Decoding Ontario Electricity Propaganda

(This post is based on lecture notes presented in Professor Desrochers GGR333, April 1, 2014.)

Facts about Ontario’s electricity situation that you can trust would be nice. Debates over Ontario’s electricity situation are deluged with propaganda from all sides. When it comes to Ontario’s electricity situation, what constitutes a credible source?

Here are three examples of apparently respectable sources making apparently simple factual statements about electricity in Ontario. How do the claims being made hold up? Who do you trust?

- Provincial energy minister (Bob Chiarelli) citing basic historical facts about electricity exports

- Environmental group (Environmental Defence) citing a prominent commercial energy consultancy (Power Advisory)

- Taxpayer/consumer organization (Canadian Taxpayer’s Federation) analysing the cause of a recent power rate hike

Here is a brief fact check of these three claims.

Ontario’s $6 Billion Man

Minister Chiarelli’s claimed in a December 3, 2014 interview with Steve Paikin on TVO that Ontario had earned $6 billion “profit” on power exports. The December 3 interview is recorded here, and the minister’s $6 billion profit claim is at 4:45. Minister Chiarelli later repeated this claim in the legislature.

In the ensuing debate, Chiarelli noted that he had relied on a puffy profile column about the IESO in the Toronto Sun for his research on electricity exports. The minister had mistaken revenues for profits. The minister had misunderstood an off-hand comment from the IESO’s CEO to a political affairs reporter. The IESO CEO had intended to comment on the importance of electricity trade to reliable grid operations, not its profitability for Ontarian ratepayers.

Since 2008, Ontario has been adding very costly new generating capacity in large amounts while electricity demand has been dropping, reselling excess power in export markets at market prices which happen to be very low. The Auditor General’s 2011 report addresses the subject of the net value of exports (see figure 11), finding that from 2005 until 2010, consumers lost $1.8 billion.

Since then, export losses borne by Ontario electricity ratepayers have accelerated. In 2013, new generation was coming onto the Ontario grid at prices mostly above 13.5 cents/kWh while market prices averaged 2.65 cents/kWh. Net exports in 2013 were 13.4 TWh after averaging 10 TWh/yr over the 2008-2010 period. When surplus electricity is available in Ontario, ratepayers are better off to find some salvage value rather than wasting the potential generation, but claiming the salvage value as “profit” makes a mockery of the term.

Renewable Energy is Affordable

Environmental Defence (ED) issued this undated report announced on Twitter March 14, 2014. The study accurately claims that in 2014, only 9% of the residential power bill will be attributable to wind and solar generation. ED’s report references a report it commissioned from the consulting firm Power Advisory.

ED has been a prominent proponent for the Ontario government’s Green Energy and Green Economy Act and has received substantial Ontario government funding, such as this grant for $750,000. The Power Advisory report’s authors were a former OPA official, directly involved in setting up and administering the non-competitive Feed-In Tariff (FIT) program to subsidize renewable developments, and an advisor to the OPA. Both now represent FIT developers.

Both the Power Advisory study and the ED report omit three pieces of contextual information useful for understanding the significance of wind and solar power for ratepayers. The first two pieces of contextual information are simple. While it is true that direct wind and solar costs are today small relative to the amount of the total bill, the energy contribution of wind and solar together is much smaller still. In addition, wind and solar will rapidly grow in the near term, thereby directly driving rates. In addition, connecting and integrating wind and solar are driving costs in other billing components, particularly export losses, transmission capital additions, distribution capital additions associated with “smart grid”, storage costs, and gas-fired generation capacity and utilization.

Based on data from the IESO on energy production in 2013 and from the OPA on costs contained here (at slide 48), in 2013 wind and solar generation provided 4.15% of Ontario’s total power generation but accounted for 10.65% of total generation cost (not including non-energy charges such as distribution and transmission) or about 6.7% of the total bill. The implications for consumers of this unfavourable ratio are exacerbated by the problem that almost none of the output from wind and solar is delivered during periods of peak usage. In the years 2014 and 2015, the OPA forecasts that wind and solar costs will increase by 130% to constitute 14% of the bill. No other bill component is rising so fast.

Had ED and its consultant presented their cost information in context of information about the amount of power generated and the near term rate impacts, it would have been clear to readers that the basic thesis presented by ED is that dilution is the solution for the unfavourable economics of wind and solar power. If the contribution of wind and solar is small enough, the rate impact is moderate.

The ED document makes a host of additional popular, government-endorsed assertions about electricity facts that do not withstand scrutiny. ED claims that reduction in home energy use can offset a large part of the projected increase in electricity prices, a claim I address here. ED blames the August 2003 North Central blackout on underinvestment in the grid in Ontario, a claim comprehensively dispelled by the international inquiry into the blackout lead by the North-American Electric Reliability Council. ED repeats the claim that coal power in Ontario in recent years caused damage to human health and the environmental amounting to $4.4 billion per year, a claim addressed here. Successive Energy Ministers in Ontario have relied on these talking points in their speeches but the statements are all junk.

