Filtering out the impact of previous regulatory decision still wending their way through the rate structure and looking purely at the proposed changes arising from the new rate proposal, the overall rate increases phased in over the next three years are as follows:

Residential: 18%

Small to Medium Businesses and Institutions: 19%

Medium to Large Businesses and Institutions: 15%

These increases are far lower than contained in the utility’s rate proposal turned down by the OEB January 5th. The rate of increase at Toronto Hydro also lags the rate of increase of the overall electricity sector.

There are several areas consumers should be concerned about in the new application. For example, the new rate filing includes a warning from the utility to expect a significant increase in 2015. The new application continues to include Green Energy Act-inspired silliness such as utility-scale batteries to help manage intermittent renewable energy generation.

There appears to be some good news for consumers reflected in the application. The application does not appear to seek recovery of restructuring costs arising from the utility’s unplanned downsizing. It will be interesting to see the impact of these costs on the coffers at Toronto City Hall.

The government’s announcements continue to leave the public in the dark as to how large blocks of our electricity dollars are being spent and who to hold to account for the use of those funds.

The AG’s December 2011 report contains a useful summary of the electricity debts left over from the old Ontario Hydro in 1998.

Here is a thumbnail summary of the relevant history. The value of Ontario Hydro’s debts, nuclear waste liabilities, and above-market power purchase contracts were estimated at the time the utility was broken up and compared with the estimated value of its assets. The net value assigned to the overall portfolio was pegged by the government of the day (Premier Harris) at negative $20.9 billion. That figure became known as the “stranded debt”. The government then claimed it had identified revenue streams that would discharge $13.1 billion, with the remaining $7.8 billion identified as the “residual stranded debt”. Since 2002, the government has collected a 0.7 cents/kWh tax on all grid electricity sold to Ontario consumers called the Debt Reduction Charge (DRC), assuring the public all along that the tax would only be collected until it had discharged the “residual stranded debt” where upon the DRC would be abolished. The administration of liability management and revenue collection rests with a Crown agency called Ontario Electricity Financial Corporation (OEFC) whose mandate and administration are entirely controlled by the government of the day.

The value of the stranded debt was never determined objectively at the point of Ontario Hydro’s break-up. Since the value of the stranded debt over time hangs on the values of the Crown corporations Ontario Power Generation and Hydro One, whose values are indeterminable, the real value of the stranded debt today can only be guessed at. The uncertainties that plague any attempt to value the stranded debt are compounded when attempting to estimate the residual stranded debt because the revenue streams to service the stranded debt are also uncertain. The uniqueness of the assets and liabilities underpinning OPG and the lack of markets to value the liabilities and the services rendered exacerbate the stranded debt valuation problem.

Any estimate of the stranded debt is a guess and any estimate of the residual stranded debt is a wild guess.

The only thing that is clear is that billions of consumer dollars of flow into OEFC every year. Last year, OEFC claimed revenues of $4.413 billion. These funds discharge OEFC’s obligations, but those obligations are not fixed. The government of the day can and has ordered OEFC to take on projects far beyond its original mandate. For example, Premier Eves used OEFC to rent generators to meet projected peak summer demands and fund his rate freeze.

The revenue streams that service those obligations are mostly untraceable once the money gets into OEFC’s hands. A key finding of the Auditor General in the December 2011 report was to determined that DRC funds — paid by consumers to the tune of over $900 million per year — do not have to be applied to the residual stranded debt but can be used for any purpose that is in accordance with the objectives and purposes of OEFC. The kicker is that the government controls objectives and purposes of OEFC.

Right now, the DRC could be around for many years if the government wants it to be. On the other hand, government could abolish the DRC immediately only to discover a few years hence that a new electricity deficit has been discovered.

The root problems are lack of transparency and a lack of objective information. Many of the basics of OEFC’s operations are not disclosed. For example, OEFC’s power purchase costs are known by year but not the volumes purchased. OEFC issues no quarterly statements.

Privatization of OPG and Hydro One would really help the public by nailing down some of OEFC’s real assets and liabilities.

The AG’s recommendations that the government’s most recent announcements respond to are excerpted here:

“Given that the DRC has been collected from electricity consumers for almost a decade and that more than $8 billion in DRC revenue has been collected during that time, our view is that the Minister should make a formal determination of the outstanding amount of the residual stranded debt in the near future and make this determination public. Consideration should also be given to that part of section 85 that allows the government to establish and clarify, by regulation, when such a determination will be made and how the amount of the outstanding residual stranded debt is to be calculated.”

To understand how feeble these recommendations are, consider the government’s response.

