Review of Annual Ontario Electricity Data

It's that time of year. This will be the tenth time I've produced a post on year-end electricity data. In my first such post I quoted the IESO's release on data for 2010:

"The cost of power in 2010 was 6.52 cents per kilowatt hour (kWh), as compared to 6.22 cents/kWh in 2009. This cost includes the average weighted wholesale market price of 3.79 cents/kWh and the average Global Adjustment of 2.73 cents/kWh (preliminary)."

It's a little higher than that this year. A similar sentence for 2019:

The [class B] cost of power in 2019 was 12.63 cents per kilowatt hour (kWh), as compared to 11.51 cents/kWh in 2018. This cost includes the average weighted wholesale market price of 1.8 cents/kWh and the average Global Adjustment of 10.8 cents/kWh (preliminary).

The prices aren't strictly comparable for two reasons, but for most consumers the difference will still be significant.
The numbers are nominal, but there was little inflation in Ontario over the decade (approx. 18%, and 1.85% in 2019) so the real "cost of power increase" for most consumers was still 65% over the decade, and 7.8% last year, which means last year was worse than average!
The "class B" distinction is necessary as two - or three - distinct consumer classes were created over the past 10 years.

I'll look at three distinct areas of supply: the reported generation figures on the IESO-controlled grid (ICG), distributed generation, and curtailed generation (which is supply Ontarians will pay for but was not accepted onto the ICG). I'll look at costs by the fuel, or supply type, as the IESO reports for generation. I'll look at "the cost of power" by consumer groupings, and provide an average cost of power. Most of these figures are estimated, and even figures produced by the IESO will often differ from one another due to minor differences in the origin of the data.
I will not generally try to reconcile my estimates to figures reported by the IESO due to limiting my time - and not agreeing with the IESO on discrepancies I've found in the past. Please interpret numbers as illustrative, and not gospel. This should be particularly obvious for cost break-downs which are not available anywhere else: most contracts are private and rates are estimated as best I can. I will briefly discuss the IESO's monthly global adjustment component cost file, which is one place you could find some confidence in the quality of my estimates, and/or their accounting.

I'll try to maintain a focus on providing a basis for analyzing opportunities to reducing the cost of electricity in Ontario in preparation on a future post on impediments to cutting costs.

A first metric for those who see little opportunity for cost cuts:

The average price paid to a supplier for a single megawatt-hour (MWh) was less than $94 (or 9.4 cents per kilowatt-hour), 35% below the average rate paid by Class B ratepayers. 

Now for the many numbers needed to make that conclusion.

View these estimates with Google Sheets

OPG's nuclear facilities are now the major cause of increasing electricity costs

Ontario rates are on the rise again, after going largely unchanged for the final two years of the previous, Liberal, government. Many consumers won't realize the 7% increase during the first half of 2019 as the impact is hidden by subsidies, which have grown to about $4 billion a year in the recent provincial budget. In stark contrast to past years, this year it is publicly owned Ontario Power Generation (OPG) nuclear units driving the increase. I estimate all supply costs up a little over $400 million (nominal) during the first half of 2019, while the cost of OPG's nuclear output is up a little under $500 million.

This article is going to be about electricity rates - promised and realized. It will touch on too many complex areas I've spent too little time on to understand fully, but enough to understand Ontario’s rate-setting process cannot deliver reliable pricing on regulated nuclear supply.

Ontario's government announced it was "moving forward with nuclear refurbishment at Darlington Generating Station," in January 2016. That station has 4 reactors - the last 4 new-builds in the province, with the last of those entering commercial operation 25 years ago.

The average cost of power from Darlington nuclear units post-refurbishment is estimated to range between $72/MWh and $81 MWh, or 7 and 8 cents per kilowatt hour.

The low end of the estimate, $72/MWh, is what Ontario's consumers were paying for supply from OPG's nuclear power plants at the time of the announcement in 2016. Today we are paying $89.70, which could generously be considered as just above the high end of the estimate (adjusted to real 2015 dollars). This is somewhat explained by the inability of the regulator, the Ontario Energy Board to set a rate in 2017, but another 6% rate hike is already baked in for 2020, so we will be back at the high end of the estimated range in 2020 regardless.

