Ontario Electricity System Operational Update Part #2: Darkness and Light

Ontario will have the highest power rates of any state or province in continental North America by end of 2013. Increases in 2014 and 2015 will exceed the current pace 8-10% per year.

Low income consumers will be cut off and electricity-intensive employers will shut down.

Ontario is heading for a new dark age.

To stabilize the financial situation of the power system, consumers need a moratorium now on all projects that can be delayed without severe penalties. During a brief moratorium period, all projects should be reviewed to eliminate those that will result in negative overall value.

To minimize long-term economic harm, a massive liability transfer from ratepayers to taxpayers will be needed. Public services, such as health care and education, will suffer. However, the overall harm to Ontario citizens will be greater if uncompetitive power rates continue.

Ontario’s power system is structured around central planning. Now, Ontario has central planning without a plan. The Ontario government’s 2010 “Long Term Energy Plan” was a plan in name only. The LTEP was a thin election platform plank riddled with technical flaws. Even if the LTEP had substance when issued, subsequent developments such as the gas plant cancellation in Mississauga and a faster than predicted pace of FIT contracting, have rendered the plan obsolete.

Ontario has already experienced one large green blackout. More are likely.

There are many candidate contributors to the next calamity. The IESO lacks the operational tools to control erratic wind production. Ontario’s massive nuclear fleet is close to the end of its operational life. The radically increased complexity of Ontario’s power system in recent years is itself a risk.

The trend in utility governance, reaching back to Premier Rae’s appointment of long time NDP associate Marc Eliesen to head Ontario Hydro in the early 1990, has been one of increasing politicization. Premier Harris made a half-hearted attempt to depoliticize the sector. Premier Eves panicked over criticisms of Harris’s reforms and reversed direction by seizing control over pricing. After an initial pledge to move toward pricing and planning independent of political influence, Premier McGuinty drifted toward politicization. This drift culminated in the Green Energy Act which extinguished ancient rights of no taxation without representation, gutted regulatory institutions, and transferred unprecedented powers to the Premier’s office.

Meddling in electricity policy is as inherent to the political character of Ontario as language debates are inherent to the political character of Quebec. Policy stability and economic efficiency in the power sector appear likely to ebb and flow over the indefinite future.

Some protection for the public interest beyond the vicissitudes of politics appears desirable.

Here are a few examples of black holes in the official information currently available:

  • the total revenue requirement that ratepayers must pay
  • average residential power rates in years prior to 2005
  • average commercial rates in any year
  • amount of potential power generation deliberately spilled and the costs to consumers of this waste
  • the quantified components of the Global Adjustment that consumers must pay

Without expert assistance, ordinary citizens cannot obtain estimates of these basic data points. Little wonder that many Ontario citizens find the province’s electricity problems difficult to understand and debate.

Transparency will be a key ingredient to any sustained improvements in the performance of the power system.

Any transparency device should have three characteristics — low cost, protection from political manipulation, and public accessibility.

The U.S. Department of Energy’s Energy Information Administration is an example of a transparency device that satisfies these requirements in an impressive way. Relative to the size of the energy market it reports on, the EIA’s $105 million budget is small. To put this amount in perspective, the U.S. market for energy services in 2010 was approximately $1.2 trillion. The agency’s independence is protected by legislated rules that make its research a protected enclave within the U.S. Department of Energy. The EIA web site is a treasure trove of accessible, relevant, timely and archived information.

Bringing the EIA model to Ontario would threaten many vested interests but appears to be worth considering.

2 Comments

  1. Talk about a guy who refuses to call a spade a spade (or even a shovel) this Q & A between Dalton and Randy Richmond of the LFP is an eye opener. He must think we are all fools! Reminds me of Clinton– “I did not have relations with that woman”

    Q: The prorogation means this gas-plant investigation is over. What do you say to Ontarians who still want answers? The Conservatives say the cost of moving plants is up to $1 billion.

    I am waiting for the day when somebody says, ‘Actually it’s $400 trillion,’ because, as I say, ‘If Elvis says it, I’ve got to print it.’ What was the latest number? $1.3 billion? Do I hear 1.7? When are we going to get to 2.8? It’s kind of an interesting game . . . In total we are talking a $230-­million cost.

  2. Pingback: Tom Adams — Ontario Electricity System Operational Update Part #2 | Quixotes Last Stand

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