Finance Minister Duncan reported yesterday that the residual stranded debt is $5.8 billion as of March 31, 2011. Although responsive to the AG, there is no way to independently confirm the government’s figure.

The new regulations say that the residual stranded debt is the difference between the stranded debt and the present value of the revenues that service the stranded debt. Again, although responsive to the AG, the answer provides future governments all the room they need to cook up any value of the residual stranded debt that suits their needs best that particular year.

Yesterday’s announcements from Duncan were utterly vacuous, but the McGuinty government can fairly claim to have complied with both recommendations of the AG.

Here are some recent examples where government has manipulated the stranded debt and residual stranded debt estimates. Remember that anything suppressing OPG’s net income increases stranded debt. Recent decisions suppressing OPG’s net income include ordering OPG to undertake poor investments like the Lower Mattagami redevelopment (which delivers its new energy mostly during spring run-off when the power will often be useless), suppressing OPG’s rates (such as the government’s order in April 2010 that OPG cut its requested 9.6% rate application for 2011-12 then before the OEB to 6.2%, subsequently reduced by the OEB to 1%), and flooding the spot market with intermittent generation operating under take-or-pay contracts (which kills the value of OPG’s large unregulated hydro-electric output).

Every year in OEFC’s annual statement, we are given an updated date by which the stranded debt will be “defeased” — that is when the debt will be low enough that the remaining revenue streams without the DRC are sufficient to service it. The current date range is 2015-2018 but the dates have been as early as 2010 and as late as 2020.

If the AG had been paying attention, the black box at OEFC would have been exposed to sunshine long ago.

The missing piece that would bring transparency and some possibility of accountability to this issue is the simplest administrative measure that could be imagined.

All we need is  for the government to release its financial plans for OEFC future every time it releases OEFC’s annual statements. That plan is the basis for the annual update statement about the defeasance date. Only by comparing OEFC’s actual revenues and costs over time relative to previous plans can the public see what is really going on.

Since the break-up of Ontario Hydro, the Auditor General has addressed electricity issues several times. The AG’s failure to identify the information the public needs to be able to see what is really going on with the stranded debt joins a list of failures by the AG’s office on electricity matters. Other examples include a failure to adequately document how consumers are being harmed by green energy policies and the AG’s failure in 2000 to understand the impact of electricity losses on the provincial deficit.

The AG’s office is one of our society’s most important guardians. If anyone has any suggestions on how to get the AG to pay closer attention to our building electricity crisis, please share it.

The URL line for the site shows that the transfer is only partially complete. The original “tomadamsenergy.com” URL should be reassigned soon. Until this site has the URL “tomadamsenergy.com”, bookmarks that relate to this IP address may prove unreliable.

Every effort was made in the transfer to this new site to preserved the structure of the original content. Where rewriting was required, the previous content was preserved as faithfully to the original as possible. Some of that rewriting is not yet complete. If you notice anything missing or broken, please send me a note. The structures of posting URLs for this new site have been upgraded to improve future searchability. Unfortunately, there may be some impact on users who have bookmarks to content on the old site.

We are doing everything possible to get the site fully functional again. We should have the forced and planned outages and service problems of the last month behind us by May 10th at the latest.

Apologies to any impacted users.

Tom

Post script as of May 17: still working on getting the contact form working, should be in-service by the weekend

Power systems rely on capital-intensive and long-lived assets. To understand a utility’s performance, it is useful to consider trends over long time periods. Ontario Hydro’s monopoly was replaced ten years ago yesterday, initially by a shortly lived competitive electricity market and later replaced by a so-called “hybrid” market of increasing government control. Before the competitive market opened, the provincial government broke up the old Ontario Hydro into five agencies. The transparency benefits of unbundling the old Ontario Hydro is the only important remaining public interest benefit of the reform process that broke up Ontario Hydro.

Most of Ontario Hydro’s generation assets moved to the crown agency, Ontario Power Generation. The Bruce nuclear complex was soon leased from OPG to a consortium of industrial and financial interests. All of Ontario Hydro’s contracted generation, mostly from natural gas-fired generators but also from hydro-electric generators, became the responsibility of the government agency called Ontario Electricity Financial Corporation (OEFC). OEFC also picked up a large piece of the old Hydro’s debt and waste disposal liabilities, most of which was nuclear related. OPG privatized four hydro-electric units capable of modest annual production in a competitive auction in March 2002.

Ontario Hydro’s (now OPG’s) large but rarely used peaking natural gas and oil-fired generator located near Kingston today produces very costly power per unit but the annual output is trivial. Pickering A is also very costly, with most recently reported operating costs alone of $92/MWh, but its costs arise from a refurbishment project that completed in 2005.

