Wynne deserves no credit for dumbly selling Hydro One

Most of Ontario realizes they are losing a valued asset in the government's sale of a majority stake of the publicly owned Hydro One. The topic is so complicated most just don't realize exactly how they are losing, making it equally difficult to determine who is winning

Ontario's Premier outsourced evaluating the optimal use of public assets to an unelected council led by former retail banker and Bay Street titan Ed Clark. Clark's council reported, in April:

...the integrated Hydro One transmission and distribution business would likely command a fully distributed equity valuation of between $13.5 billion and $15 billion in a public offering, excluding Hydro One Brampton. We believe this valuation is a conservative range in the context of today’s market.

In the spring Clark envisioned $9 billion of cash from a share sale (60% of $15 billion), "with $5 billion going to pay the utility's debt and $4 billion being channelled into infrastructure projects."

The revised prospectus came out last week anticipating a share offer at $19 and $21- making the value of Hydro One's 595 million common shares $11.3 -$12.5 billion - but this valuation comes only after the government gives $2.6 billion to Hydro One, and Hydro One gives the government $800 million. [1] Adjusted for cash exchanges prior to the closing of the deal:

• the valuation of Hydro One is more realistically $9.5-$10.7 billion
• the valuation of the 60% of the company to be sold is therefore $5.7 to $6.4 billion

The revenue from the sale of Hydro One is anticipated to be positive for the provincial balance sheet, but not significantly. The government's 2014-15 Financial Statement carried Hydro One as an $8.072 billion asset, so selling off 60% requires writing down the asset $4.84 billion dollars. On the balance sheet the share sale is anticipated to have a benefit of $800 million to $1.6 billion.

“We are going to be able to track the projects that we are building. People are going to be able to look at how much money is coming in and where that money is being spent.”   Premier Kathleen Wynne

The Wynne government remains committed to spending $4 billion of the ~$6 billion share issue on transit, while using $5 billion (of the remaining $2 billion) to pay down debt. All from a transaction having a $1 billion impact on the government's $285 billion net debt - only enough for 34 days of payments on the province's existing debt.

There's a con here.

IESO reporting raising doubts about its ability to administer Global Adjustment charges

There are 5 hours every 12 months that determine the distribution of global adjustment charges in Ontario - charges of nearly $10 billion over the past 12 months. The 5 hours are particularly important for Ontario's largest consumers of electricity as cutting one megawatt of use during one of these hours has been estimated to save from $50,000 to $100,000 and more. In this post I'll explain why the hours for the adjustment period ending next April have likely already occurred, with some implications of peak hours for intelligent energy policy.

Background: "Stakeholders" destroying the viability of Ontario's electricity market

While the top 5 hours have already occurred the IESO is not communicating what they are. To understand why the IESO's communication of peak hours is inadequate, it's important to know the definitions of "Ontario Demand", "Allocated Quantity of Energy Withdrawn," and what I'll call "consumption."

• The IESO's "Ontario Demand" is really demand from IESO transmission (Tx) connected suppliers, including imports. The figure does include generator consumption and transmission losses.
• The supply withdrawn from that grid by local distribution companies (LDCs) and wholesale consumers, essentially comprises the "Allocated Quantity of Energy Withdrawn" (AQEW). The AQEW and "Ontario Demand" figures do not include generation from suppliers embedded in LDC grids (Dx): 
• "Consumption" will be AQEW plus "the total volume of electricity, adjusted for losses as required by the Retail Settlement Code, that was supplied by embedded generators to licensed distributors." (Ontario Regulation 398/10)

High 5 hours are determined by AQEW, but the proportionate share of the global adjustment is determined by a Class A user's AQEW (their metered use) as a numerator with total provincial consumption as a denominator.

During an adjustment period the IESO lists only the 10 top daily "Ontario Demand" hours:

The fact that they show AQEW for those hours shouldn't be confused with showing the 10 highest daily AQEW peaks - because after the last adjustment period class A users were surprised to find 2 of the High 5 hours were never shown on IESO's "Top Ten" list as the year progressed.

Wasting legacy asset value in Ontario: supply income redistribution due to the global adjustment

I regularly update data the drives pages on my data site. Pages on the site are meaningful to me because I recognize the changes over time - as well as seeing changes I anticipate become reality. Today I created a graphic from data that drives the Supply_Costs page, and will use this blog post to attempt to make the graphic meaningful for you.

When understood, this chart indicates numerous issues behind rate increases in Ontario - increases which hit a staggering 26% in the second quarter of 2015.

Spilling: data mined messaging for me, to you

This Labour day I've returned to some past databases. One self-imposed task is continuing to add to the data of hourly Ontario electricity generation that begins September 1st, 2010. I've queried the data and created some graphics, many of which simply reinforced old messaging I've written on, repeatedly. However, the messages could use reinforcement and one new graphic view gobsmacked me, demanding a quick post.

