Much ado about Ontario’s new export charge on electricity

Ontario’s Ford government directed the electricity system operation (IESO) to begin levying a $10/MWh ‘surcharge’ on electricity exports to the United States. The official news release states that, “At this level, the surcharge will generate revenue of $300,000 to $400,000 per day, which will be used to support Ontario workers, families and businesses.” All other factors holding unhanged, that would be true, but the other factors involved in Ontario’s electricity pricing make it extremely unlikely that the move will generate any revenue.

Ontario’s electricity exports have relatively recently become dominated by supply from natural gas generators, unlike the exports over the previous decade which were driven by an excess of committed, trivial-emission, supply from nuclear, hydro, wind and solar. One way the switch is visible is in the increased average cost of exports. The simplest measure of costs is the Hourly Ontario Energy Price (HOEP). The average HOEP for exports to the US over the past 3 years isn’t quite $40/MWh, but it’s close enough that the government can excused for using a $10/MWh surcharge to carry out a threat of a 25% increase.

Ontario's electricity system has not yet passed gas

Ontario's electricity system has not yet passed gas 1 Ontario’s electricity system includes generators fueled by natural gas. This is suddenly a hot topic as a campaign lobbying councils to say no to this type of generation moves through municipalities. The “no gas” lobbying appeals to a desire to reduce greenhouse gas emissions, exploiting predictions of increased use of natural gas in generating electricity in the province. This article will explore what entities have been the key drivers of emissions in Ontario’s electricity system, the credibility of the body being cited predicting increased generation fueled by natural gas and, if all goes well, convince the reader they are not willing to decrease global carbon emissions at any cost.

Background on the IESO’s pretend market

My previous post reconstructed a method to estimate losses on electricity exports out of Ontario. The measure does not indicate Ontario would be better off if it didn’t export its excess, but that Ontario would be better off with data discipline and consistent metrics capable of informing, and influencing, the managers of the system. Most years we pay more, per unit of electricity, and receive less from exporters of that electricity. It’s a bad trend, but not one Ontario’s electricity system has been structured to notice.

In Ontario the system is operated by the IESO. The IESO’s system includes what should be called a pretend market - it was called a hybrid market when introduced in 2005 after a collapsed attempt at a real market, but it’s deteriorated significantly since then. From a recent report:

...Over 98% of Ontario’s generation costs are controlled through either regulation or contracts, and even the fixed costs of most of the assets that trade on the market are contracted. As a result, less than 2% of the total system costs are actually price-exposed and influenced by the market (the dark blue area)

The creation of a market for electricity in Ontario revealed itself as a fantasy in four acts:

1. the freezing of the market price shortly after its birth in 2002 killed any chance of merchant generation getting built;
2. the introduction of the global adjustment mechanism (2005) separated the contracting of new generation from a need for revenue from sales into the market, and was accompanied by regulating rates for public Ontario Power Generation (OPG) nuclear and very large hydroelectric generators;
3. the introduction of contingency payments to keep coal generators operating after the market collapse of 2008, and,
4. Regulating the rates for the remainder of OPG’s hydro-electric facilities for 2015.

Site C'ing: BC's electricity adventure

Site C is a hydroelectric project in British Columbia that may soon to be cancelled.

The commentary surrounding the Site C project has been driven by political posturing, and a recent change in government is therefore likely to end, at least temporarily suspend, the project. The situation is worth commenting on from afar because while it's B.C. today, in another time and other places some different - and many of the same - people will be discussing the merits of big, public, baseload power projects and small, private, sporadic power projects.