Of all the baseload generation once owned or controlled by the former Ontario Hydro, by far the largest consumer burden per unit of production today is from the contracted generation.

Here are some production and revenue figures from four Ontario Hydro-contracted gas-fired or gas/biomass fired generators operated by publicly traded Northland Power and the resulting consumer impact:

The implied capacity factors that these production and capacity figures represent suggest that Northland Power’s gas-fired capacity and gas/biomass capacity is running hard during times when Ontario has surplus power. Because OEFC bears substantial but undisclosed losses disposing of this power, the final delivered cost of power to consumers would be higher than the figures presented here.

Even if we were to assign all of OEFC revenues from the payments-in-lieu from distribution utilities, the Debt Reduction Charge, and the net income of OPG and Hydro One to the cost of the former Ontario Hydro’s nuclear generation including the boondoggle Pickering A station, the consumer costs would be in the range of $80-95/MWh — still below the rate impacts of the NUGs.

Normal utility financial models applied to the natural gas-fired and hydro-electric generators contracted by Ontario Hydro in the late 1980s and early 1990s would have had those facilities generating very cheap power in 2011 and 2012 as the effects of depreciation and declining gas prices rolled in. Instead, the use of back-end loaded financial instruments created a massive liability for consumers and a windfall for a handful of developers.

Northland’s gas-fired contracts originally negotiated with the old Ontario Hydro expire in 2015 and 2017. In a properly functioning and transparent power system, consumers would be expecting relief.

On November 23, 2010, the Minister of Energy directed the OPA to renegotiate the OEFC contracts in advance of their expiry. Northland reports in its 2011 Annual Report that it has commenced the process of engaging with the OPA in pursuit of obtaining new contracts for its owned and managed facilities with OEFC power purchase agreements.

The precedents set by the Ontario government’s Hydro-Electric Contracting Initiative, where secret deals ripped off massive but undocumented consumer value to the benefit of firms like Brookfield, suggests that help is not on the way.

Back-end loaded financial instruments represent a hidden hazard for electricity consumers. Sophisticated financial discounting and escalation clauses in the hands of unsupervised financial engineers negotiating with government monopolies can make good projects into bad ones and can make bad projects appear to be angels for the first few years of service. This is exactly what is happening now with the Muskrat Falls project in Labrador, where the Newfoundland government is trying to use back-end loading to transfer the costs to the profoundly unnecessary and uneconomic project out up to 57 years into the future. Back-end loading is a central feature of the current FIT program and a key reason behind the gold rush attracting international investors now feasting on future Ontario ratepayer dollars.

(The original posting had to be migrated to the new site manually. The comments had to be moved in the post body, but are recorded here faithfully to the original.)

7 Comments

1. Scott Luft says:

   2012/05/02 at 9:13 am  (Edit)

   Thanks Tom – there’s a lot to digest in this.
   Perhaps you could provide an opinion on the Bruce A contracts, and if there were lessons learned there compared to the Pickering refurbishment. While clearly it’s an awkward time (to put it mildly) for new inflexible generation to come online, my understanding is the auditor general did feel these contracts offered much better protection for consumers.
2. NormRubin says:

   2012/05/02 at 1:32 pm  (Edit)

   Tom, the metric here is $/MWh, not total impact on our bills, right? I was impressed with SP Stensil’s recent analysis of OEB reports showing that OEB’s nukes are responsible for way more of our rate increases than the FIT renewables. These contracted sources represent much fewer total $, but they hit higher $/MWh, yes? (Need some more coffee. . .)
3. Bruce Sharp says:

   2012/05/02 at 5:19 pm  (Edit)

   Not sure if this was the analysis but I did see a Greenpeace blog post, that included this gem:

   Luckily for consumers, however, the Green Energy Act is also designed to reduce prices paid for new wind and solar installations as prices drop due to innovation in the industry. And the government reduced prices paid for renewables earlier this year.

   Too bad the OPA hadn’t blinked and implemented solar price degression … but when the kids said, “We want to eat Count Chocula for every meal”, Jason Chee-Aloy et al. said “Sure, you know what’s best”.

   Here’s the recent work Aegent did for CME and other consumers groups and that was submitted to the OEB.

   http://www.rds.ontarioenergyboard.ca/webdrawer/webdrawer.dll/webdrawer/rec/211562/view/CME_EVD_20100826.PDF

   By the end of 2012, the new GA dollars in 2012 (instantaneous) will be Bruce A = $ 587 million, wind + solar = $ 274 million.

