Wednesday, July 1, 2015

Commodity cost of Ontario electricty up 25% in 2015's second quarter

While I haven't been writing much this summer, I have been following Ontario's electricity exploits in reading reports and running the numbers. Recent reports included coverage of remarks from the province's Energy Minister which, along with the most recent figures and the end of June, inspired me to put out a quick post.

Inflation was enormous this past quarter.
I expect the final global adjustment rate for June will be slightly lower than the estimate, but the quarter will still be up almost 25% over last year.


A lot.

I suspect an official explanation of the surge is not pending, This from a report that Ontario's leaders look to build on ol' Premier Peckford's awesome agricultural acumen:
While hydro rates will continue to rise, Chiarelli said consumers have seen the last of sharp increases that averaged about six per cent annually over the last eight years.
Perhaps he meant the increases are going to get so much higher "sharp" will fail to be an inadequate adjective?
The article with that quote was about a push to transfer costs from "Class B" consumers to an expanded "Class A" class that might include greenhouses, and a good chunk of the 25% increase is not from the cost of all electricity rising, but the share of costs transferred to lowly "Class B" consumers rising.

Breaking down the average costs for different consumer classes shows the overall rate movement is up about 15%. Ontario's largest consumers of power, so called "Class A" stakeholders, only saw increases of about 2%, and the exporters stakeholders group saw a decline of over 40%.

Class B covers a great deal of consumption in Ontario directly (businesses billed by their average hourly use plus the global adjustment charges), and it indirectly includes all regulated price plan (RPP) consumers (households and small businesses generally on time-of-use rates). Three months of class B level charges exceeding RPP rates means there is a shrinking variance account which will lead to higher charges when rates are set for November.

More cost pressures will arrive prior to November. If you missed Bruce Sharp's Invisible Gorilla when I first posted it, read it now if you wish to know why the trend is not your only enemy.

Addressing the 15% real cost increase, it equates to approximately $493 million, and my regular hourly tracking, and estimates of generation and costs (including embedded supply), is $478 million over the same period - which doesn't mean my estimates are right, but here's the changes I show in 2nd quarter supply costs from 2014 to 2015:
  • Nuclear $175 million up (likely OPG rate hikes from November)
  • Solar $166 million up ("wag" estimate - shameful lack of visibility from IESO on solar generation)
  • Hydro $119 million up (likely largely the result of regulating sites previously only receiving HOEP)
  • Wind $78 million up (not the windiest season)
  • Spending on gas dropped, in my estimates, over $50 million, and imports dropped over $6 million
Exports continue to shift enormous costs onto Ontario ratepayers. With the average cost/MWh for all consumer classes around $86.56, and exports fetching only around $12.80/MWh, the 5.9 million megawatt-hours of exports contributed about $435 million of liability to the global adjustment in the second quarter. Since Parker Gallant and I wrote on losses on exports in 2011, exports are 60% higher and revenues from their sale to traders likely 21% lower.

The first 6 months of 2015 contain the six highest months measured by average hourly net exports.
The average HOEP valuation of those year-to-date exports is $24.10/MWh.
The current average of regulated price plan rates is over four times higher, at $102/MWh.

note: quick spreadsheet for this post

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