Monday, August 29, 2011

Duncan's Grow-Op Is Stealing Hydro


Public generation is increasingly being demoted to servicing private interests in Ontario. In April 2004, minister Dwight Duncan delivered a speech, to the Empire Club, titled “Choosing what Works for A Change.” In hindsight, the obvious question should have been, “Works for who?”

“... we will be introducing legislation for sweeping institutional reform that would see a combination of a fully regulated and a competitive electricity sector. There would be a split between regulated prices for electricity coming from major nuclear and baseload hydro generation assets, and a healthy, competitive market for all other generation. This combination of pricing mechanisms would result in a blended cost for consumers.

Ontario Power Generation's nuclear and baseload hydroelectric assets would be regulated by the Ontario Energy Board, who would set regulated prices, while the wholesale price for other electricity generated in the province would be set by the market, which would continue to operate as it does now.
 
Fixed prices for a large part of the energy consumed in the province would keep the overall blended price for electricity relatively stable.”
The 'relatively stable' electricity price noted has since shown Ontario Power Generation (OPG) prices being held down in order for the public generator to fund private schemes. The overall rate shown in these graphs I've referred to here as the Independent Electricity System Operator (IESO) Commodity Charge (I've called it the wholesale rate elsewhere on this blog). I've done so as that is how it is shown in IESO monthly reports, but also because the term 'commodity' has a specific meaning in economics. OPG is the majority of production, so the actual difference between what OPG receives and what other market recipients receive is far greater than shown in this graph.

The monthly IESO reports show the two components of the commodity charge, which are the Hourly Ontario Energy Price (HOEP), and the Global Adjustment (GA). The GA is a mechanism to recover the full cost paid to generators – increasingly we have inched towards all generation being contracted (or regulated in OPG's case), so the GA reflects the difference in the value of contracts and the market value (distorted by those contracts, but somewhat functional), Revisiting 2004's intentions, it is notable how the two components have shifted since the GA was introduced. The market price does come close to following the demand movements – as demand drops so does price. But 2008 was the last year the HOEP, or market price, had real meaning in determining the value of production. Since 2008, and never so significantly as in 2011, there is no value to the production of electricity without an existing contract for purchase of the production, outside the uncertainty of market fluctuations.   The value is in the contract - not in any competence in efficiently generating electricity that can service demand for electricity.

This answers the question as to who this 'market' is supposed to work for – whoever the government chooses it should!

The money to pay the global adjustment (GA) does comes, disproportionately, by selling the production of OPG at higher and higher rates while keeping the payments to OPG steady. OPG's production does include coal (thermal), which has been greatly curtailed. Combining the production of OPG, and their pricing, we see that despite declining total output there is an enormous, and growing gap, between what the 'system' pays OPG for their production, and what we pay the system for that same production (in the graph this is the “profit on OPG production”).


The 2011 figures charted here are for only the first half of the year, which means OPG is on target to get over $2 billion less for their production this year than we are to pay for it. Since 2005 began, OPG has now received over $8.5 billion less for their output than Ontario consumers have paid.

This is not a commodity market.

If we were to add that $8.5 billion onto a similar amount collected, since 2002, by the debt retirement charge, we'd have a very large chunk on an alleged $21 billion shortfall at the old public Ontario Hydro entity. If we realized, beyond that, that the revenues from Hydro One, the distribution, and transmission, remnant of Hydro One, have also been rising, there is no need to take the initial claim of a 'stranded' debt seriously. That is not to say everything could have continued without any changes – but it is to say the debt is now shown to have been manageable.

Now we are being charged a lot more, but not to pay down debt. Reportedly, these increased charges are to grow the 'green' energy sector. 2011 will not see a notable change in provincial demand for electricity, but it will see huge growth in intermittent supply. Wind power is most notable now; with capacity factors slightly over 13% in July, and slightly under that over the first 24 days of August, the inappropriateness of this source, in Ontario, is clear.

Nevertheless, 4 more wind 'farms' have appeared in IESO hourly reporting in recent weeks. Like narcotics, they grow to feed the demands of inebriated minds throughout the land. 

This Liberal grow-up is being funded by squandering our Ontario Hydro inheritance.

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