   By the end of 2013, the new GA dollars in 2013 will be Bruce A (added in 2012) = $ 1 million (escalation tempered by higher spot prices), wind + solar = $ 1,011 million.

   By the end of 2016, wind + solar adds a total of $ 3,050 million, to curent wind + solar costs of ~ $ 450 million.
4. Scott Luft says:

   2012/05/02 at 6:25 pm  (Edit)

   You need more than coffee Norm. Stencil didn’t do an analysis. He found big numbers and misinterpreted them.
   http://morecoldair.blogspot.ca/2012/05/dead-for-left-greenpeace-has-new-lie.html
5. Parker says:

   2012/05/02 at 6:44 pm  (Edit)

   Norm: We kind of know you are not a big fan of nuclear but to brazenly say that SP Stensil’s article “impressed” is over the top. Tabuns will now whisper even more BS in Andrea’s ear. Stenzil conveniently ignores output versus contribution to the GA for wind and nuclear, the effect wind production has on the HOEP-drives down pricing, causes OPG to spill hydro, etc., etc. Don’t give these dolts more ammo!
6. Kathy Hamilton says:

   2012/05/05 at 12:22 pm  (Edit)

   Quoting Tom Adams: “… Northland Power’s gas-fired capacity and gas/biomass capacity is running hard during times when Ontario has surplus power. Because OEFC bears substantial but undisclosed losses disposing of this power, the final delivered cost of power to consumers would be higher than the figures presented here.”

   Excellent points, Tom. Although people like me, who had attempted to indicate the existence of local public opposition to Northland Power’s proposed “pumped storage” project (as was previously enabled on your site on December 15 2011 herehttp://tomadamsenergy.com/?p=1433 ) had discussed similar points locally, none of us offered such comments online and at that time. Shame on me!

   Although I don’t mean to needlessly expand on the topic of this “Most Costly Legacy” posting, I hope you won’t mind me now pointing out that one of the lingering public beliefs here in Marmora is that this proposed facility would generate electricity only upon IESO direct request and therefore sell it to the grid only during peak requirements.

   This local belief grew its legs from public statements like the following, published in the FAQ that Northland posted on their own website, which was mirrored on the Marmora and Lake municipal promo page – also becoming a “letter to the editor” published in newspapers local to Marmora:
   “…Ontario currently has energy sources such as nuclear, wind and waterpower
   that generate power beyond the grid’s needs at certain times, especially at night. In those
   periods, the independent system operator would signal Marmora to fill the upper reservoir—
   knowing that it is storing power it will need during coming high-demand periods.”

   I have no reason to suspect that these points Tom has made regarding excess to costs to consumers related to Northland’s others facilities would not be equally relevant to its pumped storage plant proposed for construction here in Marmora. In case it is pulled up in a search and because I have linked to it from my own site, I have now also cross-linked an adaptation of this statement as feedback to Tom’s previous posting of December 15 2011.
7. Shawn-Patrick Stensil says:

   2012/05/05 at 5:46 pm  (Edit)

   What’s unfortunate in all the complaining about my blog post above is no one actually refuted what I (or the OEB was saying) was saying. A big portion of *recent* Global Adjustment increases have been caused by the regulated prices given to OPG and Bruce Power.

   What the blog argued was that green energy costs need to be put in context. That’s a fair argument and I haven’t heard any argue against it. As the OEB (not me) said: “The major factors that led to the increase in 2009 were a significant decrease in wholesale electricity price and a higher regulated price paid to OPG.”

   So yes, 45% of increased electricity generatin costs is due to nuclear subsidies. And yes, there other aspects of your bill. That’s a fair statement and important context for public debate. Most comments I’ve seen by green energy critics have not provided such context.

   Another distinction that should be made is between *recent* sources of increased generation costs (as reported by the OEB) and *projected* increases in generation costs. Important to be clear on what you’re saying. My blog was clear that I was referring to the former.

   And when it comes to talking about projections of future generation increases, these should also consider the contribution of nuclear, specifically the Bruce A restart and OPG’s coming rate request. We can assume OPG will ask for more because of the age of its reactors (that’s the trend) and will probably ask for CWIP for the Darlington refurbishment (at least under the GEA you only pay for electricity generated). And yes, with increased renewable power coming online, this will also increase generation costs. Just put it in context.

   And in regard to Bruce prices, these should also mention the increased floor price given to Bruce Power for the Bruce B reactors. This got increased once the over-runs started at Bruce A – another hidden subsidy to the Bruce A restart and contributor to Global Adjustment costs (Under the GEA, operators can’t pass on cost over-runs like this.)