It is not, however, accurate to blame the recent rate escalation on the refurbishment project.

Ontario government takes action to reduce electricity costs

Ontario's Minister of Energy, Northern Development and Mines (a.k.a. Energy) announced actions addressing electricity sector costs on Thursday. I summarized points from viewing the Minister announce the changes on Twitter:

1. moving conservation cost from ratepayers to taxpayers is moving costs - not reducing costs;
2. reforming the [Ontario Energy Board] is nice, but regulatory costs are neither a big portion of bills nor what drove rate increases;
3. showing cost of [un]Fair Hydro Plan is also a positive - but also doesn't address costs.

While I was initially underwhelmed by the changes described by the Minister, having now reviewed the extensive material posted due to yesterday's announced changes I need to correct the misinformation I posted, and be more appreciative of some of the other changes.  

The main news release is titled, Ford Government Taking Bold Action to Fix Hydro Mess, and it shows I misinterpreted action on conservation as simply moving costs from ratepayers to taxpayers:

Find savings of up to $442 million by refocusing and uploading electricity conservation programs to the Independent Electricity System Operator (IESO)

The savings referred to are either efficiencies, in uploading programs from local distribution companies (LDC's) to the system operator (IESO), or program revisions. This is much clearer in reading a Ministerial Directives delivered to the IESO

Trends in Ontario Electricity rates by Consumer Segments

The graphic illustrating trends in electricity pricing in Ontario will be more impactful with some explanation. First I'll deal with the terminology housekeeping, allowing for some discussion of the trends.

Definitions/Terminology

• Regulated Price Plan (RPP) consumers are most residential and small business consumers whose rates are set by the Ontario Energy Board (OEB), essentially on a forecast of supply costs over the next 12 months;
• Class B consumers pay the flow-through cost of supply on their monthly bills (although usually as an estimate);
• Class A consumers were the very largest consumers in the province - as of 2011 they could lower their bills by lowering their consumption during 5 peak hours;
• Exporters pay only a real-time market price (RTP) for supply.

The Class A commodity rate is calculated as the statistical average Hourly Ontario Energy Price (HOEP) plus the average global adjustment for the class (total Class A charges divided by consumption). The Class B commodity rate is calculated as the weighted average HOEP plus the average global adjustment rate for the class. The global adjustment in my estimates differs slightly from figures reported by the IESO as global adjustment figures are publicly disclosed at gigawatt-hour level (GWh), while I expect the IESO calculated at a finer level of detail.

Exporters do not pay the global adjustment, and they settle at the real-time price (RTP) for particular jurisdictional interties, not the HOEP. As I only have RTP data from 2010 on, the figures from 2005 to 2010 are based on the HOEP which effectively underestimates the average cost. From other data (including this) it is known the actual average intertie-specific RTP value realized on exports was about 10% higher than the HOEP value during those years.

Two average rates are shown: the average for Class A and B (or, prior to the introduction of the classes in 2011, simply the Ontario average) is shown as the "Average Ontario Commodity Rate", and the "Average Commodity Rate" which also includes exports. Those averages are all weighted according to the consumption of each consumer class. Notably, RPP rates are not in the average calculations (as they should simply be a different type of Class B rate).

Discussion and Analysis

Saving TransAlta: a demonstration of Canada's Clumsy Carbon Pricing

Canada’s Prime Minister announced aspects of a carbon pricing policy again last week. This time there were some details on how much more people in four provinces would pay for fossil fuels, the estimated revenues from those charges, and what is to be done with those revenues. Subsequently there’s much commentary on the content of announcement, and I’ll offer some more, but my attention was returned to a topic I prepared to write on quite some time ago: the impact of government actions in Alberta on a company owning much of the coal-fired generation in its province. I’ll use that company to demonstrate why I refer to the allegedly national policy as Canada’s Clumsy Carbon Pricing (CCCP).

