Wednesday, April 19, 2017

Ontario government acting like small manufacturers' bad boyfriend

We are tripling the size of the cut we're making to people's hydro bills from 8% to an average of 25%. - Ontario Premier Kathleen Wynne
On March 2nd the Premier of Ontario announced "Fair Hydro Plan" actions "cutting electricity bills by 25 per cent." The announced actions cut no actual costs. To the contrary, interest expenses are expected to climb to $1.4 billion annually, perhaps totaling $25 billion in the fullness of time. Perhaps $40 billion.

My two previous posts have looked at rate components from a residential bill perspective, and an overall system supply cost perspective. I hope I have communicated that rates have risen substantially due to one small set of recently contracted supply, while nuclear and hydro provided the bulk of supply but little of the cost increases - and that not all consumer groups shared the burden of the rate increases. In this post I'll review the politics of recent electricity pricing policy decisions.
"We feel that a lot of manufacturers are the middle child that are completely left out...They saw almost nothing in the recent announcements." 
Jocelyn Bamford - Coalition of Concerned Manufacturers
It's been over 6 weeks since the government announced it's so-called "Fair Hydro Plan", and while some details will remain sketchy until enabling legislation/regulation is introduced, the overall intent is clear. Ontario governments reacting to increases in electricity prices with rash programs to calm the populace are nothing new, but the current government's targeting of rate reductions is.
Graphic originally from Ontario’s perceived electricity cost inflation

Significant previous actions include the rate freeze introduced in the early 1990's by the NDP government headed by Bob Rae, and a rate freeze introduced a decade later by the Progressive Conservative (PC) government headed by Ernie Eves. An article from November 2002 puts into perspective the long duration of the rate freeze:

Sunday, March 19, 2017

ON Electricity pricing 2: the ugly other

The recent release of annual 2016 financial results for Ontario Power Generation (OPG) completed data requirements for updating one of my favourite, and I suspect most impactful, spreadsheets.

I was particularly curious to find out which generator was the lowest priced of them all in 2016.

By my measurements, it is Bruce Power.

While I was anxious to see the annual figures in this old format, what impacted me the most from the graphic is that 10 years ago there was some consistency in pricing. Since that time there's been some movement in public OPG's pricing of its traditional hydro-electric and nuclear assets, even less change at nuclear Bruce Power, but enormous changes in the average cost of "other Ontario" generation.

Explaining the changes required some explanation of the data, my methodology, and the changes in the composition of "other" generators. Upon creating the explanations, I realized I could improve my original spreadsheet. If you see some variations to my previous posts, it's because this is the improved version.

Saturday, March 18, 2017

ON electricity pricing 1: retail math and green tales

It's not uncommon to hear a claim made that green energy can't be responsible for the steep increase in Ontario residential electricity rates because it's only around 10% of the total bill. This post could demonstrate calculations using 10%, but it is nearer reality to start with 15% in demonstrating why the argument deceives.

I disputed some claims by Environmental Defence a month ago, but I've used their figures in calculating 15% of the total bill. I did this by simply adding "conservation" in the calculations - while the report I criticized underestimated the cost of solar and (less so) wind, it overestimated the cost of conservation. Together these 3 would have been about 0% of bills a decade ago (2006), and in 2016 they were about 30% of the global adjustment, 28% of all Ontario supply costs (by the ED reports numbers), and since ED has that supply cost as 54% of a residential bill, they claim about 15% of the bill. 

Let's ease into some primitive math using figures we already know. How much does 54% of your bill need to increase for the total to move up 15%?
0.15 divided by 0.54 = .28.
There's the 28% increase in supply cost I noted in ED's figures. There's an assumption, probably incorrect, that supply was always 54% of the bill, but I'll keep things as simple as possible: a 15% increase in the total bill, all other things being equal, required a 28% increase in costs.

As wind, solar and conservation added negligible cost a decade ago, it's worthwhile asking how much spending in these areas increased overall electricity generation cost (ignoring the rest of the bill). It's not 28%:
1 divided by 0.72 (which is 1-.28) = 1.38888....
Costs are increased by 39% when adding new spending that then equals 28% of the new total.

Monday, March 13, 2017

Not another Long-Term Energy Plan

The Minister of Energy will produce a Long-Term Energy Plan (LTEP) in the not too distant future. I've offered commentary during the planning period of two earlier LTEPs, in 2011 and 2014, but my advice this time didn't require complying with any official input period because it would be officially rejected anyway.

My advice on preparing 2017's Long-Term Energy Plan is simply this: don't.

I've been asked for thoughts on the new LTEP a couple of times, so I'll present some here primarily for the frequent readers of my work, including some authentic public servants, and hopefully also for a Minister of Energy - although probably not today's.

