Report shows Ontario ratepayers have paid $6 billion to dump electricity

Brady Yauch has produced a report, along with Scott Mitchnick, on the cost of selling electricity to exporters for less than it cost to procure the supply:

Ontario electricity customers have paid more than $6 billion to cover the cost of exporting the province’s energy surplus, according to a new study from the Consumer Policy Institute.

Over the last decade, Ontario customers have paid $6.3 billion to cover the cost of selling high-priced electricity to customers outside of the province, according to a new study by the Consumer Policy Institute. A majority of those costs – $5.8 billion – have come since 2009, as demand for electricity in Ontario has fallen, while more generation capacity continues to be added, creating a growing surplus that gets dumped at below-cost prices in places like New York and Michigan.

The quote is from the blog post; the full study is, Power Exports at What Cost? How Ontario Electricity Customers are paying more to dump the province’s excess power.

cpiestimates

The numbers match, almost exactly, my estimates using the same calculations I use in charting the cost of exports in my weekly and monthly reports. I recommend reading Yauch’s work because I find it very accessible – more than my own.

However, I try to show the figures as costs per unit (megawatt-hour) consumed. While it may hurt to know since 2009 $5.8 billion has been spent paying for exported electricity, it will be more impactful, for some, to see that in August selling exports below the cost of purchasing the supply added $9/MWh, or 0.9 cents per kilowatt-hour (kWh), to the Class B consumer.

The Regulated Price Plan rates most residential consumers pay are linked to the Class B rates – so the impact is eventually the same.

I’ve pulled some figures to show the rate impact of the growing export costs (shown above in the graph from the Consumer Policy Institute report).  The “Class B Rate Impact of Exports” is a direct cost, but subsidizing exports is one reason the Industrial Conservation Initiative (ICI), or Class A Global Adjustment mechanism, was designed in order to protect industry from surging rates. I have therefore shown both as they have grown as a component of small consumers’ cost.

classbrates

 

My estimates show that over the past 12 months the direct cost of dumping exports is about 1.2 cents/kWh – and the cost of protecting industry from rising rates due to forces including subsidizing exports another 0.7 cents/kWh ($7/MWh).

Another factor forcing rates higher is, obviously, procuring more and more supply.

I recently worked through a Royal Commission on Electric Power Planning report from 1980. Here’s one example of the consideration given to exporting, economically, in that 1980 report:

The outlook for significant export sales to the United States in the 1990s is less predictable. While export sales of nuclear power would obviously be desirable for the Ontario economy, it does not seem a justifiable risk for Hydro to build a nuclear power station (say, of the Darlington type) essentially for the export market. The reason is that, because of the long lead time involved in the building of a nuclear power station, there is a risk that the power will eventually be unexportable (e.g., as a result of major conservation measures in the United States)…On the other hand, advancing the in-service dates of Ontario Hydro power stations relative to their required in-service date to meet Ontario loads alone, in order to maintain an export potential, would present considerably less financial risk. For example, during the early 1980s, if Hydro’s projected load growth does not materialize, then, instead of stretching out or deferring capacity already under construction, the utility could enter into firm sales agreements with United States utilities to export that capacity, albeit on a short-term basis, pending the need for the additional power in Ontario.  -(page 149)

We know this advice has been ignored ever since – Darlington was delayed a number of times as demand failed to materialize, and firm sales are still something Ontario only talks about.

We don’t know why the Wynne government continues adding generating capacity, and paying for “conservation” couponing and such, while showing absolutely no interest in an economic case for exporting… or anything else.

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