Gas Scandal as the Source of all Evil (and news hits)

From the opposite side of the ideological divide, the Canadian Taxpayer’s Federation (CTF) published a statement timed to coincide with a November 1, 2013 electricity rate increase “blaming Ontario’s Liberal government and the cost of their gas plant cancellations for electricity rate increases that came into effect today.” The statement was reported repeatedly by the mainstream media. As of April 9, 2014, the press release had registered 45 direct tweets. A CTF commentary posted November 4th claimed “The consequences of the gas plant boondoggle are now coming to fruition, as evident in the drastic rate increase in our power bills starting on November 1st.” That commentary registered 51 tweets.

Here is an example of the TV coverage of the CTF’s statements. It would take a substantial effort to untangle fact from fiction in this interview but notice how the statement that a large amount of gas plant costs will be recovered over 20 years contradicts the claim that the November 1 rate increase was caused by the gas scandal.

The costs created by the cancellation and renegotiations of the gas plants once contracted for Mississauga and Oakville fall into two categories — upfront costs of $230 million and an incremental energy charge over the life of the relocated plants estimated by the Auditor General in the order of $900 million. The $230 million amount was split with part recovered from customers in 2012 and 2013 through charges passed through the Ontario Power Authority and part through a direct $40 million payment from the government. The remaining approximately $900 million will be recovered in incremental energy costs starting once the relocated plants go into service and will extend over the life of their 20 generating contracts. The incremental costs will be blended with other contract costs and will be subject to changing market and operational conditions that make precise forecasting of the costs difficult. The key point is that none of the costs of the gas plant scandal drove the November 2013 rate increase.

A detailed explanation of the actual factors underpinning the November 2013 increase can be found here and here.

Classroom Discussion:

The ensuing discussion on decoding propaganda was animated. Here are some of the main points that were introduced by members of the class.

It is difficult for news consumers to get context information to evaluate the accuracy or otherwise of statements in the news.

Many news consumers probably consider all the information they are exposed to associated with Ontario’s electricity system as just another government rip-off and scandal.

Complex, interdisciplinary subjects, relying on concepts like net present value financial analysis (to pick just one example), are challenging and prone to propaganda.

Trusted sources of information and analysis could assist news consumers.

Conclusion:

I hope I was able to convey to the students the message that energy news should be read with scepticism and cross-checking. Discussions about Ontario electricity situation are so polluted with junk information that finding facts you can trust is a non-trivial exercise.

I don’t want my survey of junk information dominating popular discourse about Ontario’s energy situation to dissuade young people from participating in the energy industry. As I noted during the lecture, many parts of Canada’s energy industry face demographic challenges that provide excellent opportunities for motivated, well educated young people interested in the field. Here is one reference.

I’d like to thank Professor Desrochers and his GGR333 students for the opportunity to present some ideas and for the engaging discussion. Comments and criticisms on this post would be most appreciated.

Post Script April 19, 2014: Here is a recommended analysis by Scott Luft of the Environmental Defence report discussed above.

36 Comments

  1. 4.15% of Ontario’s total power generation but accounted for 10.65% of total generation cost (not including non-energy charges such as distribution and transmission)

    I guess you are calculating this by adding wind and solar (p48) and dividing into total market demand (so 614 +559) divided into 11,016. But:

    …or about 6.7% of the total bill.

    I assume this is the same figure, but divided into what number?

    Cheers,

    BCL

    • Dear Big City Lib,

      Welcome, although commenters with real names are even more welcome. I’ll resist the urge to make generalizations about Big City Libs and accountability.

      For calculating the portion of the total bill attributable to wind and solar, I have divided the cost impact of wind and solar by the total power system revenue requirement which can be found at Slide 47 here: http://powerauthority.on.ca/sites/default/files/planning/LTEP-2013-Module-4-Cost.pdf

      The way I calculated the wind/solar portion of generation excluded export revenue from the generation cost, whereas in the total revenue requirement figures the export revenues are offsetting. The reason I did this was to try to make wind and solar portion of costs as directly comparable to total generation costs as possible. Had I backed out export revenues from generation costs, the ratio of renewable energy costs to benefits would have looked a little worse. I should have been clearer in the text that the 4.15% and the 6.7% are calculated on a very slightly different basis in the wee decimals.

      I hope my general point is clear — the economics of wind and solar are simply ghastly. Less is better and none is better still but wind and solar are growing at a rapid pace.

      Tom Adams

  2. Have known for quite a few years that few if any new power plants would be built in the U.S. This was due to the litigation involved which would result in construction delays which in turn whould cause cost overuns. And all of these costs would have to be passed onto consumers thus increasing the cost of electricity.

    This situation was expected to surface before now but the loss of manufacturing and economic downturn which decreased electricity demand delayed the outcome until now.