The primary reason for individuals to avoid the LTEP process is it's been a gimmick - a tool to present Ontario Liberal Party (OLP) policy to the electorate as if it was professionally and independently developed. The connection of professionally developed policy and elections began in 2007. The OLP had come to power in 2003 aided by displeasure over the handling of the electricity file by the previous Progressive Conservative (PC) government. It worked quickly in redesigning the sector to include a professional planning body, the Ontario Power Authority (OPA), which was tasked with producing an Integrated Power System Plan (IPSP):
  1. The initial IPSP was submitted to the Ontario Energy Board for consideration in August 2007, just in time for the OLP to campaign on the document for the October 2007 election,
  2. the first LTEP was put out early in 2011 to be the basis for an IPSP, and the OPA did have a draft IPSP on the minister's desk prior to the election in October 2011, although the OLP never did let that draft into public view,
  3. the next LTEP came out late in 2013, and served as the basis for OLP electioneering on energy in the election that followed in June 2014.
Participating in the development of an LTEP is participation in developing an OLP election platform.

The occupant of the office of the Minister of Energy is currently Glen Thibeault, signalling this LTEP will be as politicized as ever. Last May a report indicated then Minister of Energy Bob Chiarelli, "at loggerheads" with "Environment Minister Glen Murray ...over the possible effect [of carbon costs due to the Climate Action Plan] on electricity prices." At the time Glenn Thibeault was Murray's Parliamentary Assistant, so the introduction of Thibeault as Minister of Energy, in June 2016, was confirmation Chiarelli's concern for electricity pricing had lost the battle. During his first 6 weeks as Minister of Energy Thibeault directed the construction of a $1.4 billion hydro line to service 10,000 distant consumers and refused to recognize electricity pricing as a crisis.

Eight months later, Thibeault sat with the Premier at a press conference due to a crisis. It's unclear if the crisis was electricity pricing or their party's polling numbers, but the actions taken to resolve the crisis don't address the fundamental factors that drove prices higher - so it's probably the polling.

Ontario's next Long-Term Energy Plan is to be produced by a rookie minister three-quarters of the way through his first year in the office, during which he's moved from not seeing a problem with costs to burdening a future generation in order to offer 25% off electricity pricing to 2018's voters.

Wednesday, March 1, 2017

enough of experts: The End of the IESO

“I think people in this country have had enough of experts...
enough of experts from organisations with acronyms saying that they know what is best and getting it consistently wrong.”  -Michael Gove, June 3, 2016
Gove's "enough of experts" was one of 2016's most mocked phrases. Those considering themselves on the side of angels/experts ignored the nuance, but perhaps the public did not as Gove's side won the referendum to separate the United Kingdom from the European Union, and later in the year the ultimate establishment candidate failed to be elected President of the United States despite the obvious flaws of her opponent. When people stop to examine if they've had enough of experts from organizations with acronyms, like IESO, many discover they really have.

Perhaps the people have a point, and modern "so-called experts" are simply those who benefited from the current situation. As "the victors write the history", the profiteers win the title of "expert".

It has been an eventful few months for Ontario's electricity system mandarins.

On September 1st the IESO delivered an Ontario Planning Outlook (OPO) to a rookie Minister (of Energy) - a report they were directed to produce by the former, veteran, Minister of Energy. Surging electricity rates were considered the main issue in a by-election held the same day, in which the government lost a seat that had been a traditional stronghold.
Before September was over the government suspended its Large Renewable Energy procurement, justifying the decision with, "The IESO has has advised that Ontario will benefit from a robust supply of electricity over the coming decade to meet projected demand." 
Before November was over the novice Minister of Energy was sketching out themes for a long-term energy plan built upon market concepts the IESO frequently enunciates.

By the end of November the Premier had stood before her Liberal Party and referred to high electricity prices as "her mistake."

It's important to review what created the current situation in Ontario - as I've been doing on this blog - but it's also pertinent to ask "who" did this. An old saying implores commentary to "play the ball and not the player," but eventually everything is about people.

Tuesday, February 14, 2017

The failure of the global adjustment: a renewables story

I recently was asked about the cost of buying out one group of Ontario solar contracts. The microFIT (feed-in tariff) contract exposure I estimated at $3.9 billion. This is the eventual cost of all your neighbours' panels, but not the larger arrays, which I estimate will cost another $33.9 billion. Call it a $38 billion liability which matches the most famous liability in Ontario's electricity sector history: the $38 billion attributed to Ontario Hydro at dissolution in 1998 - liabilities attained in building almost all of the province's generation, its transmission infrastructure, and much of its distribution infrastructure.

The solar contracts that carry the $38 billion total will produce about 4.3 terawatt-hours (TWh) of electricity a year, which is roughly 3 percent of Ontario's demand.

This solar story is about the failure of the global adjustment mechanism.