The government’s website contains a section on “Ontario and pollution pricing” [sic] that describes the two main aspects of CCCP:

The federal carbon-pollution [sic] pricing system will be implemented in Ontario, under the federal Greenhouse Gas Pollution Pricing Act with the following features:

• For larger industrial facilities, an output-based pricing system for emissions-intensive trade-exposed industries will start applying in January 2019....
• A charge applied to fossil fuels, generally paid by registered distributors (fuel producers and distributors), as set out in the Greenhouse Gas Pollution Pricing Act, Part 1, will start applying in April 2019…

Because the 2019 pricing for provinces not deemed to have met federal pricing requirements is only now being finalized it will not be effective January 1st, but April 1st, while the Output Based Allocations (OBAs) that are still not finalized are still to be effective four months prior to that - on January 1st.

Clumsy - at best.

Ontario Electricity: Backgrounder and suggestions for Premier Ford

Ontario has a new Premier. Congratulations to Doug Ford who, despite my recent quiet, is receiving a lot of free advice on addressing costs in Ontario's electricity. Some of it good, but much of it not only bad, but based on flawed views of how Ontario's residential and small business consumers came to experience rapid rate growth.[2] I also have noted some advice - from academics - is oblivious to the new political reality of Ontario. Before getting into thoughts on controlling electricity costs, I'll provide my perspective on the politics of the situations that will determine which suggestions are actionable.

I wrote very little in the run-up to the election because it struck me as a race to the bottom. I used to write on things that angered me (to some extent), and then I'd hope to edit out my annoyance based on, "Nobody cares that I'm angry. What is my point?" This election the point seemed to be people were beyond angry with Kathleen Wynne. I'd call it disgusted. There's a saying in politics that "anger is not sustainable." That's probably true but around the time her government was introducing the ridiculous [un]Fair Hydro Plan I'd wondered if the Wynne policy team had let the anger of the first half of her mandate develop into disgust. Disgust is not an emotion, it's a sense. I was curious to see if I was wrong, and a climb up in the polls was possible for Premier Wynne. I don't think I was wrong - I do think the election was about this sense of disgust, and I found it so unpleasant I voted in the first hour of advanced polling and then tried to ignore it altogether.

I realize many of the angriest were people who follow my blog and know about the Liberal party's enormously wasteful performance in the electricity sector. The waste cost most Ontarians money, but not food, or housing, or heating. With the election over, and the previous governing party embarrassed by failing to win enough seats for official party status, I am hoping many will start the new era of Ford's rule by editing out their anger and trying to find their point. This is not a kumbaya moment though. A real cost reduction of the scope promised by incoming Premier Ford will require tough choices harming real people and angering numerous constituencies, but particularly the one known in the electricity sector as "stakeholders."

Political Constraints

The political reality of the election is pricing carbon is dead: Doug Ford took the leadership in the race for leading the Progressive Conservatives by opposing the recently implemented current cap-and-trade system in Ontario and the federal government's demand province's implement some regime. I'll try to avoid the topic - and fail (but hopefully only once).

Functional Constraints

Ontario's electricity, if mine is any indication, is pretty reliable (the lights stay on) and it is exceptionally clean, with very low emissions of greenhouse gases. My views on what can be done to control costs is influenced by two concerns that I don't see noted very often:

• capacity
• industrial electricity costs

Review of 2017 electricity supply in Ontario

You purchase a  full 9-unit container of energy .

The 3 men who deliver it pour out 2 units out while lecturing on consumption. 
They imply you should make more yourself as they leave.

A couple of months have passed since I last posted to the blog. This may be due to writer's block, or a lack of ambition - or maybe I was wisely waiting until I had something nice to say!

With growing knowledge, and curiosity, I seem to muddle all little issues into the broad themes I deem important - and not only for energy. In this post I'll touch on metrics from 2017 the reader may be looking to this blog to find, with hopes of connecting the data to bigger issues.