   Ok that’s it.

   You folks are all pretty smart people. You should perhaps tone down your rhetoric. It makes you sound defensive.

   Cheers.

   Shawn-Patrick Stensil, Greenpeace

    

   Post from Scott Luft @ 5:07 May 6

   I provide a link above that shows the lie, or the ignorance, both in your original post, and your claim your post wasn’t refuted.
   The GA is one portion of the bill, and the growth is primarily due to a collapse in the HOEP – and that is a clear market signal that capacity should not be increasing.
   If you claim the GA is the subsidy (and I’ve had an editor do so!), then everything is subsidized and it leads nowhere.  If you look at what generators received for their output, and what it received through both market and global adjustment mechanisms, it’s a much more meaningful determination of which suppliers are subsidized – and by which other suppliers.
   The spreadsheet embedded in http://morecoldair.blogspot.ca/2012/01/sober-look-at-ontarios-2011-electricity.html estimates what revenue gets moved around through the GA mechanism – nuclear production was resold for about$900 million more than the grid paid for it, while wind and solar were resold for about $400 million less.
   This isn’t some weird parlor trick.  If you paid $70/MWh, it would be expected the generators receiving less than that are subsidizing those receiving more.
   You can use my figures to say nuclear was subsidized about $2.4 billion in 2011 – and hydro $180 million, while wind was only subsidized by $422 million.
   I can’t.
   I know it’s untrue.

As discussed in Part 32 of the “Ontario Electricity Regulation Crisis Report”, under Section 6 of the OEB Act, the Ontario government is responsible for appointing a chair and two Vice Chairs. Ignoring the explicit requirement of the legislation, the government has left the Board operating with a single Vice Chair for about a year and a half. The legal structure of the Board requires that the Chair and two Vice Chairs form the Management Committee of the Board. The Management Committee is empowered through a Memorandum of Understanding with the Ontario government to play key guidance and accountability roles for the organization. In the absence of a second Vice Chair, excessive power rests with the Chair, now held by Rosemarie Leclair. In Parts 32 and 42, I have raised concerns about bias against consumers on behalf of the Chair.

Diluting the Board with part-timers would marginalize the Board relative to the Chair and to keep Members on a short leash.  Part-time Members are very likely to be conflicted and are always beholden to the Chair for the next bit of work.  Because of their structural time limits, they aren’t involved in policy development, leaving the field to the Chair and staff, who are also highly influenced by the Chair’s whims for their job security.

Another concern that needs to be addressed is that the OEB’s conflict of interest rules effectively rule out the appointment of any energy sector professionals who have recently been engaged to represent broadly based consumer interests, although similarly qualified professionals representing utilities would be permitted under these rules. This anomaly arises because representatives of broadly based consumer interests are routinely active in many proceedings and would therefore be disqualified for a period of two years from deciding on any cases affecting any of those applicants. On the other hand, utility professionals normally work for a single client or few clients and would therefore not face the same sweeping disqualifications from deciding cases.

The interview runs about 38 minutes, excluding ads and news, which are included in the podcast. The podcast has a countdown timer, which is used here to annotate the interview so that you can find the bits that might interest you.

49:00 Comparing what the government says about the rate increase vs. the real story. Reader wanting more can should check out this column from Parker Gallant. Parker’s column one of the smartest pieces of writing on Ontario’s electricity rate situation that I have seen in long time.

47:00 Why you will be hit by double-digit rate increases over the next few years.

46:00 Why the need for reliability and asset renewal does not explain why Ontario’s power rates are rocketing up while US rates decline or are flat.

45:00 The U.S. Energy Information Administration forecasts declining rates for industrial and commercial consumers in the US and flat rates for households.

43:00 I discusses Ontario’s history of low rates (sometimes artificially low) and how our economy was built around an assumption that electricity would remain reasonably priced.

41:50 Note the error where I intended to remark on Ontario’s rates now exceed those in the US and about to surpass those rates, but mistakenly replacing “Ontario rates” with Canadian rates”.

41:20 Ontario’s rates will exceed those of any jurisdiction in the US and Canada by 2013. I don’t discuss it in the interview, but it is interesting to note that the OPA used to publish comparative rates analysis but no longer does.

41:00 The rate of increase in Ontario’s prices will accelerate in 2014.

39:00 until 34:00 advertising

34:00 – 29:00 McConnell asks why the decline in the price of natural gas is helping lower US power rates while Ontario’s power rates are being driven up by natural gas-fired generation. I explain that the way gas-fired generation is being used makes all the difference. McConnel nails the implications of fickle wind on the rest of our generation fleet.