"BC Hydro’s Site C Clean Energy Project will be a third dam and hydroelectric generating station on the Peace River in northeast B.C. It will provide 1,100 megawatts (MW) of capacity, and produce about 5,100 gigawatt hours (GWh) of electricity each year..."   BC Hydro

I have 4 questions I wish to address in discussing the future of Site C:

1. Will there be a need for capacity?
2. Will there be a need for energy?
3. What are the costs and benefits of a Power Purchase Agreements (PPAs) with Independent Power Producers (IPPs)?
4. What are the costs and benefits of publicly owned generation assets

While Site C would have a reservoir (9,300 hectares), the main energy store for the system would remain the Williston Reservoir (177,300 hectares) upstream on the same system. It's not surprising the site would generate 5,100 GWh annually as the implied 53% capacity factor[1] is essentially what the B.C. hydroelectric fleet achieves annually. [2]

Many of those claiming Site C won't be necessary comically follow that argument up with a list of alternative generation technologies. To evaluate the alternatives it is first necessary to determine the value Site C may provide.

B.C. currently has adequate supply - it's peak "load" occurred early in 2017, and the province was a net exporter of power during that peak (as it is during most peaks). BC Hydro's resource planning anticipates the ability to meet the peaks to become less certain, and disappear around 2023. The need for additional annual energy is predicted to come later. The difference between the ability to meet peaks and the ability to provide enough energy throughout the year is important.

Graphics from BC Hydro. Links to view source graphics: Capacity and Energy

Premier Wynne's neglecting business

"Small business optimism in Ontario took a nosedive in June."

So begins the Ontario section of the Business Barometer from the Canadian Federation of Independent Business (CFIB). The members of the CFIB have legitimate reasons to be pessimistic. In this post I will demonstrate the indifference to the needs of employers in the current Ontario government's electricity policies, with a particular focus on the unfairness of the so-called Fair Hydro Plan.

I recently spoke with Jocelyn Bamford of the Coalition of Concerned Manufacturers. The group has been in the press due to electricity cost concerns, but other concerns are newly presented to these employers, by the provincial government. I perceive 3 primary concerns:

1. Electricity
2. Cap and Trade
3. Labour costs

I'll begin with electricity. 

As context for the following information on rates in Toronto, the U.S. Energy Information Administration (EIA). American data shows U.S. residential consumers pay 86% more for a unit of electricity than industrial consumers, and about 20% more then commercial consumers. The definitions of groups don't work well in comparing to Toronto, but note small consumers pay, on average, the most per unit, and largest the least. 

On July 1st rates dropped for Ontario consumers charged on Regulated Price Plans (RPP), due to legislation dubbed a "Fair Hydro Plan" (FHP). I pulled average consumption levels for residential and other customers of Toronto Hydro from the spreadsheet accompanying the Ontario Energy Board (OEB) 2015 Annual Yearbook of Electricity Distributors, calculated average monthly figures and fed those into the OEB's Bill Calculator for Toronto Hydro customers. For non-RPP consumers (Class A and B) I found a Toronto Hydro presentation considering monthly figures for one consumer (on slides 19 and 20). There are some issues the presentation data, but the 18 cents/kWh for Class B consumers is what I expected.

Not only do "Class B" industrial users not enjoy preferential electricity pricing, they probably pay more than the average Toronto household. This is exceptionally rare. I can find instances of American utilities charging industrial consumers more than residential ones, but nothing for a decade among utilities the size of Toronto Hydro with one notable exception: Niagara Mohawk Power Corp. [1] Ontarians might be interested in knowing the territory of that utility includes the American cousins of Niagara and St. Lawrence river power plants (in Canada, Beck and Saunders). Legal cases have established set uses for the power produced by the big public hydroelectric plants in the New York. Regardless, it's been 6 years since even that utility saw residential rates lower than industrial ones.

Ontario electricity: How we got to here

It is the best of times, it is the worst of times.

The best: over the first five months of 2017 the reporting from Ontario's system operator (the IESO) indicates less than 2 terawatt-hours (TWh) of electricity has been generated from natural gas fueled facilities, with the remainder of 59 TWh generated on the IESO system coming from near-zero greenhouse gas emission sources. Since April 2014 coal has not been burned to produce electricity in the province. Emissions intensity of generation over the first 5 months of 2017 is approximately 14 grams of CO2 equivalency per kilowatt-hour (g CO2 eq / kWh), which is particularly low for a jurisdiction receiving less than 30% of its generation from hydro-electric sources.

