2.5 billion over the next three years may be a “stretch goal”!

Parker Gallant

*“Net Exports” are total exports less total imports.

 

April winds blow in high wind power costs

How badly were ratepayers hit? Millions upon millions for power produced out of phase with demand…

The Independent Electricity System Operator or IESO’s 18 month outlook report uses theirMethodology to Perform Long Term Assessments” to forecast what industrial wind turbines (IWT) are likely to generate as a percentage of their rated capacity.

The Methodology description follows.

“Monthly Wind Capacity Contribution (WCC) values are used to forecast the contribution from wind generators. WCC values in percentage of installed capacity are determined from actual historic median wind generator contribution over the last 10 years at the top 5 contiguous demand hours of the day for each winter and summer season, or shoulder period month. The top 5 contiguous demand hours are determined by the frequency of demand peak occurrences over the last 12 months.”

 The most recent 18-month outlook forecast wind production at an average (capacity 4,000 MW growing to 4,500 MW) over 12 months at 22.2%, which is well under the assumed 29-30 % capacity claimed by wind developers. For the month of April, IESO forecast wind generation at 33.2% of capacity.

April 2017 has now passed; my friend Scott Luft has posted the actual generation and estimated the curtailed generation produced by Ontario’s contracted IWT.   For April, IESO reported grid- and distribution-connected IWT generated almost 703,000 megawatt hours (MWh), or approximately 24% of their generation capacity. Scott also estimated they curtailed 521,000 MWh or 18 % of generation capacity.

So, actual generation could have been 42% of rated capacity as a result of Ontario’s very windy month of April 2017, but Ontario’s demand for power wasn’t sufficient to absorb it! April is typically a “shoulder” month with low demand, but at the same time it is a high generation month for wind turbines.

How badly did Ontario’s ratepayers get hit? In April, they paid the costs to pay wind developers – that doesn’t include the cost of back-up from gas plants or spilled or steamed off emissions-free hydro and nuclear or losses on exported surpluses.

Wind cost=22.9 cents per kWh

For the 703,000 MWh, the cost* of grid accepted generation at $140/MWh was $98.4 million and the cost of the “curtailed” generation at $120/MWh was $62.5 million making the total cost of wind for the month of April $160.9 million.   That translates to a cost per MWh of grid accepted wind of $229.50 or 22.9 cents per kWh.

Despite clear evidence that wind turbines fail to provide competitively priced electricity when it is actually needed, the Premier Wynne-led government continues to allow more capacity to be added instead of killing the Green Energy Act and cancelling contracts that have not commenced installation.

* Most wind contracts are priced at 13.5 cents/kilowatt (kWh) and the contracts include a cost of living (COL) annual increase to a maximum of 20% so the current cost is expected to be in the range of $140/MWh or 14cents/kWh.

Premier Wynne’s Easter basket full of rotten eggs

Count the eggs! $50 million plus, lost in just 3 days!

The nice weather on Easter weekend in Ontario disguised the fact that April 14th, 15th and 16th were really bad days for electricity customers.

Scott Luft’s daily reports detailed the bad news, even before the Independent Electricity System Operator or IESO got out their daily summary for April 12th.   Some of the information in Scott’s reports are estimates, but they have always proven to be on the conservative side. These three reports paint a disturbing picture of what’s going on, and how badly the Ontario government is mismanaging the electricity file.

Here are a few of the events that our Energy Minister Glenn Thibeault and Premier Wynne should find embarrassing. They also confirm what many of us have been telling them for several years.

First, Thursday April 13th saw a disclosure from the Energy Ministry that Ontario paid out $28,095,332 including about $240,000 in interest to Windstream Energy to satisfy the award made to them under the NAFTA (North American Free Trade Agreement) tribunal, due to cancellation of  a 300-MW offshore industrial wind turbine project.

Second, the HOEP (hourly Ontario electricity price) market, traded all of Ontario’s generation over the three days at “0” (zero) or negative value. While total demand for electricity was 1,031,448 MWh over the three days the HOEP market valued it at -$869,220 or an average of -.84 cents/MWh.  The “0” and negative values for the HOEP lasted 77 continuous hours, breaking a prior record of 62 hours.

Wasted, unneeded wind power

Third, during the three days, ratepayers picked up the bill for 99,109 MWh of curtailed wind which exceeded the transmission (TX) and distribution (DX) connected wind by 60.2%. Curtailed wind at an estimated $120/MWh alone cost ratepayers $11.9 million, driving the price of delivered wind (61,882MWh) to a cost of $335.34/MWh or 33.5 cents a kWh.  Total wind costs were $20.8 million.

