Here is video of my appearance yesterday afternoon on CTV Newsnet. One of the key points I tried to make is the need for a detailed, independent, expert investigation of the costs involved. The video cuts off about 90 seconds before the end of the interview. In that 90 seconds, I was trying to explain in more detail the costs the government exclude when they claim that the Oakville power plant move will only cost $40 million.
Analysis presented on this site previously pegs the cost of the Oakville plant move at $480 million. Why the difference?
One difference between my methodology and the government’s methodology in arriving at the $40 million claim is that I include $200 million for the transmission system upgrades required to get the power from eastern Ontario to the load centres in western GTA needing reliability upgrades. This figure should be considered illustrative only.
The actual transmission requirements associated with the move and with the reliability needs of the western GTA need careful study by independent experts taking into account the Mississauga power plant move, an updated load outlook for the GTA, maintenance requirements at the main transmission stations serving Toronto, the retirement of the Pickering nuclear station and many other factors. No updated and comprehensive analysis of this kind is publicly available. The official agencies that need to do this work — Hydro One, the IESO, the OPA, and the distribution utilities in the affected areas — need a clear mandate to produce and publish the required analysis without political interference. The political meddling to date has already undermined the reliability of the supply of electricity to Toronto.
Another difference between the analysis that leads to an estimate of $480 million vs. $40 million relates to gas costs. Although the expert analysis by Bruce Sharp I recommend does an outstanding job in presenting this analysis, I have not done a good job in explaining the origin of this term that the government has ignored.
When the TransCanada facility was originally contracted, the government agreed to a Net Revenue Requirement (“NRR”) payment guarantee of $17,277/MW/month. To put this payment in context, note that when new gas-fired generation was competitively procured in Ontario, the cost used to be $10,000/MW/month. Since debt costs and equipment costs have both declined since then, there appears to be some reason for concern about the $17,277/MW/month being an excessive cost to consumers.
The government notes that in return for a $210 million “turbine payment” to TransCanada, the NRR was adjusted down to $15,200/MW/month. What the government does not note is that the $17,277/MW/month figure was based on TransCanada bearing the cost of gas management. The $15,200/MW/month figure does not include gas management cost.
Estimating the value of the gas management component of the transaction is a complex undertaking relying on many assumptions. A detailed investigation of gas costs appears warranted.