Parker Gallant has called for the Ontario government to “shutdown the intertie line with Michigan” – in an article that notes some of my work. I feel I should offer some support as Michigan is being a lousy neighbour and it would feel therapeutic, if nothing else, to respond.
I’ll try to stick to data.
The system operator in Ontario (IESO) data indicates the Michigan intertie is the most lucrative for exports – but that’s not saying much: exports at that intertie were bought in Ontario for an average of just 1.2 cents/kWh ($12/MWh) in 2020 – but were in such high demand another 0.9 cents/kWh of congestion rent was paid. Over the past 5 years congestion rents comprise 46% of the revenue on the Michigan intertie. The IESO’s insiders’ committees are considering sharing this revenue with exporters, whereas in the past its only benefitted internal Ontario consumers.
Action #1: hell no. Issue a ministerial directive that congestion rents will only benefit consumers in Ontario.
Ontario does not export to Michigan: traders purchase electricity in Ontario and sell it to purchasers in the United States – needing to arrange that it gets there. According to the Canadian Energy Regulator (formerly the NEB) the top 4 exporters of Ontario electricity into the United States in 2020 were MAG Energy Solutions (Quebec), TEC Energy Inc. (Quebec), Mercuria Commodities Canada (Alberta) and Plant-E Corp. (Quebec). These 4 traders handled 60% of all US bound electrons purchased in Ontario. It is likely these exports include wheel through transactions where Quebec power is sold to customers on the other side of Ontario. I have been told within U.S. regional electricity markets such transactions could pay multiple congestion charges as those much more sophisticated markets feature locational marginal pricing.
Action #2: the IESO should move as soon as possible to locational marginal pricing for the purpose of ensuring wheel through transactions pay appropriately for congestion they may cause within Ontario’s borders.
Canada has a price on emissions – for some things: for Ontario electricity generation it essentially does not. The logic goes something like it would be an onerous cost on Ontarians which would be unfair as most competitors of Ontario’s businesses don’t have a meaningful price on their greenhouse gas emissions. Any generator under a certain emissions intensity (my recollection is 385 kg CO2e/MWh) avoids the carbon price entirely – and most Ontario natural gas-fired generators are at above this level of emissions. It’s a noble sounding excuse but it is entirely bullshit: in 2020 the IESO’s so-called market recovered less than $2 billion to cover the cost of supply, which their global adjustment adder recovered almost $14 billion more. As I wrote in 2014’s “A Carbon Tax for Ontario, today” the entire receipts of carbon pricing in Ontario’s comparatively trivial emission electricity sector should be used to reduce the global adjustment. Germany has just altered its system to do exactly this: use revenues from pricing emissions to control its renewables surcharge. That it did so 6 years after my article could indicate they’re a little slow – yet they’re probably light years ahead of our government. The market rate is murdered here on purpose, to rip off the consumers least likely to notice for the benefit of the larges insiders. The Industrial Conservation Initiative (ICI) is the weapon designed to transfer global adjustment costs from big entities to little ones. Problems with the punching down ICI policy includes subsidizing exports fueled by natural gas -as those too escape paying for emissions. The $30/t CO2e in 2020 would have meant another 1.2 cents/kWh on gas bidding into the IESO market, and by 2022 that would climb to 2 cents/kWh – essentially the average price paid by exporters to Michigan this year.
Here’s the hourly export to Michigan along with hourly gas generation for the highest demand workweek of 2020 – note at no point do Michigan exports exceed gas’ output, so at all times during Ontario’s highest demand week gas-fueled generation could be considered what was exported.
Action #3: Apply Canada’s greenhouse gas price to all emissions from generators to reflect these deemed environmental costs in the HOEP, and use revenues from the pricing to reduce the global adjustment.
There are other actions the government could direct the IESO to take to avoid sending Michigan subsidized electricity, but it would be self-harming to cut our grid connection altogether as we do get some benefit from dumping supply when we have excess and a broader grid has benefitted us when extraordinary circumstances have occurred. The point I have tried to make in this post is there is one thing above all others this government, and its system operator, could do to control unnecessary feeding of cheap electricity across the border to our ill-behaved neighbours: their job