Some things will be viewed as good, or bad, depending on the perspective of the observer: the last two months demand of IESO supply has been lower than in any month since 1994. If "conservation" is good, it would seem Ontario has it good. Supply is plentiful. So plentiful the IESO reported 19 per cent of of "wind energy produced in the province" was dispatched down (curtailed) in 2016, and Ontario Power Generation (OPG) reported 16% more hydroelectric generation could have occurred if not for surplus supply. The numbers on the surplus in 2016 are noteworthy: 7.6 TWh curtailed equates with 5.5% of the 137 TWh "withdrawn from the high-voltage transmission system by Ontario loads", but a further 21.8 TWh was exported meaning total supply (including imports) was 21.5% more than those loads required.

Some things are now viewed as bad, that were previously viewed by some as good. Regulated Price Plans charging residential, farms and other small business consumers what the government had longed planned to have them paying are suddenly being cut steeply through a debt scheme to be paid off whenever down the line. In order to keep cost hikes in line with previous projections the government already had to abandon first the collection of a Debt Retirement Charge and then the provincial portion of the Harmonized Sales Tax - some feel the lower government revenues a negative.

I've written often on the causes of higher rates in Ontario. I am inspired to do so again by the uncovering of documentation from a previously hidden Integrated Power System Plan in 2011. Shawn-Patrick Stensil, of Greenpeace, acquired the documents through a long Freedom-of-Information (FOI) process.

This post examines 3 long-term plans' annual forecasts of Ontario's electricity supply mix, with a focus on the capacity mixes forecast for 2016 compared to the current actual supply composition.

The current situation is not accidental.

This is how we got to here

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.

Ontario Energy Minister Previews Long-Term Energy Plan Themes

"I've really come to respect the enormous complexity of the energy and electricity system in Ontario."

Ontario's rookie Minister of Energy, Glenn Thibeault, is now confident enough of his grasp of the province's energy system that he unveiled themes for an upcoming Long-Term Energy Plan in a speech to the Empire Club:

1. Nature and style of procurement should be technology agnostic
2. Ontario's electricity market renewal/reform to provide better value
3. Empowerment of consumers

These are ambitious themes. Unfortunately Minister Thibeault didn't display an understanding of the institutional barriers to change, and he's going to need to confront the demons of the sector before meaningfully advancing any of these goals.

He seems to expect the barriers to deliver change.

Waste Deep in the Nipigon

Ontario increasingly wastes electricity.

Wasting electricity is nothing new. I have a recurring earworm originating in a 1970's Ontario Hydro advertising campaign; "wasting electricity turns people off." In the decades since we are often reminded we use the wrong light bulb, the phone charger wrongly, water stupidly, and on and on. But today's waste includes actually curtailing emissions-free generation, without consumer savings, simply because there aren't consumers that can use the electricity. Much of that waste is avoiding generation from the public hydro-electric generation that gave the former  public utility the name "Ontario Hydro." Ontario Hydro is gone, but it's generators survive under Ontario Power Generation (OPG). I present OPG's generators on the Nipigon river as an example of the waste occurring in today's IESO administered electricity system.

The Nipigon river was in the news this winter as a new and unique, to the climate, cable-stayed bridge heaved, closing the TransCanada highway to all traffic for days, and requiring heaving loads to drive around Lake Superior for a much longer period. The bridge design was selected, at least in part, as it "eliminates the need for in-water structures in the Nipigon River."

15 kilometers (km) away, the Alexander Generating Station is an in-water structure that first started producing power in 1930. The current capacity is 69 megawatts (MW).

2 km upriver of that is the older Cameron Falls Generating Station, with a capacity of 92 MW.

