Ontario’s Power Trip: The benefit is no benefit

Il semble que nous ne sommes pas les seuls à vendre de l’électricité à perte, l’Ontario a quelques soucis.

Extrait de : Ontario’s Power Trip: Generating losses, Parker Gallant, FP, Dec 1, 2011

For the first 10 months of 2011, the province of Ontario, via the Independent Electricity System Operator (IESO), exported 11.1 TWh (terawatt hours) of electricity. That’s enough to power 1,156,000 average Ontario households for a year, or about 25% of total Ontario residential electricity demand, or 10% of total non-industrial consumption.

According to the government, these exports are a huge benefit to ratepayers. In a Nov. 10 release, the Ministry of Energy said exports keep “costs down for families.” The IESO reports on its webpage that Ontario generated $375.3-million in revenue selling electricity to Quebec, New York, Michigan and other regions so far this year. That implies an average price of about 3.38¢ for each kilowatt hour (kWh), or slightly less than half a cent higher than the official Ontario average market price of 2.98¢ per kWh. It looks like the IESO is doing a good job of capturing value in the spread between Ontario and non-Ontario electricity prices.

That’s what they claim to be doing, but they are not.

Behind the numbers and claims of making a profit on exports, one finds a different story. Rather than making money, Ontario is losing hundreds of millions of dollar selling this power to New York and other regions at low prices that are up to 50% below the actual final price of electricity in Ontario.

·        The power exported at an average of 3.38¢ a kWh looks good only when compared with the essentially fictitious Ontario market price.

·        The real average price of electricity in Ontario through the first 10 months of this year is about 7¢ per kWh, which means the province is in effect losing almost 4¢ on every kWh exported. Since the province exported 11.1 billion kWh, the loss works out to $420-million.

That loss is paid by Ontario ratepayers. The exports keep costs up, not down. The real cost of electricity is buried in an arcane pricing structure that seems to have been designed to hide the facts.

C’est la même chose pour le Québec, le peuple subventionne
l’électricité du

The provinces and states purchasing Ontario’s surplus electricity don’t have to pay the full cost of building, maintaining and expanding Ontario’s out-of-control electricity regime. On top of the so-called market price for electricity, Ontario ratepayers must foot the bill for Ontario’s multi-faceted politically micro-managed power system.

·        All these other costs are accumulated and calculated under an accounting conceit called the “Global Adjustment” (GA).

·        According to the IESO, the Global Adjustment includes “the rates paid to regulated and contracted generators and for conservation and demand management programs.” In such few words are packed a multitude of hidden costs.

The market price, based on trades in the wholesale market among major generators and buyers, is merely the base for a series of Global Adjustment add-ons.

1.      The average market price of 2.98¢ must be adjusted to pay for electricity the province has contracted to buy at above-market prices.

2.      Wind power generation is paid at 13.5¢ a kWh and solar at 80¢ a kWh.

3.      Another cost is the province’s policy of paying generating companies not to produce electricity. If wind power is being generated, displacing gas plants, the government pays gas plants not to produce electricity.

All these costs add up.

The Ontario Power Authority reports that the GA for the 12 months to the end of October 2011 exceeded $5.1-billion, or about 30% of total system revenue of about $14.5-billion.

Here’s a rough breakdown of the key GA electricity price add-ons:

1.      Non-utility generation (NUG) Private companies that hold long-term contracts to provide power to the system (hydro, gas, biomass). Many of these are money-losing legacy contracts that the province is obligated to honour and are held by an off-balance-sheet operation called the Ontario Electricity Finance Corp. Total NUG payments: $1.06-billion.

2.      Nuclear generation and certain hydro power Nuclear plants are guaranteed an average 5.58$, and receive the bulk of this GA payment of $1.28-billion.

3.      Renewable energy Payment of special 13.5¢ and 80¢ feed-in tariffs for wind and solar, plus the cost of paying standby gas plants to not produce electricity, accounts for the largest portion of the Global Adjustment: $2.8-billion.

The power sold for export fetched only 3.38¢ per kWh over the past 10 months, which means Ontario ratepayers picked up 3.62¢ to cover the GA costs for wind, solar, nuclear and other electricity sources. In effect, the $375.3-million in revenue generated selling “surplus” electricity cost ratepayers another $420-million (11,100,000 MWh times the average GA). Put another way, ratepayers in Ontario paid 3.8¢ per kWh so out-of-province electricity buyers would take our surplus power.

The benefit is no benefit.

If the exported electricity (equal to about 25% of total Ontario residential demand) had not been produced and sold, ratepayers would have saved $420-million. How can the ministry claim selling our surplus power at a subsidized cost per kWh of 3.8¢ helps to “Keep costs down for families”?

The Ontario government is hiding the fact that adding intermittent wind and solar production to the province’s baseload generation capacity has done nothing more then drive up the price of a basic need and benefited companies in New York and elsewhere.

This is not a new development. Last January, the Toronto Star reported that

“Ontario electricity customers have subsidized power exports to the tune of $1-billion since 2006.”

The article promised that a C.D. Howe Institute study would be published later in the year. Jan Carr, the former CEO of the Ontario Power Authority (OPA) was quoted and referenced several times and traced the cause of those costs to ratepayers “to about 2005 when the Ontario government increasingly took electricity pricing away from the open market.”

The C. D. Howe study promised in that article never saw the light of day, for some reason. Which is unfortunate. It might have ended the Ontario Ministry of Energy’s claims to be saving money when the opposite is true. At least 10% of electricity output in the province is unneeded production, mostly from wind, that is exported at a loss to all ratepayers.

Financial Post

Parker Gallant is a retired banker who looked at his electricity bills and didn’t like what he saw.