29:00-23:00 News

22:20 McConnell asks what is the impact on consumers of new renewable energy generation so far and in the foreseeable future. I explain that the immediate impact of the Feed-In Tariff  (FIT) program has so far been minimal but will quickly grow to be the main factor driving up prices.

21:00 – 18:45 McConnell asks what is driving up rates. I discuss the role of various Ontario government policies.

18:45 McConnell asks about the impact of conservation. I explain that conservation is an important factor driving up rates.

15:50 I discuss the financial instability that is about to arise as the unsubsidized cost of solar power falls below the cost of grid power. Consumer able to make those investments will start reducing their reliance on grid-supplied power, leaving consumers unable to switch holding the bag.

15:00 I draw attention to the plight of low-income consumers. Seniors who are unable

13:50 McConnell expresses alarm about Ontario’s practice of paying neighbouring utilities to take our power. I explained why Ontario consumers are funding this bonanza for our competitors. I didn’t note, but should have, that the McGuinty government applauds its own record in making Ontario an electricity export power house. I am a strong supporter of free trade in electricity but claiming that exports “Keep costs down for families” is dishonest.

11:35-6:45 ads

6:45 – 3:40 I respond to an on-line caller asking if the problem with the power system is excessive executive compensation. I explain that in most instances, Ontario’s electricity executives are doing a reasonable job for reasonable pay and delivering reasonable value.

3:40 – 3:10 I discuss key priorities if we are to contain the cancerous growth of Ontario’s electricity prices.

3:10 – 1:30 What can individual consumers do?

0:30 The implications for low-income consumers and high electricity consuming employers.

Costs borne by consumers to fund these agencies are likely to continue to rise because the work they must do is expanding. The government is saying that merger will save $25 million, but independently verifying this claim by tracking costs through the giant shell game of shifting responsibilities and projects between the OPA, IESO, OFA, OEFC, OEB, and HONI is virtually impossible.

The merger of the OPA and IESO marks a further politicization of Ontario’s power system. Since 2009, the government has prevented OPA from issuing updated power system plans, which was the principal reason the OPA was created. The OPA was at one time subject to an OEB license requirement to produce an updated power plan in 2009, although the OEB ignored its own licensing requirements. In the run up to the 2011 election, the government took over the planning function, issuing the Long Term Energy Plan. Previous analysis of that plan by Parker Gallant and I established that the LTEP was not written with the aid of a sharp box of crayons. The actual rate trend since the release of the LTEP has demonstrated that the government’s rate forecast in the LTEP has proven to be well below actuals. Collapsing the OPA into the IESO is McGuinty’s idea of mitigating the embarrassing lack of a workable, expert electricity plan for Ontario.

McGuinty is restructuring key institutional structures without a plan. The OPA’s work will not disappear but will just be transferred to other agencies. Tearing up the OPA is an institutional shell game, a pointless symbolic action that will only waste a lot of valuable staff resources shuffling the same cards into a new order.

A radio podcast of an interview on april 18 addressing the merger of IESO and the OPA (not “ISEO & OPG”) as noted in the podcast listings from NewsTalk 610 CKTB with Tom McConnell is here.

We discussed the Labrador power and transmission megaproject proposed for Muskrat Falls on the Lower Churchill River. I recapped the reasons for my concern that Nalcor has overestimated the useful production it can get from Muskrat Falls by failing to establish an agreement with Hydro Quebec to use the storage and generation resources Quebec controls at Upper Churchill. I also explained why the unusual financing and rate recovery model that Nalcor proposes for the project will make the project appear more cost-effective in its early years than it really is, while transferring a large financial liability to ratepayers many decades in the future. I also discussed a simple rate redesign concept commonly used by other utilities which would help reduce the need for very costly oil-fired generation. One element of the interview that was new to readers following my analysis of Muskrat Falls is that I pointed out the similarities between the costly off-fossil fuels policies in ON, NS, and NL.

During a hot debate on April 6th between Mr. Daley and a representative of the Sierra Club, Mr. Bruno Marcocchio, who was questioning the justification for Muskrat Falls, Mr. Marcocchio endorsed my analysis of the intergenerational unfairness that would result from Newfoundland government’s financing and rate plan for the project. Mr. Daley claimed that my work has been “brought into question” related to the “things he (Tom Adams) has said and done with other projects” and “he (Tom Adams) has been proven dead wrong”.