OPG's Pine Portage Generating Station

17 km upriver of that is the newest, and largest of OPG's Nipigon River system generators, the 144 MW capacity Pine Portage Generating Station. A substantial reservoir exists behind Pine Portage:

Forgan Lake, south of Lake Nipigon, was created when Pine Portage was built. Forgan Lake was named by a decision of the Canadian Board of Geographic names on November 3, 1949. The lake comprises Hannah Lake and Creek, Eva Lake, Pine Point, Devil Rapids, Victoria Rapids, Emma Lake and others.

Conceptually, the same water provides electrical power 3 times, with it's journey through all three generators controlled at Pine Portage.

I've been tracking hourly generation reported by the IESO since September 2010.[1] To eliminate the typical monthly variations over the course of a year, I've graphed the moving 12-month total of each of OPG's 3 Nipigon River generators:

The decline of production at the Pine Portage generating station is obvious, and so dramatic in recent months I asked OPG on twitter if they, "would like to comment on reduced production at Pine Portage GS before I speculate." OPG responded, "Pine Portage GS is available to run if required. Suggest you contact @IESO_Tweets for demand information."

Beyond expectedly high cost: 2015 Ontario Electricity Summary Part 3

During 2015 most Ontario consumers experienced a 12% rise in the commodity price of electricity. The figure is higher than the 8% average annual increase over the past 8 years, but follows the trend of rate increases that was predictable, and if predictions had been heeded properly, largely preventable. In this post I'll note the actions driving the cost of a kilowatt-hour for the common Ontario ratepayer 85% higher over the past 8 years.

In my first post summarizing 2015 figures, I graphed the annual increases in the global adjustment and accompanied declines in the costs recovered through market sales. From 2007 to 2015 the total cost of electricity supply in Ontario grew from around $8.8 billion to $13.7 billion. The move away from recovering costs through market sales is important, but to find the most basic cost drivers we should first find elements of the $4.9 billion supply cost increase, and then explain the rate escalators taking the 55% increase in supply costs to an 85% increase in the supply price for most Ontario ratepayers.

Unexpecting the expected.

If cost increases still surprise some, it must be that the topic is too complicated for most, because clear warnings have existed. Price forecasting took a huge jump in Ontario with Bruce Sharp's August 2010 report prepared for the Canadian Manufactures & Exporters (CME). Prior to the report the price speculation attached to an escalated push into renewables came from the push's instigator, George Smitherman: "We anticipate about 1% per year of additional rate increase associated with the [Green Energy and Green Economy Act] bill’s implementation over the next 15 years." [2]  Sharp's August 2010 estimates put the cost much higher - at about $30/megawatt-hour (MWh) for the renewables supply with additional cost for distribution and transmission charges due to the Green Energy and Green Economy Act. The provincial Long-Term Energy plans following Sharp's report seemed to adopt his numbers, and consequently his forecast altered the reality slightly. Nonetheless, 2015's enormous $9.96 billion global adjustment total is only 2% off the total Sharp predicted in a second report 4 years ago.

Up we went

In my second post summarizing 2015 figures I demonstrated my estimates, inclusive of cost for distribution-connected (Dx) supply, largely agreed with the planned expenditures attached to 2013's long-term energy plan. It is important to note the system operator [IESO] current reporting on 2015 totals is only for "supply connected to the high-voltage transmission [Tx] system." The IESO's Tx reporting, as I've previously communicated, provides an increasingly inadequate image of Ontario's electricity generation - and it's encouraging this is being recognized by sector commentators as diverse as Parker Gallant and Tyler Hamilton.
The following graphic demonstrates my estimates of all 2015 generation (including Dx) and related supply costs (including Dx and curtailment):

Calculation exclude other costs included in global adjustment (such as conservation spending". See footnote 1 data.

The IESO's failure to develop reporting on generation from contracted supply within local distribution networks is now missing reporting on about 10% of Ontario's supply costs - mostly attributable to solar panels.

