What follows below is an annotated summary of the discussion I had with Tom McConnell of CKTB Niagara and CJBK London radio stations between 10 and 11 am on November 3rd. A recording of the interview is available on Soundcloud here. Timestamps are included to allow listeners to find content of interest. The descriptions of discussion here not literal transcriptions.
Main points: New analysis shows that wind, solar and conservation are worse for Ontario consumers than previously understood. If Ontario’s power system was structured as if consumers matter many current policies would have to be reversed. Minister Chiarelli pronouncements on financial basics of the power system are unreliable. Electricity in Ontario has become the new version of tobacco, with government seeking to stamp out consumption. Industrial power rate competitiveness is an economic problem that must be addressed. Coal power with modern emission controls to eliminate smog could benefit Ontario consumers.
Host intro (0:00-1:50)
AN: Many people ask what is causing power rates to go up and why is there even a debate about why rates are rising? Professor McKitrick and I recently published a study on behalf of the Fraser Institute to isolate and quantify the causes. Anyone can check our analysis. The key to the story is Global Adjustment (GA), a financial term underlying a large and rapidly growing portion of your bill. GA has been renamed or rebranded, with this rebranding creating yet another layer of complexity that makes it difficult for the public to follow the story. A few years ago, the equivalent of what is now called the GA was approximately zero. In 2013, GA reached 6 cents/kWh but the October estimate is now at 10 cents/kWh. Soaring GA is the big story behind rising rates. (1:50-5:10)
Host: What is GA? (5:10-6:20)
AN: What makes GA hard to figure out is the fact that GA is significantly impacted by interactions between generators and between generation vs. load. The direct payments to power generators do not reflect the impact on consumers of those generators. Other analysts who have attempted to explain power rates have focused on just adding up the direct payments to generators and assumed the those accounting sums constitute the rate impact. This methodology ignores interactive effects between generation and load like export losses. (6:20-8:40)
Host: Hang on, the Energy Minister Bob Chiarelli says that export are vastly profitable. (8:40-8:48)
AN: Bob Chiarelli tells the whackiest stories. He also says that huge profits at OPG are funding schools and hospitals. He says exports are profitable. The reality today is that power exports are for Ontario a buy high, sell low business. Kathleen Wynne has confidence in him but his math doesn’t add up. (8:40-10:00)
Host: summary (10:00 – 11:10)
News and ad break (11:00 – 14:30)
Host: Who pays the GA? (14:30-14:50)
AN: Until 2011, all customers paid the GA in proportion to their usage. Starting in 2011, the largest industrial consumers — now called Class A consumers — were put on a different rate calculation methodology that transferred a large portion of the GA they would otherwise have paid to all the other consumers in the province — the so-called Class B consumers. Such reallocation of cost between groups of consumers is not necessary against the public interest. Industrial rate competitiveness is a serious concern. Ontario needs to keep power rates competitive for exporters and electricity intensive business competing against imports. We ought not burden exporters with excessive green costs. European jurisdictions that got heavily into wind and solar have tried to shield exporter industries from the burden of uncompetitive rates. Although well intentioned, Ontario’s approach to cost allocation leaves many exporters exposed. Examples include food processors and many other industries trying to compete in international markets. In the US, power prices have been declining. We have a problem here. (14:50-17:15)
Host: What is green energy doing to Global Adjustment. Isn’t the impact small? (17:15-17:50)
AN: The advocates for renewable energy claim that the impact of wind and solar is small but their analysis is based on only adding the direct cash flows, ignoring the impacts that wind and solar have on costs in the rest of the generation fleet. Some of the impacts of wind and solar arise from the fact that their output often comes when consumers don’t need more power. For example, solar power is useless for meeting peak needs on most days in Ontario and worsens the evening ramp for non-solar generators. However, the cost impact on non-solar generators is ignored in the simple accounting analysis. Some cost impacts of renewables are 3 times greater than direct payments to the renewable generators. (17:50-20:50)
Host: Explain (20:50-21:20)
AN: The reason we undertook the study was to see how the moving pieces interact with each other. All our code and data are available for review. (21:20-22:15)
Host: summarizing What can we do to stem the rising price? (22:15-23:00)
Host: Conservation paradox, fixed cost treadmill, rising water rates as an example (28:20-28:55)
AN: Conservation policies in Ontario are abusing consumers. In 2004, then Premier McGuinty launched a “culture of conservation” during a time of anticipated supply shortage. Conservation programs can be a legitimate response to expected supply shortages. However, when demand started to tank and Ontario started losing vast sums on exports and paying generators to not generate (the costs of curtailment are secret), the government kept going with costly conservation programs. The “culture of conservation” has been rebranded by Premier Wynne into “conservation first” but the basic policy is unchanged. There are many examples of costly programs that listeners might recognize, like light bulb discount coupons and subsidies to install central aircon. Conservation programs have many vocal supporters. (28:55-32:50)
Host: Does paying producers to not generate mean that conservation is costing extra? (32:50-33:10)
AN: Conservation is a double whammy when consumers are paying for conservation programs while also paying producers to curtail production. It is useful to remember that consumers use electricity because it is useful stuff. (33:10-33:30)
Host: There is no alternative to electricity. (33:30)
AN: Electricity in Ontario has become the new version of tobacco. The government has decided that less you use, the more pure your soul. The government is offering a 12 step program to help you get off your electricity addiction. Even some public health agencies support the propaganda to encourage less usage, claiming that reduced usage provides public health benefits. (33:30-35:00)
Host: Do neighbouring utilities who buy our exports pay Global Adjustment?
AN: Consumers in Ontario are better off by not taxing exported power. (35:00-36:15)
Host: What can we do? (36:15-36:40)
AN: There are things we can do. To start solving the problem, we need to stop adding to the portfolio of wind and solar contracts. Premier’s direction to the Energy Minister is to triple the renewables fleet. Does nobody explain to her what the implications will be of that? (36:40-38:00)
Host: Is rescinding contracts a feasible approach?
AN: Rescinding contracts is viable says a recent Fraser Institute study. The gas plant scandal reminds us that renegotiating contracts can go badly. Minister Smitherman promised that the cost impacts of the Green Energy Act would only be 1% per year. Consumers were sold a bill of goods about the impact.
Host: extro (41:00-41:30)
Host: McKitrick has a history of debunking the health benefits of coal phase-out but isn’t the coal restart idea a non-starter? (45:05-46:10)
AN: When Ontario’s surplus power is exhausted during the nuclear refurbishment, something will have to be done to fill the hole in the power supply. A political consensus to kill all of Ontario’s coal happened just as Ontario finally upgraded the pollution controls at 4 units. Those units are good assets that should be preserved. (46:10-47:45)
Host: Is the fact that many European countries are investing now in coal significant? (47:45-48:15)
AN: The new generation of German coal plants are clean and reliable. Coal in Ontario will be better for consumers than using wind and solar to fill the gap during nuclear refurbishment. We have in Ontario some good coal assets. Keep them alive. (48:15-50:00)
Host: Politically unsaleable. (50:00-50:30)
AN: If customer’s matter, coal would be reconsidered. The notion that customer count has gone out of fashion in official decision making. The Premier’s mandate letter to Minister Chiarelli shows that customers are not even an afterthought. Apparently unaware of the impacts, the Premier has decided that Ontario will continue on McGuinty’s path.