    So now the U.S. is going to close conventional and nuclear power plants and look elsewhere for power supplies.

    • Power contracts can be made with reliable power producers to supply electricity such as the new Manitoba hydro projects which can supply power to the U.S. mid-west.
      But not contracts for unreliable sources of power such as wind & solar. Thus the need to push for renewable energy storage devices to attempt to make these sources reliable.

      There is potential for Mexico to supply power to the southwestern U.S. but this is a risky proposition.

      According to Manitoba Hydro’s website, long distance transmission lines are subject to severe weather events which poses added risks to power supply.

  3. O’Melvery & Myers, LLP, Apr.2, 2014
    “Texas Supreme Cort Holds that Wind energy Generator Owe Damages for Failure to Meet Minimum Generation Requirements Due to Curtailment, but Amount of Damages is Unclear”
    http://www.omm,com
    Article is on the right sidebar for this information

    Contractual issues do arrise from wind energy production.

  4. RTO Insider, Jan.7,2014, Update, U.S.
    “Update: As of 5PM Tuesday, PJM said 36,000 MW of generation, 20% of installed capacity, was unavailable due to forced outages.”
    http://www.rtoinsider.com/pjm-arctic-blast-14

    WindPower Engineering, 2013
    On Sept.16, 2013, FERC/Federal Energy and Regulatory Commission authorized the developers of the Lake Erie CleanPower Connector project to sell transmission rights to the line at negotiated rates.
    http://www.windpowerengineering.com/featured/business-news-projects/hvdc-connector-bring-canada-generated-power-u-s

  5. On TVO this week you stated that the 50% rise in electricity costs since 2008 coincided with the commencement of the GEA, implying that the GEA caused the 50% rise. Can you please supply some evidence to support your claim. thanks

    • Your precise of my position is inaccurate. The GEA wasn’t passed into law until 2009. I am currently drafting with a co-author a study discussing Ontario’s rate history starting in the 1990s and the rate drivers behind the increases in recent years.

  6. Look forward to that work – long overdue. In the meantime, did I not hear you on TVO link the timing of the passage of the GEA with the timing of the commencement of the 50 % increase? If you could cut and paste into a reply what you did say that would be helpful.

  7. I listened to the TVO discussion again – around the 09:50 minute mark of the discussion you do mention, despite the interruptions, commenting on the price increases since 2008/2009 “the big driver….GEA is the main factor”… “50% price increases since 2008″ …”wasn’t until we got the GEA”… “caused prices to rise”.

    There seems to be a direct link in your comments of the 50% price rise to the GEA. Again, please correct me if I am mistaking your position.

    In contrast, the Globe and Mail article of May 23, Shawn McCarthy, “Are Hudak’s energy plans realistic?”:

    ” But renewable power accounts for only a small portion of Ontario’s cost-disadvantage.

    ‘It really hasn’t been driven to date by subsidies for renewables,’ said Adam White, president of the Association of Major Power Consumers of Ontario, which represents major industrial customers.

    He said renewable energy producers get roughly 5 per cent of the so-called “global adjustment” payments which go to all power generators to provide revenue over and above the market-based wholesale price of power.”

    Looking forward to your analysis. Might it be available prior to June 12?

    • My Ontario electricity price and cost research is being done for a think tank with charitable tax status and they are scrupulous about being squeaky clean with respect to rules preventing charities from participating in politics, so they asked for the research to be published after June 12.

      The direct cash contribution of renewable generation to the global adjustment is not a reliable guide to the customer impact of renewables. Connecting and integrating wind and solar are driving costs in other billing components, particularly export losses, transmission capital additions, distribution capital additions associated with “smart grid”, storage costs, and gas-fired generation capacity and utilization. – See more at: http://www.tomadamsenergy.com/2014/04/10/decoding-ontario-electricity-propaganda/#sthash.h64RVuhZ.dpuf

      In terms of getting reliable information on what is driving rates, it is noteworthy that when AMPCO succeeded in getting the global adjustment Class A/Class B cost shift implemented in 2011, the impact of unreliable wind and solar generation in driving down the hourly Ontario electricity price provided a large cost benefit to AMPCO members.

  8. IEEE Spectrum, Jan.9, 2014
    “Polar Vortex Cripples Power Generation, But Grid Survives”
    “PJM is also investing billions of dollars in transmission upgrades to cope with the loss of retiring coal plants and the variability that comes with increased renewable energy; this improvement may have helped with generation issues over the past week.”
    http://spectrum.ieee.org/energywise/energy/the-smarter-grid/polar-vortex-cripples-power-generation-but-grid-survives

  9. Stanford University, Precourt Energy Efficiency Center
    Behavior & Energy Cluster
    Website has information on the acceleration of the adoption of sustained use of energy efficiency technologies and climate-positive actions by individuals, groups and organizations.
    http://peec.stanford.edu/behavior
    Behavior modification or brain-washing? Anyones choice of either or both!

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