Ontario's Legislated Terribly Energy Plans

"The law is an ass," Dickens wrote - anticipating the Electricity Act in Ontario.

In writing on how the IESO's stakeholder-infested processes are working to prevent costs from being controlled I stated:

There are external, legislated, and political reasons for the IESO’s focus on efficiency, which seem to corrupt all analysis coming from it.

As with the global adjustment debacle, the architect of the dysfunctional law is Dwight Duncan - although neither vehicle would likely exist in their current form if he had remained as minister of energy long enough to see the abuse of ratepayers his policies have facilitated.

Prior to 2005, the purposes of The Electricity Act were:

(a) to facilitate competition in the generation and sale of electricity and to facilitate a smooth transition to competition;
(b) to provide generators, retailers and consumers with non-discriminatory access to transmission and distribution systems in Ontario;
(c) to protect the interests of consumers with respect to prices and the reliability and quality of electricity service;
(d) to promote economic efficiency in the generation, transmission and distribution of electricity...

I've added some emphasis to illustrate changes in the stated purposes of the law that took effect in 2005 - changes which removed "facilitating competition" as the main purpose of the act and demoted other priorities behind requiring central planning, conservation, demand response, and the promotion of "cleaner energy":

a) to ensure the adequacy, safety, sustainability and reliability of electricity supply in Ontario through responsible planning and management of electricity resources, supply and demand;
(b) to encourage electricity conservation and the efficient use of electricity in a manner consistent with the policies of the Government of Ontario;
(c) to facilitate load management in a manner consistent with the policies of the Government of Ontario;
(d) to promote the use of cleaner energy sources and technologies, including alternative energy sources and renewable energy sources, in a manner consistent with the policies of the Government of Ontario;
(e) to provide generators, retailers and consumers with non-discriminatory access to transmission and distribution systems in Ontario;
(f) to protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service;
(g) to promote economic efficiency and sustainability in the generation, transmission, distribution and sale of electricity...

The stated purposes in the current version of the law are similar, although an "a.1" is added "to establish a mechanism for energy planning." This mechanism connects the IESO's planning outlook to long-term energy plans from a Ministry including energy.

The changes to the act made back in 2005 explain the IESO's lack of competency in operating a competitive market and related abandonment of the main cost savings promise from Ontario's last long-Term Energy Plan. Which brings me to putting the IESO's newest publication, the first Annual Planning Outlook, in the context of the current Electricity Act's "mechanism for energy planning."

Records for wind and solar output on same day fail to reduce Ontario emissions.

Friday February 21, 2020 saw 2 record hourly production records on the IESO-controlled grid (ICG):

• 426 megawatt-hours (MWh) from solar in hour 14 (1-2 pm) and,
• 4,393 MWh in hour from industrial wind in hour 19.

Including hydro, and embedded generation (not on the ICG), production from renewables could have climbed above 10,000 MW in hour 11 and stayed above that level until hour 23.

That's the good news.

The bad news is the system operator didn't reduce natural gas-fueled generation from noon to 9 pm despite its Hourly Ontario Energy Price (HOEP) remaining below the cost to fuel generation from gas.

For the 10 hours following the HOEP dropping to $0, gas generators produced an average of 1,655 MW. According to the IESO gas generation totaled 9.6 million MWh in 2019, or approximately 1,100 megawatts per hour. Yesterday, as records were being set for renewables, contracted supply being curtailed, electricity being exported below the cost of even the fuel for gas turbines, generation with natural gas was 50% higher than the average from 2019.

Which begs this question of the IESO: "What were you doing?"

The threat/promise of more electricity from natural gas in Ontario

A presentation during the planning period of the IESO’s recently released Annual Planning Outlook (APO) included this line:

“Over time, production from [Ontario’s gas-fueled generator fleet] could exceed the utilization levels expected from those facilities (generally 40-60% capacity factor for [combined-cycle gas turbines]).“

The low utilization of generators contracted on capacity terms is something I tried to report on when writing of Available low-cost electricity not utilized in Ontario. We have been very far from 40-60% capacity factors over the past decade, and a breakdown of cost should demonstrate why that’s relevant to controlling expenses.

An outlook against lower electricity costs

Can anything be done to reduce the costs of electricity in Ontario?

I get the question more frequently lately.The answer is “yes". Something, theoretically, could be done. 

In reviewing 2019’s electricity figures I estimated the average cost of procuring one megawatt-hour (MWh) of supply was $94, and showed how that became $126/MWh for most Ontario consumers. That is an indication there’s plenty of room to find savings, so much room that there’s a more important question than how to reduce costs.

It's also possible to prevent costs from falling. Having written on excess supply, cost shifting away from unimportant consumers to influential "stakeholders", high contract costs, and may other issues for nearly a decade, I'm not inspired to address the question of what could be done - the more interesting question I will address is, "What is being done to prevent costs from falling? 

The current government was elected on a platform that included the claim they’d, “Cut hydro rates by 12% for families, farmers, and small businesses.” Over their first year and a half in office there’s been little to inspire confidence they’re capable of delivering on that promise. A recently released provincial finance report noted the cost of electricity programs ballooning another $1.5 billion as they head towards $5.6 billion for 2019-20 (ending March 31). The hit on the provincial treasury is largely due to subsidies preventing consumers on regulated price plans (RPP) from seeing rates increase on their electricity bills.

The 12% cut in the Progressive Conservative’s platform was in addition to the [un]Fair Hydro Plan (FHP) of the previous Liberal government - which promised (and did) reduce bills 25% in the present by deferring costs to the future. I developed a great contempt for that plan, but I could also view it as an unpleasant distraction. The Liberal government did deliver a long term energy plan (LTEP) that promised cost controls through improving what is whimsically referred to as Ontario’s electricity market.

Market Renewal will ensure the province has appropriate sources of electricity at the lowest possible price. This initiative could save Ontarians up to $5.2 billion over a 10-year period. -Glenn Thibeault, Minister’s message introducing 2017 Long-Term Energy Plan, October 2017

The plan - the long-term energy plan - was to improve the market for consumers.

Then, the nominally Independent Electricity System Operator (IESO) consulted stakeholders/insiders. In 2 short years they’ve reduced potential savings to consumers - which might be considered costs to the IESO’s stakeholders/insiders- by over 80%.

The Market Renewal Program is an important piece of the equation for us. With the approval of the high-level designs of the energy work stream, and a business case that estimates we can achieve $800 million in net benefits over the first 10 years alone, we’ve built a very strong foundation for change. - Peter Gregg, IESO President and CEO, November 2019

A $4.4 billion drop in the promised decadal value of market renewal, in under 2 years, is only one way the IESO is maneuvering to prevent a reduction in spending on electricity supply in Ontario. Others include inflating demand forecasts, lowering performance expectations from existing generators, raising capacity reserve desires, and exaggerating the threat of rising emissions.