Years ago it occurred to me to try to reproduce work done at Oxford with Ontario data - which provided the basis for a series of posts on the cost of of industrial wind in my province. I continued capturing the generation data and added estimates of more obscure statistics, including hourly solar generation and curtailed supply. Today I looked at hourly average figures comparing my first 12-months of data (September 1, 2010 to August 31, 2011) and the corresponding dates for the recently completed 12-months.

Here's the graph, of changes over the past 4 years, that grabbed my attention:

For those slower to get their angry geek going, Ontario's hydro looks like it's being sacrificed due to extraordinarily expensive solar power.

IESO Reporting Challenge: concerning Fig 23

Everything is political.

Working with data, the political introduces itself largely in reporting. The planning, structuring and collection of data all involve organizational power structures, but in an intelligent system all are dependent on operations and/or the current, or envisioned, demand for reporting.

I usually find reporting to be the least enjoyable aspect of working with data. Querying data can be very informative, and much of my writing takes one aspect of a data set and explores it with words. Reports are often designed for other people, to their design - particularly executive reporting, which is designed for a quick hit on the status presented in a format the executive are comfortable with.

The IESO eventually posted a report for June, weeks later than usual. That is interesting in itself, as it implies the report is designed for an audience the doesn't need it any particular time. I can't think of a benefit of variable intermittent reporting (VIR) in Ontario's electricity sector - must be part of a bigger trend to variable intermittent stuff.
Whoever the important audience is for VIR, the June report had at least one new graphic which must be for them:

This is not the format of reporting on generation I would expect the people reading through a summary report to find relevant. The IESO's long-standing Figure 18, "Monthly Energy by Fuel Type," is a graph of monthly production in the same stacked chart format, but for coherent categories; nuclear, hydro, gas/oil, solar, wind, biofuel and imports. I would think normal people looking at a monthly report might like cost information for the same categories they receive production information.
Like this:

A heat wave exposes Ontario's electricity data and policy failings

The last week of July saw the hottest days of 2015 driving electricity demand to it's highest levels in 18 months. Market data for the month, coupled with the newest estimate of the month's global adjustment costs, indicate a fourth consecutive month of  20+% increases over 2014's electricity commodity pricing. A mainstream media site, the Toronto Sun, posted an editorial titled Wynne's hydro policy is insane. The editorial picked up on some of the poor decisions causing rising pricing but contains some data errors. These errors are understandable given the inability of Ontario's system operator, the IESO, to update its methods of accounting for electricity generation, and costs, since absorbing the Ontario Power Authority at the start of 2015. Not only has reporting not advanced, the IESO displays declining competence in producing the reports it historically has.

July's steep price increases, and The Toronto Sun editorial, follow a report by the Ontario Chamber of Commerce (OCC) indicating 1 out of 20 businesses in the province anticipate closing in the next 5 years. Facts the Sun's editorial gets some serve as a nice illustration of the OCC report's first recommendation:

Increase transparency of electricity pricing and system cost drivers

I'll use the highlighted elements of the Sun's editorial to demonstrate the IESO's growing inability to report on supply and demand in Ontario's electricity sector.

Data-driven thoughts on mitigating electricity rate increases

I started writing what became this post as a quick tumblr hit on a single graph  - as I started writing I  brought in comments on the OCC piece more suited to my coldaircurrents site, and as I felt it necessary to point out the data problems are actually people/organization problems, the work ended up on my more flippant Wordpress site.

The Ontario Chamber of Commerce (OCC) released a report last week:

“ Empowering Ontario: Constraining Costs and Staying Competitive in the Electricity Market, takes a look at the driving factors behind rising electricity costs in Ontario.

It’s about time - at best; it may be too late. Near the end of 2015's first quarter I wrote  Ontario's new electricity pricing program essentially taxes businesses to fund social program, which concluded many of the OCC’s members would be walloped by coming pricing changes:

Businesses below 3 MW average monthly peak:

• get stiffed with the continuance of the debt retirement charge
• get stiffed with the OESP [Ontario Electricity Support Program]
• get stiffed with the expansion of the class A program

I’m sure that’s confusing to many, but that "Businesses below 3 MW average monthly peak" class of customer did see the commodity rate it pays for electricity rise 25% from 2014′s second quarter to 2015′s, so I’m not surprised there’s some motivation to address the issues. However, the Chamber has more work to do in getting through the confusion.

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.

• April, $112.10/MWh (weighted average class B) up from 85.28 one year earlier (up 31.4%)
• May, $112.04/MWh (weighted average class B) up from 89.88 one year earlier (up 24.7%)
• Adding the $97.68 second estimate of June's global adjustment posted yesterday to a calculated weighted HOEP average of $15.31 an estimated rate of $112.99 is up 25.5% from June 2014's $90.02/MWh.

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.

25%.

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.