2015 Ontario Electricity Data Summary Part 2: component costs, and cost shifting

this post follows 2015 Ontario Electricity Data Summary Part 1: the basics

The electricity sector data widely communicated by the system's operator (the IESO) is increasingly inadequate for analysis of cost and demand trends in the province. This post needs to utilize more obscure data, and the creation of some data through estimates, in order to demonstrate the causes of overall higher prices and the shifting of costs to the smallest consumers of electricity. 2015 continues a trend of rising overall electricity costs, and the increases are amplified by 50% for small consumers.

Consumers can be broadly grouped into three groups: exporters, Class A and Class B. In 2015 a new website appeared that does provide a quarterly report indicating the much different pricing for Class A consumers ("large electricity consumers"), and all other domestic consumers - Class B.
Up to the end of the September the total pricing for the classes was quite different: Class A had averaged $6.24 cents per kilowatt-hour ($62.40/MWh), which was 37% lower than Class B's 9.89 cent/kWh average.

To understand the cost drivers it's useful to first examine the difference between the forms of generation the IESO considers "Ontario Demand", and the metered consumption of Ontario consumers.

The IESO provides, upon requests, figures for "consumption" by the consumer classes defined by the global adjustment mechanism/s. With these figures, and the breakdown of the global adjustment totals by class A and class B published by the IESO, it is possible to recreate the reported average commodity rates. The widely cited "Ontario Demand" refers to demand for supply from transmission connected (Tx) generators. Other generators are connected within distribution grids (Dx). Consumption figures for December won't be available until after the global adjustment totals are finalized in mid-January, but we have enough data to estimate 2015 and demonstrate that over the past 5 years "consumption" in Ontario has gone from being less than "Ontario Demand" to exceeding it.

The change in the the difference between Tx generation ("Ontario Demand") and consumption means that generation is increasing within distribution (Dx) networks. It should be expected that Dx generation data be reported along with Tx data to properly communicate component supply costs.

2015 Ontario Electricity Data Summary Part 1: the basics

I'm hoping to produce 3 posts for the new year. This one will be more familiar for long time readers as I try to keep it constrained to data that is freely and widely available. A second post will use my estimates of additional data to provide a fuller illustration of that state of Ontario's electricity sector in 2015, and the other will hopefully be more disruptive, connecting data to provincial, national and international events and personalities.

Ontario's simplest electricity data is hourly data from Ontario's electricity system operator (IESO) for demand, imports, exports and Hourly Ontario Energy Price (HOEP). Using only this hourly data annual "Ontario Demand" is indicated as lower than it's been since the market opened in 2002 - and using other data available on the IESO site the demand is lower than it's been for over 2 decades.

Curiosity took me back to a graphic in my first blog post, in 2010, which confirmed it has been a full quarter of a century since Ontario's generators produced less than the 137 million megawatt-hours (MWh) the IESO shows as "Ontario Demand" in 2015.

Ontario Generation is calculated, in the graph above, from the base IESO data as "Ontario Demand" plus "exports" less imports. As that generation exceeded provincial demand by more than ever in 2015, it's not surprising the weighted average market price (HOEP) set a record low at $23.58/MWh.

Record low pricing was accompanied by record high exports. Valued at hourly rates (except when negative after the banning of negative priced exports) revenues from exports look to have been 56% lower than in 2008 - the previous record export volume.

Losing time: everybody can't win Ontario's Electricity game

November's main electricity commodity rate in Ontario averaged $123.54/MWh, a full 10% higher than the previous record price. This post examines why.

Demand in November was very low, but almost identical to demand the previous month. The main electricity rate in Ontario is the Class B commodity rate comprised of the weighted Hourly Ontario Energy Price (HOEP) and the Class B global adjustment rate. It rose 23% from October to November. This makes a comparison of October and November very compelling.