A podcast of the interview is here:Adams interview on VOCM Radio, TalkBack with Paddy Daly, April 16 re. Muskrat Falls

Nalcor issued this tweet immediately after the interview: “Nalcor has an enforceable Water Management Agreement in place for the Churchill River established by the PUB.” The Water Management Agreement Nalcor is referring to here is with its affiliate Churchill Falls (Labrador) Corporation.

Nalcor’s deal with its affiliate CF(L)Co is irrelevant. Until HQ has agreed, Nalcor has zip. Here is why.

Here is Nalcor’s claim that the provincial Water Management Agreement allows it to use the Upper Churchill reservoir and generation facilities to deliver energy to the Island during peak winter demand periods. Note that this explanation for Nalcor’s production plans were adduced into evidence only after final submissions were submitted to the panel.

Here is Hydro Quebec’s statement that its rights to Upper Churchill are unaffected by the Water Management Agreement.

An acknowledgement from Hydro Quebec that it agrees with Nalcor’s planned use of Upper Churchill for use to deliver power during the winter peak to the Island would resolve my dispute with Nalcor on this point.

For those new to the Ontario Electricity Regulation Crisis Report, the purpose of this series has been to report on regulatory developments at Toronto Hydro arising from a decision of the Ontario Energy Board on January 5, 2012. Here is a brief summary of developments. In a nutshell, my thesis is that Toronto Hydro management under the leadership of CEO Anthony Haines planned and then pursued a regulatory crisis. I believe that Haines took his initiative at this time because the Ontario Energy Board has been weakened by the Ontario government’s negligent appointments practices.

Until about a year ago, Ms. Leclair was a member of the Electrical Distributor’s Association board of directors and chair of Hydro Ottawa. Having so recently moved over to lead their regulator, you might expect that Ms. Leclair would be cautious in presenting to her former peers. Instead, Ms. Leclair’s latest speech makes several comments that cast doubt on her ability to fairly consider concerns about utility inefficiency and excessive rates.

Ignoring evidence of vast differences in the efficiency between similar distributors within the province, Leclair sounded more like a trade association representative than a regulator, declaring that they were all efficient. To emphasize the point, she declared that the “story” of universal efficiency of distributors “sometimes gets lost” in “our sector”.

“Not only have you delivered electricity service safely and reliably, but you have done so efficiently as well. That’s a story that sometimes gets lost. But I think it’s an important point to remember as we continue to work towards greater efficiency in our sector.”

Leclair expressed comfort with the current level of rates. Instead of challenging Ontario’s outlier rate trend, she focused on managing public concerns using amplified communications strategies to tell the “a good story”.

“The reality is consumers are (original emphasis) getting good value from electricity investments.  In Ontario, we have enjoyed reliable service at a reasonable cost for many decades.

We have a good story to tell, and we need to get that message out…”

Ms. Leclair’s assessment of the value of electricity is faithful only to the current government’s perspective. Relative to the consumers in the U.S., Ontario consumers are getting very poor and declining value from electricity. U.S. government’s Energy Information Administration in its most recent Annual Energy Outlook forecasts that the average residential price for electricity in the United States will be almost flat in inflation-adjusted terms for many years, reaching 12.4 (US) cents/kWh in 2016 in nominal dollars. Ontario’s residential average now is about 16 (CND) cents/kWh. Aegent Energy recently prepared an electricity price forecast. For residential consumers in 2016, Aegent forecasts a price of 21.9 (CND) cents/kWh in nominal dollars. Using these figures and assuming currency parity, Ontario consumers who for a century paid substantially lower electricity prices than the U.S. average, will be paying rates 77% higher than the U.S. average.

Ms. Leclair’s vision is not for the regulator to be independent but for the regulator to collaborate with the licensees in pushing the government’s messaging. The regulators and the regulated are the new “we”.

“We need to work together to look at how to better engage the customer around the value of electricity, how to tell the electricity story, and how to better present the information on the electricity bill…

Some of that work is already underway. We look forward to continuing to work with you to improve and better coordinate communications with customers across the sector, to ensure that the message is effective, informative and consistent with the right information coming from the right source at the right time.”

Ms. Leclair highlighted efforts to meet privately with leaders of regulated utilities.

“In the past year, I’ve visited many LDCs (Local Distribution Companies) and met with more than 40 utility CEOs across the province on an individual basis. For those of you I have not yet met with, I’ll be resuming these “road trips” this spring.”

Ms. Leclair also indicated her intention to develop stakeholder committees that will consult directly with her instead of with the full board. She emphasized her intention to move away from the tradition of regulators receiving and deciding applications.

