Ontario’s Industrial Conservation Initiative program, which rewards large “Class A” consumers for lower consumption during periods of high demand from the system operator’s supplier, cost others $1.27 billion in past 12 months. I won’t review the history of the program today as I did 3 years ago in “Stakeholders” destroying the viability of Ontario’s electricity market, but I will note that since last March a Variance Account under the [un]Fair Hydro Plan – which shifts costs from ratepayers today to rubes sometime in the future – a debt of $1.2 billion accumulated with April’s total still to be posted.
Today the system operator (IESO) posted the top 5 peak hours for the adjustment period that ended April 30th, 2018 (it started May 1, 2017) – and Monday the IESO posted the final Global Adjustment figures for April. This post will contain:
a quick demonstration of cost shift calculations,
review of the ICI value proposition, and
another jab at the province’s time-of-use (TOU) billing experiment performed on residential consumers.
For the 12 months of the ICI adjustment period the cost shift can be calculated as the difference between what Class A (larger consumers and ICI participants) did pay and what they would have paid were there not a separate class:
The total global adjustment charge for the period was $11.821 billion dollars, and total consumption (both classes) 138.194 terawatt-hours (million MWh), so the average global adjustment rate was $85.54/MWh.
Class A consumers were allocated a $1.8529 billion of the global adjustment total on 36.503 TWh of consumption which works out to an average global adjustment rate of $50.76/MWh
The $35.78/MWh difference in that rate, on 36.503 million MWh, means $1.27 billion was avoided
Ontario’s electricity system operator (IESO) made a mistake in June.
In July they made it better for themselves in a way that specifically punished one set of consumers – Class B ones not covered by Regulated Price Plans (RPP). The OEB’s lacklustre oversight in recent years continues to harm this same set of consumers. This will be a wonkish post but if you’re connected with a company with a substantial electricity bill, it will alert you to probable overcharges.
This situation should be difficult to explain, because I’ve had friends questioning the IESO on it for half a year and I haven’t seen any evidence that a fulsome explanation is pending. That may be due to the beginning of the tale.
The beginning was the final global adjustment calculations the IESO made for June 2017. They erred in calculating total consumption. The inability of the organization to admit that, along with the regulator’s (OEB) disinterest in monitoring the IESO’s collection of global adjustment charges, is why confusion persists.
the IESO reports “Ontario Demand” hourly, but that figure is essentially demand for supply from their market participants,
the IESO elsewhere reports a summary breakdown of this figure as “Monthly Energy Demand” which shows some of that figure is “Generator Consumption” and some is “Losses”,
the IESO has not reported on generators embedded in the Local Distribution Companies (LDC’s) it services, but in the past couple of years it has noted monthly distribution-connection (Dx) figures in it’s 18-Month outlooks,
the Global Adjustment process requires knowing the share of consumption for each consumer, so that reporting includes a “consumption” figure .
If you took the time to subtract out the generator consumption and losses from the IESO’s reporting of “Ontario Demand”, and added the embedded generation, you’d find you were usually about 1% short of the consumption as shown in the global adjustment reporting. In June 2017 the difference was far greater:
A spreadsheet I regularly update with data on industrial wind turbine (IWT) generation in Ontario is cited in Parker Gallant’s recent, Wind: worst value for Ontario consumers. The same post cites the Canadian Wind Energy Association (CanWEA) commentary on Ontario’s recently released Long Term-Energy Plan 2017, which included:
New wind energy provides the best value for consumers to meet growing demand for affordable non-emitting electricity.
Let’s examine the “value” as electricity – as there is no market in Ontario for any subset of that commodity, including “affordable non-emitting”.
“The regard that something is held to deserve; the importance, worth, or usefulness of something.”
“The worth of something compared to the price paid or asked for it.”
By the first definition wind is clearly the least valued generation type in Ontario. Using only very basic hourly data sets of Hourly summary totals of grid-connected (Tx) generation by type, valued at the Hourly Ontario Energy Price (HOEP), value factor can be calculated. A value factor above 1 means more valuable than average, below 1 means less valuable, and the lowest number consistently means wind.
Some numbers I’ve compiled for the most recent periods of Ontario electricity consumption.
IESO weekly reports run from Wednesday to Tuesday – presumably because the market opened on Wednesday May 1st, 2002.
1 The week beginning on the 20th Wednesday of 2017, May 17-23, 2017, is the first one where the average Hourly Ontario Energy Price (HOEP), weighted to the system operator’s “Ontario Demand”, was negative.
On average, it cost money to give away electricity
The Bank of Canada’s inflation calculator indicates 8 2005 cents equate to 9.6 2016 cents.