Fourth, solar power over the three days generated and curtailed (1,124 MWh) 35,539 MWh at a cost of   $16.8 million, which works out to $472.86/MWh or 47.3 cents/kWh.

Fifth was the cost of gas which in three days produced 18,433 MWh, but the cost was $12.5 million and $676.56/MWh or 67.7 cents/kWh.  The 9,943 MW of IESO grid-connected gas operated at 2.6% of actual capacity during the three days.

Sixth was the generosity shown to our neighbours in New York, Michigan and Quebec who took delivery of 157,768 MWh of free power along with a payment of $132,525.

The quick math on the above indicates a cost of wind, solar and gas generation plus the payment for exported power comes to $50.2 million.

Nuclear and hydro was all we needed

That’s bad enough, but if you look at nuclear and hydro generation during those three days, clearly the $50.2 million was “money for nothing” paid for by Ontario’s ratepayers.  Nuclear (including steamed-off of 49,118 MWh) was 688,981 MWh and combined with hydro generation of 324,001 MWh of could have provided 1,012,982 MWh versus Ontario’s demand over those three days of 869,232 MWh leaving 143,750 MWh of surplus.  Three days of nuclear and hydro cost $61.9 million or 6.1 cents/kWh.

Bottom line? Ontario ratepayers picked up the bill for not only the $28.1 million paid to Windstream for a canceled offshore wind project, but also another $50.2 million, making the past four days very expensive for everyone.

The $78.3 million could have been better spent on health care or so many other pressing needs!

It’s time to kill the Green Energy Act and cancel any uncompleted wind and solar contracts before all our weekends turn out like this one!

Dancing in the streets when Ontario’s wind power “tyranny” ends?

My article in the Financial Post, December 15, 2016.

[Photo: Getty Images]

The editor of the magazine, North American Windpower, recently marked the demise of Ontario’s wind industry. His article was titled “Eulogizing Ontario’s Wind Industry.” Apparently the eulogy was a result of Ontario Energy Minister Glenn Thibeault’s announcement of Sept. 27 that he was “suspending” the acquisition of 1,000 MW (megawatts) of renewable energy under the previously announced LRP ll (Large Renewable Procurement).

Thibeault explained that “IESO (Independent Electricity System Operator) had advised that Ontario had a robust supply of electricity over the coming decade to meet projected demand.” Thibeault didn’t express surprise at this sudden turn of events or explain what led to the realization. To put some context around the suspension, only a few months earlier former Energy Minister Bob Chiarelli had issued the directive to acquire the 1,000 MW that Thibeault shortly after “suspended.”

The Windpower article opens with: “Ladies and gentlemen, we are gathered here today to pay our respects to Ontario’s utility-scale wind industry, which has passed away from unnatural causes (a lack of government support).”

If Ontario’s wind industry had truly passed away, the celebrations among hundreds of thousands of Ontario ratepayers would have rivaled the scale of celebrations exhibited in Florida by Cuban exiles after hearing that Castro died. As it is, Ontarians are hardly celebrating. We will be forced to live with and among industrial wind turbines for at least the next 20 years. The “government support” alluded to in the eulogy isn’t dead. It continues to get pulled from the pockets of all Ontario ratepayers and has caused undue suffering.

The wind industry rushed to Ontario to enjoy the largesse of government support via a government program that granted above-market payments for intermittent and unreliable power. Industrial wind turbines have so driven up electricity prices that Ontario now suffers the highest residential rates in Canada and the fastest growing rates in North America. The Ontario Association of Food Banks in its recent 2016 “Hunger Report” noted: “Since 2006, hydro rates have increased at a rate of 3.5 times inflation for peak hours, and at a rate of eight times inflation for off-peak hours. Households across Ontario are finding it hard to keep up with these expenses, as exemplified by the $172.5 million in outstanding hydro bills, or the 60,000 homes that were disconnected last year for failing to pay.”

Beyond that, the cost of energy affects businesses and, as noted by the Canadian Federation of Independent Businesses, “fuel, energy costs” ranks for their Ontario members as the second-highest “major cost constraint” behind “tax, regulatory costs.”

Until the day we actually see Ontario electricity consumers dancing in the streets one day, the eulogy for this province’s wind-power tyranny is unfortunately premature.