There are many possible headlines from an annual analysis:

• electricity "demand", as reported by the system operator was down, to levels not seen in decades
• supply generated from fossil fuels (natural gas) was sharply down too, and again to levels probably not seen in over over half a century
• prices for consumers on regulated price plans were sharply down in 2017 due to legislation and consequent debt (the [un]Fair Power Plan), but,
• total costs for supply declined in 2017, although average unit cost was up slightly (as demand declined more)
• nuclear supply was down as one unit (Darlington 2) was out of service for the entire year due to refurbishment, but the units remaining online largely took up the slack as Bruce Power had record output, as did the set of 9 units at Ontario Power Generation which operated during 2017, and
• for the first year since the system operator reported on their system's wind output, in 2006, it reported a decline (albeit a very slight one)

I didn't wish to dwell on numbers in this post. During 2017 I learned some new data reporting tools which I put on on a site where I invite data-gluttons to learn the filters and views to generate the typical year-end summary statistics, such as the total annual biomass generation for the past decade.
I do wish, in this post, to combine commentary to statistics to demonstrate very good figures from one perspective can have bad implications from a broader perspective. This is particularly important to note as the reasons rates didn't rise sharply in 2017 aren't sustainable.

Global Adjustment mechanism again headed to court.

Jeff Zochodne reports that a,

August lawsuit filed by National Steel Car (NSC) believes the revenue the IESO collects for the global adjustment, from the company “and others,” should be declared “an unconstitutional tax, not a valid regulatory charge.”
The company gives numerous reasons, including that the global adjustment allegedly “redistributes wealth from the consumers of electricity in Ontario to, among others, the generators of renewable electricity.”

I don't like their chances, partially because I doubt the quality of Ontario's courts, but I will discuss reasons the lawsuit has a chance at succeeding to demonstrate the need for changes in Ontario's too pliable electricity pricing structures.:

• pricing includes the full cost of current supply despite the intent of the Green Energy Act to grow value outside of Ontario's electricity sector, 
• the courts have already ruled the global adjustment structure to be a subsidy of one group of consumers, at the expense of all others,
• only certain consumers were exempted, at the end of 2015, from the Debt Retirement charge, and,
• another group of consumers has now been rewarded with a "Fair Hydro Plan"

The global adjustment mechanism being challenged was introduced in 2005 to ensure the full costs of electricity supply were paid by consumers of electricity (Section 25.33 (1) of the Electricity Act 1998) - it was intended to be the difference between what suppliers were paid through contracts (or regulated prices) and what the market valued supply at. In half of the first 26 months of the global adjustment the line item was a credit on consumer bills, but it's been a charge in all but one month since 2008.

Ontario may contract more imports from Quebec - badly

On the morning of Tuesday August 8th La Presse published an article reporting on a draft contract which would see Ontario pay Quebec approximately $500 million a year for the ability to import 8 terawatt-hours of electricity. By late morning the office of Ontario's energy minister denied an agreement was reached, and the ruling Liberal party's press office was slamming the opposition party for "spreading misinformation."
Perhaps nothing will come of the proposal, but it's worth noting what constituency it is designed to appease, how that appeasement impacted the draft agreement, and the concerns all Ontarians should have with the processes, and institutions, involved in the province's electricity sector.

A timeline surrounding the leaked draft document dated June 22, 2017:

• during May Ontario's Minister of Energy GlennThibeault and this Quebec counterpart, Pierre Arcand, discuss "the possibility of further enhancing electricity trade in order to cost-effectively improve our respective electricity systems," [source]
• La Presse's report, translated on Google Chrome, includes, "Thibeault sent a letter to his Quebec counterpart...on June 13 to explore the possibility of entering into a new long-term agreement to purchase electricity",
• June 20th Peter Gregg "takes on the role of IESO President and CEO",
• June 22nd Hydro-Quebec's Steve Demers writes a "Dear Peter" letter to the new head of Ontario's system operator introducing a written proposal valid until July 14,
• July 27 Ontario's Thibeault writes the June offer was "inconsistent with our discussions in May", notes following discussions between staffs of Premier's Couillard and Wynne HQ "would be instructed to work collaboratively with IESO on enhancing electricity trade..."

I think Thibeault's July 27th is very good. To communicate why, I will focus on a short technical quote from the leaked draft agreement which explains the shortcomings of Hydro-Quebec's proposal. 

First I'll note 8 TWh, the proposed annual import level, is only slightly higher than the total annual imports into Ontario from Quebec (much of which will be wheeled through to New York). There was some noise about whether the amounts were feasible with existing infrastructure: they are.