In 2016, Ontario announced new Large Renewable Procurement (LRP) contracts at 8.6 cents/kWh
5 wind contracts totalling 299.5 MW, with a weighted average price of $85.94/MW…
Comparing the cost of industrial wind turbines in Ontario by the procurement cited in the 2005 report, and the one run by the IESO in 2016, there has been little change in price.
In between these two procurements, over a decade apart, prices soared. There are no consumer benefits from the feed-in tariff mechanisms, introduced after the passage of the Green Energy Act. Between the start of 2009 and the end of 2012 the government, through the Ontario Power Authority, contracted about 4,400 megawatts of industrial wind turbine capacity at rates around $135/MWh. The increase in rates above those shown in 2005, $40/MWh (4 cents/kWh), would add about $500 million a year to Ontario’s electricity costs for the 20-year terms of the contracts.
Ten billion dollars is not the full-term cost of the contracts, only the incremental cost of the feed-in tariff mechanism employed – and/or the rank political culture that employed it.Read More »
written by Gary Mooney, and reproduced here with permission.
I contacted the Ministry of Energy by phone to ask if 20-year electricity generation contracts – e.g. wind and solar — were going to be extended to match the government’s new 30-year amortization period for capital expenditures.
The answer that I got back was:
* There will be no negotiations to extend contracts at this time.
* But generators will be offered the opportunity to continue producing electricity beyond the 20-year point, at the market price (or a negotiated price, not sure which was mentioned).
This is consistent with Minister Thibeault’s comment, in justifying a longer amortization period, that wind turbines have a useful lifetime of 30 years.
The idea of an extension of wind contracts will be a major concern to those living with turbines, as they have been expecting that the problem will go away after 20 years. And worse, if there are no negotiations now, these folks will have to live with uncertainty for anywhere from 10 years (the earliest contracts) to 20 years.
To make an extension of the amortization period work, the province needs continued power generation over the whole period out to thirty years, either:
I started receiving messages last night on a sorta report by Environmental Defence (ED), and as I am still receiving them, I thought I’d write some thoughts – if only to simply copy a link when again asked for my thoughts.
Here is how ED’s Keith Brooks begins a blog post on their latest “work”:
Electricity prices in Ontario have risen in recent years, putting the squeeze on some Ontario residents and businesses. There are many reasons for the increase in electricity prices and renewable energy is one of them. However, the role of renewables in diving up electricity bills has been vastly exaggerated.
I wrote on a poor 2014 ED work and noted their new backgrounder contains a graphic with the same information as Figure 1 of their 2014 work. Without acknowledging any level of competency in the compilation of data for either ED graphic, here’s the elements of residential electricity bills as they report them for 2016 and 2014:
Perhaps the “role of renewables in driving up electricity bills” is perceived as being significant because:
After watching an exchange between Premier Kathleen Wynne and Leader of the Official Opposition Brown, I decided to see what they were on about.
It turns out I knew most of what they were on about, it was just hard to be certain as neither of them did.
Two new pieces of information since I wrote on the court case in May:
the case was appealed to the Supreme Court
additional payments/penalties were paid to compensate for more months of generation. 
The Ontario PC party seems totally unaware what the nature of the case is, and it seems blissfully oblivious to the fact the latest $94.7 million payout was not the first payment, nor will it be the last if the court case fails – and Northland is only one supplier getting the payouts as a result of the court case against the Ontario Electricity Financial Corporation (OEFC).
The exchange in the legislature doesn’t reveal:
the payment is less than 20% of the cost impact of the court judgement
the OEFC is a shell corporation
the control of the OEFC is essentially under the Minister of Finance 
the contracts involved in the court case originate prior to 1995, under Premiers Peterson (Liberal) and Rae (New Democratic Party) 
the court case is due to changes in payments due to calculations changed with the introduction, for 2011, of the Industrial Conservation Initiative (ICI – or Class A global adjustment mechanism)
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 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.
Some messages from my shadow report/estimates of the electricity sector in Ontario over the past 7 days.
The growth in solar capacity combined with the switch in “on-peak” pricing periods to the afternoon combined to make the “On-Peak” pricing periods the lowest valued periods of supply to the IESO market – in stark contrast to the valuation imposed on regulated price plan consumers, whom the Ontario Energy Board decided to have charged $180 per megawatt-hour during these hours.
Perhaps that variance in price makes sense. My estimates of hourly supply costs show solar now often exceeding nuclear:
For clarity, here’s the graph of generated megawatts by hour, which is not as similar to the graph of costs as some might expect.Read More »