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.

Energy Minister’s promise of action causes concern

Past ministerial promises haven’t worked out so well. Why should we have faith in a minister who admits mistakes but then says he is planning major change?

Glenn Thibeault, Minister of Energy, spoke at a breakfast session for the Economic Club of Canada in Ottawa and admitted that “Ontario” (not the Liberal Party or his predecessors in the energy portfolio)  screwed up by paying too much for renewable energy.

Shock.

While that was a significant admission by Mr. Thibeault, recall that only three weeks earlier he claimed “We have the system of the future paid with yesterday’s dollars.”

His Ottawa remarks claimed Ontario’s leadership position in green energy was “absolutely the right policy,” yet the attractive fixed-term contracts handed out “created a bonanza” for wind and solar providers but “left ratepayers with a hangover.”   Minister Thibeault’s many claims made in that speech about eliminating “heavily polluting coal-fired power plants,” how “we drove significant investment in the province,” how “demand for electricity plummeted in the steep recession” of 2008, and how “Ontario had taken a leadership position in green energy,” have all been disputed by many. As just one example, the Green Energy Act (GEA), the feed-in tariff program and time-of-use pricing mechanisms were all policies copied from Germany and Denmark, and not a leading position.

Billions spent without proper planning: AG

The apparent surprise, “Ontario was paying too much for renewable energy,” was already noted by Auditor General Jim McCarter in his December 5, 2011 report: “Billions of dollars of new wind and solar power projects were approved without many of the usual planning, regulatory, and oversight processes.”

The AG report came over a year after then Energy Minister Brad Duguid released his Long-Term Energy Plan, calling for 10,700 MW of  renewable energy from wind and solar. Minister Duguid also directed spending on the Niagara Tunnel ($1.5 billion) and the Lower Mattagami River ($2.6 billion) hydro projects which presumably are some of those “yesterday’s dollars” Thibeault mentions.   Just before his LTEP was released, Minister Duguid pulled the plug on the Oakville gas plant and said, “As we’re putting together an update to our Long-Term Energy Plan, it has become clear we no longer need this plant in Oakville.”  More “yesterday’s dollars”!

As the electricity rates started spiraling upwards, Minister Duguid gave us the OCEB (Ontario Clean Energy Benefit) in February 2011, which took 10% off electricity bills for the following five years, and also added over $5 billion to the province’s debt.

Now many critics (me included) of the GEA said renewable energy would drive up electricity prices soon after the GEA was passed. One of the first articles I pointed this out in appeared seven years ago (February 24, 2010) in the Financial Post where I commented,  “As expensive electricity coming from wind and solar power slowly works its way through the system, many more rate increases will follow.”  (Several months later Minister Duguid labeled me as  a “self-appointed guru” on the Goldhawk Live TV show.  Perhaps he considered my forecasts to be “fake news”.)

Promises, promises

Back to Minister Thibeault’s speech: the remark we should all be concerned about is, “In the coming weeks you’re going to hear about out plan, how it will impact businesses and families, and most importantly, how it will provide structural changes that ensure both immediate and lasting relief.”

We ratepayers have seen claims like that before. On February 17, 2011, Minister Duguid promised: “Creating more than 50,000 jobs in the clean energy economy” and “Helping reduce costs for consumers and making the power system more efficient through conservation”. 

Those jobs were never created and we reportedly reduced our consumption by the 7,100 MW Duguid had as a target, but our electricity bills increased.  In February 2011, the average electricity rate was 6.84 cents/kWh; and in Feb. 2017 it is 11.1 cents/kWh — an increase of 62.2% in just six years.  Off-peak rates are up over 70%.

The “structural changes” promised by Minister Thibeault may well turn out like past promises and fail to deliver anything close to what is promised.

Minister Thibeault and the Wynne government should instead cancel unfulfilled wind and solar contracts, LRP II (currently suspended), move the Ontario Electricity Support Program (OESP) to the Ministry of Community and Social Services, and stop the annual spending of $400 million on conservation programs.

Leave the planning to the experts!

 

How to get those electricity bills down

(Or not make them worse)

In my volunteer work with Wind Concerns Ontario, a coalition of community groups, individuals and families concerned about the impact of industrial-scale wind power generation in Ontario, I was pleased to be asked by Global TV News to provide an opinion on what needs to be done to help the citizens of this province with their electricity bills.

Here is our contribution to the feature, published on Global’s website:

The following is by both Parker Gallant, a retired banker who now analyses Ontario’s energy sector and is the author of the blog “Energy Perspectives” as well as Jane Wilson, the president of Wind Concerns Ontario.

The Ontario government undertook its program to add renewable power without proper cost-benefit or impact analysis.

Now we have electricity bills that are the fastest rising in North America. The rich contracts awarded to huge corporate wind power developers are a factor.

Here’s what we suggest:

Immediately cancel Large Renewable Procurement (LRP) II that is currently “suspended.” With its target of acquiring 1,000 megawatts (MW) of more renewable capacity — it’s not needed and will further add to consumers’ power bills.

Cancel the five wind power contracts awarded in 2016 under LRP I and save electricity customers about $65 million annually or $1.3 billion over 20 years. Cancellation costs will amount to a small fraction of the annual cost. Cancelling approved but not yet built wind power projects and the new FIT 5.0 program will also save money.

Cancel “conservation” spending of $400 million annually. Ontario has already cut back on power use by more than 12 per cent since 2005 when consumption was 157 tWh to 2015 when it had fallen to 137 tWh. Do this and save immediately on electricity bills.

NAFTA wind farm decision shows need for onshore wind power research too

October 26, 2016

The events of the past few months have been difficult for new Minister of Energy Glenn Thibeault as he continues to try to defend his predecessors’ decisions. He has tried to justify: increased energy poverty, the fastest growing electricity rates in North America, the slow demise of energy intensive enterprises (manufacturing, mining, refining, pulp and paper production, etc.), gas plant cancellations and the privatization of Hydro One, to name a few.

Not to be ignored are the many challenges lodged by rural ratepayers against contract awards allowing construction of industrial-scale wind power projects in their communities. Thousands of those ratepayers have challenged the contracts and spent millions of personal after-tax dollars sitting in front of Environmental Review Tribunals, valiantly doing their best to protect the environment and wildlife from the highly invasive power projects. Only a very small percentage of the challenges have proven successful.

Just days ago another ruling was issued and once again it was in favour of an industrial wind developer. This time however, it came from a tribunal sanctioned under the North American Free Trade Agreement (NAFTA), and it was against the Government of Canada because of actions by the Ontario government.

The challenge by Windstream Energy LLC resulted in an award of $25 million and an additional $3 million in legal fees against the decision by the provincial governing party to place a moratorium on a contract granted to Windstream for an offshore 300-MW wind development.

The ruling by the tribunal “found that the Government of Ontario treated Windstream Energy LLC’s (Windstream) investments in Canada unfairly and inequitably” and also ruled “on the whole did relatively little to address the scientific uncertainty” surrounding offshore wind that it relied upon as the main publicly cited reason for the moratorium.

If one were to discuss the contracts awarded by the Ontario Power Authority or IESO with the people who have challenged wind power projects at Environmental Review Tribunals I suspect the words: unfairly and inequitably would be frequently heard.  Many rural Ontarians living in proximity to operating turbine installations and suffering the effects of audible and inaudible (infrasound) noise would raise the issue of the lack of research on the effects of the noise on humans.

“Relatively little” has been done to address the scientific uncertainty surrounding onshore wind turbines, as well.

Parker Gallant