The rate was the highest because data shows Ontario spent more on generation, and whatever else the system's operators felt related to generation, than any previous month.

There's been a lot of words about Ontario's electricity costs following the latest annual report from the Auditor General of Ontario, most from men in Ontario's electricity establishment claiming the female Auditor was unfair in noting the growth of the global adjustment. Today I am looking at the global adjustment only to estimate the total spend on electricity generation - and whatever else the system's mandarins feel is related to electricity generation - each month.


The graph's message is clear: total supply cost is rising. In November, Ontario spent more on electricity supply than ever before, despite demand levels near lows. Note the chart runs 49 months: November 2015 total supply cost is 53% higher than November 2011, while "Ontario Demand", as defined by the IESO, is down.[1] I don't want to dismiss the fact the price increase is seen entirely as a rise in the global adjustment, as that has very important cost implications in distributing system costs disproportionately across consumer segments. One result of growth entirely being in the global adjustment is the rise in the main, Class B, commodity rate is 77% over the 49 months - 24% higher than the increase in total systemic supply costs.

Why did the system's costs rise $240 million from October to November?

A Sober look at Ontario’s 2011 Electricity Figures

"He uses statistics as a drunken man uses lamp-posts...for support rather than illumination."
                                    -Andrew Lang (1844-1912) Scottish poet, novelist and literary critic

Ontario’s Independent Electricity System Operator (IESO) issued a news release on January 6th titled,“Composition of Ontario’s Electricity Supply Mix Continues to Change: Consumer Response Supports Reliability.” The introduction posits there were three trends highlighted in the data; “increasing production from renewable resources, reduced dependence on coal-fired units, and a more active role for consumers in managing their consumption.”   Not exactly the 3 trends I'd look for

• The 'customers' most active in curtailing peak demand are businesses, as Parker Gallant and I demonstrated in a recent article. Many of them pitch in by closing up altogether;
• Use of coal-fired generation is reduced because the periods we need it are down, but at peak demand we relied on coal-fired generation (I wrote on that here);
• There is no trend to increasing production from renewables in the IESO data.

There is a brief uptick. From only the data presented by the IESO, summing up hydro and wind the numbers go from 39.7 TWh in 2008 to 40.4TWh in 2009, 33.5TWh in 2010, and then we have a singular point as an uptick in 2011, to 37.2TWh. While up on a dry 2010, the total renewables figure is unimpressive against a longer trend. In the past 22 years, renewables have infrequently produced less output than in 2011.

Premier McGuinty Links Kindergarten and Electricity Policy

As our federal government is cited for contempt of Parliament, it is notable that our provincial government also seems to be lacking in respect for the provincial legislature.

From the Hansard for March 8^th (heavily edited to try to get just the question, and answer, and the two follow-ups):

Mr. Tim Hudak:

“...Premier, exactly how much higher are hydro rates going to go to pay for your mismanagement?”

Hon. Dalton McGuinty:

“... if he’s truly committed to ensuring that we keep costs down for Ontario families, then he’s going to want to take the opportunity right now to commit to full-day kindergarten for all four- and five-year-olds in Ontario.”

The Current and Future State of Electricity, as the OCEB comes to Ontario

Big news yesterday as the Finance Minister Duncan announced the Ontario Clean Energy Benefit (OCEB), which will bestow a credit of 10% of our bill upon us. The release by the government indicated the move to cleaner energy has been expensive, and would be so for another 5 years, so this should alleviate some of the pain being felt due to this noble endeavor; "Over the next five years, residential electricity prices are expected to rise by 46 per cent, after which price increases are expected to moderate as Ontario will have largely completed the transition to a cleaner, more reliable system."

I'm skeptical. Somebody said if you want to know where you are going, you need to know where you are, and where you've been. Seems like a good time for a big picture overview, a review of the current price drivers on the consumer side, on the industrial side, and to take stock in whether the government has any credibility in implying there is a planned destination, and a plan for arriving at it, in 5 years time.