Tuesday, March 29, 2011

Note to the OEB: Benchmarker, Benchmark Thy Self

I was intrigued by the news that Chancellor Merkel created an ethics commission to study the use of nuclear power in Germany.  It’s an interesting challenge, and not just for nuclear energy.   Merkel’s creation of an ethics commission to investigate nuclear generation struck me as a second cynical act (the first being simply removing older reactors from service for 3 months).  Voters in regional elections weren’t inspired, as her party lost power this past weekend anyway. 
The morality issue seems increasingly involved in electricity policy everywhere.  My main focus is Ontario, and I am a fan of an appropriate amount of nuclear generation in a supply mix.    CBC news just said the government of Japan is now considering putting TEPCO out of it’s misery, and nationalizing.  That could be interesting.  I noticed yesterday some flak in the American industry about demonstrating their structure, of private ownership with public oversight, provided the safest, and cheapest, industry.
Here at home we have a regulator deciding against the public generator being paid 6% more - for not meeting private sector measurements from a recent benchmarking effort. 
The OEB’s ruling March 10th rejected Ontario Power Generation’s request to raise rates, primarily on the sections of the application for nuclear rates.  Most of the ruling (I skimmed it until I figured out the basis of it) is based on benchmarking data.  I like data, but there is an ethical use of data (which is to have knowledgeable people utilizing it to make better decisions), and there is an unethical use of it.  The OEB is not a nuclear plant operator, and wasn’t the appropriate body to fiscally restrain OPG having decided, “there was room for a potential reduction of 48 FTEs (28%) in the Radiation Protection Function, of which 13 FTEs could be eliminated altogether."   The regulator attacked spending on the Radiation Protection Function in a ruling released one day before Fukushima’s reactors lost cooling ability.  I’m OK with OPG erring on the cautious side, whether or not the private businesses are doing so.
This benchmarking can aid the OPG management in managing OPG – but the OEB should be looking at other benchmarks, related to pricing fairness, in their rulings.
I have collected the figures from Bruce Power’s reporting, OPG’s reporting, and calculated how much was left[i].  While the “Other” category is a figure I don’t have high confidence in (these figures should be a little higher than warranted[ii]), I am confident the methodology is consistent, and the trend for pricing is as shown:

OPG started off as the low-cost producer, and is increasingly lower cost than the “Other” category.  If you were the Ontario Electricity System, what would you be buying more of? 
These are the figures, for production I have a very high degree of confidence in:

We are buying more and more of the increasingly expensive stuff.  How’s that benchmarking protecting the Ontario consumer?
Even with the higher, and more rapidly escalating, charges for new private supply, we don’t have an honest reflection of the extra cost for the new sources of electricity.  To get that, we need to look at residential pricing, which would include the cost of the smarter grid to facilitate the purchase of expensive supply.  I’ve tracked my billing data, and it shows the most rapidly escalating portion of the bill is the delivery charge, which has gone up about 3 cents/kWh since 2005[iii]:

To put an exclamation mark on the obscenity of Ontario’s current regulated pricing regime, the least valued generation source, in the eyes of the OEB, is hydro (regulated at under 4cents/kWh) – much of that hydro being the cleanest, and first choice, for peaking.  
This is an intentional devaluation of public assets.  The approximately $1.6 billion made by reselling Ontario Hydro’s output, bought at the rates regulated by the OEB, at the higher wholesale rate, determined by the IESO, is transferred to the private wind, solar and, primarily, natural gas generators.   These public bodies should start serving the public.

[i] My spreadsheet is here
[ii] The IESO figures for OEFC-NUG’s, in the global adjustment, include, I think, some charges related to writing off coal units that are being retired early.
[iii] I calculate rates on metered usage, so the line loss factor is taken back out – my usage is down about 60%, which could make the comparison distorted


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