“To help facilitate this ongoing dialogue, I am pleased to announce that I will be establishing both an industry and a consumer advisory group. The ‘Chair’s Advisory Roundtables’ will be made up of executives from across the energy industry representing different regional, stakeholder, consumer and sector interests who will be invited to share their insights and expertise with the Chair on matters of interest to the Board so that we can continue to be a knowledgeable forward looking and proactive regulator.”

Ignoring the ongoing crisis at Toronto Hydro, including its proposed distribution rate increase of about 40% for households and its threat to public safety, she concludes that all is well in the electricity distribution sector in Ontario.

“…you should all be very proud of the work that you do to deliver electricity…”

“… there is no question that you always have your customers’ interests at heart.”

The tight alignment between Leclair and her former peers among the electricity distributors was also evident in her concluding remarks at the “Renewed Regulatory Framework for Electricity Stakeholder Conference” on March 30, 2012

“I think the utilities’ perspective is very much that perspective is something that works for my customer base, whatever that customer base is, and for the broader intervenor community and the Board, as well.  It is what works for the consumer and the consumer interests, and those things are not different.” (p. 104)

Ms. Leclaire’s audience at the Electrical Distributor’s Association event would have immediately understood her remarks to indicate that their regulator, far from acting independently, was taking a lead in justifying government actions. For example, bill presentment is governed by Ontario Regulation 275/04 passed by the McGuinty government. Now the new chair of the regulator is directing the industry to support her initiative to explain the government-determined bill presentment.

“The Minister spoke specifically about the need to improve the electricity bill, to convey information to people in a way that they want to receive it, and in a meaningful way that gives them tools to manage their energy use.

We need to work together to look at how to better engage the customer around the value of electricity, how to tell the electricity story, and how to better present the information on the electricity bill.”

Overwhelmingly, the power bill that licensees send out and you that pay reflects current and previous government-direct investment choices, often made by government-owned agencies. Now the new chair of the regulator is directing the industry to support her initiative to explain the rate level, which will next year be the highest of any state or province in North America with the possible exception of Prince Edward Island.

For the Ontario Energy Board to direct licensees through their trade association to collaborate in a project of communicating the “story” of government’s electricity choices, indicates that the independent adjudicative function of electric utility regulation in Ontario is over.

Leclair’s direction contradicts key elements of the Board’s legal mandate. Section 1 of the Ontario Energy Board’s mandating legislation provides the purposes of the Board related to electricity. Here is that passage from the legislation:

The Board, in carrying out its responsibilities under this or any other Act in relation to electricity, shall be guided by the following objectives:

1. To protect the interests of consumers with respect to prices and the adequacy, reliability and quality of electricity service.

2. To promote economic efficiency and cost effectiveness in the generation, transmission, distribution, sale and demand management of electricity and to facilitate the maintenance of a financially viable electricity industry.

3. To promote electricity conservation and demand management in a manner consistent with the policies of the Government of Ontario, including having regard to the consumer’s economic circumstances.

4. To facilitate the implementation of a smart grid in Ontario.

5. To promote the use and generation of electricity from renewable energy sources in a manner consistent with the policies of the Government of Ontario, including the timely expansion or reinforcement of transmission systems and distribution systems to accommodate the connection of renewable energy generation facilities. 2004, c. 23, Sched. B, s. 1; 2009, c. 12, Sched. D, s. 1.

Leclair’s speech contains directions that contradict the first four of the Ontario Energy Board’s objectives. Rather than protecting consumers, she promotes government/industry/regulatory coordination to facilitate Ontario’s ascension to #1 rates in North America. Her presentation lifts not a finger to address the gross economic inefficiency that is driving this disaster. Low income consumers and high electricity using employers are being forced into darkness. Under the banner of “smart grid”, Ontario is allocating grid resources away from projects that would enhance reliability and instead directing those resources to projects that weaken the economic and technical functionality of our power system.

The only element of the Ontario Energy Board’s legal objectives that Leclair is faithful to is its duty of obedience to governmental whim.

There is a story to tell the public about Ontario’s electricity situation. However, to tell that story factually, the Ontario Energy Board must function independently from government.

The responsibilities of the Ontario Energy Board extend beyond electricity distributor rates into areas including payment amounts for OPG, facilities approvals, transmission rates, gas utility regulation and other matters. Consider the perspective of, for example, a citizen who has a concern about a proposed facility before the board for approval where the facility is part of the government’s policy agenda. Any fairness concerns that relate to the chair’s approach to electricity distributors should raise concerns about fairness in the discharge of the Board’s other responsibilities.