Not Honouring Ontarians: Wynne's Green Energy Contracts

I sent some numbers to Parker Gallant the other day, along with a question on political donations, and within days the prolific Mr. Gallant produced, "Constraining wind power in Ontario: Making your head spin..."

Before I introduce the figures behind that column, I'll provide some background on the Ontario Liberal party's approach to contracts.

Another election campaign in Ontario is underway, and some of it is a repeat of the previous election campaign; the Progressive Conservatives (PC) claiming they can better control costs and the incumbent Liberals claiming the PCs will renege on contracts. Contracts bind participants to obligations: the Liberal government has failed to protect the people's side of green energy contracts a couple of times since 2011's election - where there is a benefit to their party to do so.

First, there was the Korean Consortium (KC, aka Samsung). In April  2013 I wrote on how they weren't meeting contract requirements, or investing significant amounts of their own funds.  The KC deal, which PC leader Tim Hudak had stated, in 2011, he would kill, was re-written 2 months after I pointed out the Koreans weren't honouring the contract, but not killed.

The government claimed savings of $3.7 billion - money that they'd campaigned on not being possible to save in 2011.  Worse, the contract renegotiated - because the proponent had not kept it's initial contract commitments - guaranteed the KC a base price of 29.5 cents per kWh for the still contracted solar capacity; that's a price far exceeding what it would cost for, as one example, the public generator to provide grid-scale solar capacity.

So it looks like I saved Ontario $3.7 billion, but I could have saved far more if the Liberals had the decency to cancel a contract because contract obligations were not fulfilled by the proponent - instead of providing expensive plums to the negligent proponents in order to avoid having Tim Hudak be shown to be correct.

Hudak's numbers and the MSM's biased suspicion

I understand fact-checking political statements but let's be fair...

I'd read Maclean's "Infographic: Where the jobs are in Ontario", and was struck by a couple of things in the opening paragraph:

Ontario PC leader Tim Hudak is staking his electoral changes [chances] on a promise to create one million new jobs if elected, even while cutting 100,000 public sector positions. That may be a challenge since the provincial economy has created just 667,000 new jobs since the Liberals came into power in 2003. Nearly half of those jobs have been in the public sector.

Two things:

1. what is Hudak staking his electoral chances on? 
2. what message might the press be broadcasting? 

I think THE message here is that for a decade every time somebody got a job in the private sector another person was hired in the public sector. I'm going to discount the possibility those private sector jobs paid spectacularly well, and assume this is a big part of the $130 billion increase in Ontario's debt during the same period.

Ontario's electricity supply outlook is the worst in North America

Early last December Ontario’s Liberal government released their latest “Long-Term Energy Plan” (LTEP). The document indicated Ontario currently has sufficient capacity to meet “North American reliability standards,” unlike a decade earlier when the Liberals came to power in Ontario.

In 2004, Ontario’s supply outlook was not sufficient to meet North American reliability standards. Today’s margins are above required levels. This reflects the strong supply of electricity the province is enjoying. Ontario has gone from a deficit of 3,800 MW in 2003 to a comfortable surplus in 2013.

NERC 2013 Long-Term Reliability Assessment, page 5

North American reliability standards are the domain of the North American Electric Reliability Corporation (NERC). Within a week of the release on the LTEP in Ontario,NERC released its 2013 Long-Term Reliability Assessment, which noted, “In the summer season of 2018, the NPCC-Ontario Anticipated Margin falls below the NERC Reference Margin Level.”

4 years is a very short time for developing reliable supply.

Ontario supply was tight in 2003, but work was underway for more; ~1250MW of capacity returned to service by the end of 2003, ~1400MW in 2004, and another 500MW in 2005. [1]

The firm supply Ontario added from 2003-2005 is different than the capacity additions planned for the next few years, which is primarily from variable intermittent energy sources (vRES); wind and solar.

Zombie docs living in Ontario's zombie budget

The Ontario government delivered its budget on May 1st; the NDP announced they would not be supporting the government any longer on May 2nd, and the Premier threw in the towel putting Ontario into an election campaign.
The budget may never have been intended to be practical, but created solely to be a "zombie" document to reference during a campaign.

bad data illustration from page 134 of the 2014 Ontario Budget

I was surprised to see the budget repeated a graphic based on the same Hydro-Quebec (HQ) report I debunked in picking apart Environmental Defence's lousy report on Ontario Energy Costs.

The HQ report graphs values of 12.475 cents/kilowatt hour (kWh) on a 1000kWh bill) for Toronto [1] and 12.391 cents/kWh for Ottawa.

I don't mean to criticize the HQ report, although those are the two figures I know best in it and they are wrong.

I do mean to criticize the former Ontario government that cynically included numbers from HQ in an Ontario budget.  While I'm at it, I'll criticize their base too - apparently the urban voters favouring the Liberal party can't figure out what they pay for electricity, and that it is not what their government tells them Quebec's public electricity company reports they are paying.

Wither the I in the IESO: politics hit May's global adjustment estimate

It's called the IESO, for Independent Electricity System Operator, but it hasn't looked independent for some time, and never less so than this week.

On the afternoon of April 30th the IESO posted its "2nd Estimate" for April's Class B Global Adjustment (GAM) rates, and the "1st Estimate" for May's.  I noted a month ago how bad April's 1st estimate was; it was honestly bad.
May's first estimate of the GAM looks to be the opposite - dishonestly alright - and that's indicative of a bigger problem.

The budget released May 1st restated the Liberal government's desire to, "consolidate two electricity agencies — Ontario Power Authority (OPA) and the Independent Electricity System Operator (IESO)." A former bill to merge the two entities was introduced in 2012, but died when former Premier McGuinty prorogued the legislature and fled to Harvard. With the omnipresent threat of consolidation, there is not only the danger of a power struggle within Ontario's several electricity sector bureaucracies, but a danger that struggle will be won by sycophancy, and not capability nor competence.

The 1st Estimate

The public is not privy to the actual numbers used in calculating global adjustment estimates, but we do know the final figures, and the process is public.

pg 37 of  Market Manual 5, Part 5.5: Physical Markets Settlement Statements

Assuming consumption doesn't change a whole lot from month to month, we can use the rates ($/MWh) to estimate the 1st estimates. [1]

As an example:
last September the first estimate was a record $87.18/MWh.  That was close to the $62.45/MWh final GAM for August plus the difference between that final GA for August and the low 1st estimate ($40.13).  Ontario's record commodity rate, comprised of the Hourly Ontario Energy Price (HOEP) and the GAM, is $95.13(Feb. 2014), so the $87+ first estimate of the GAM component attracted some press attention at the time.