Paul McKeever, leader of the Freedom Party of Ontario, has posted a column on electricity prices. Mr. McKeever’s column provides an excellent recent history of electricity pricing decisions in Ontario. Although I disagree with his recommendation that Ontario abrogate contracts with FIT producers, I encourage you to read his post.
Mr. McKeever’s post draws attention to the following explanation from Ontario Premier Mr. McGuinty about the ongoing rate increases in the province.
McGuinty Attempts to Explain Rate Increases
McGuinty’s thesis is that consumers should have to pay the real cost of electricity. No serious person could disagree with that.
However, the “real cost” should not include the cost implications of McGuinty’s power planning and purchasing policies that are imprudent to the point of absurdity. McGuinty is buying power at a time of vast surplus supply. McGuinty is buying without competitive auction, without enforcing the lobbying rules in Ontario, without a power plan to explain how the procured power will operate on the grid. His power authority is loaded to the gunwales with political and business self dealers. He is adding hidden electricity taxes without the consent of the legislature thereby violating the basic principle of just and democratic taxation set down in the Magna Carta.
Everyone should pay the real cost of electricity. Although objectionable, utility power bills will always include some amount of cost caused by inefficiency, monopoly sloth, and passing fads.
McGuinty has added costs to your bill to pay for unregistered lobbyists. He has added taxes that directly corrode our democracy.
Ontario power rates are a rip off, not the real cost.
Some clarification some might find helpful.
I tracked down the McGuinty video.
It was from 2006.
I calculate my cost/kWh as total bill divided by metered use.
A somber McGuinty, in 2006, explained the hardship of moving from about 8 cents/kWh when he took office (I’m guessing as my number start in 2004 at 8.5 cents/kWh) to summer 2006 rates which, for me, were 11.2 cents/kWh. He explains that was an adjustment to move to the real cost of electricity from the hidden subsidies.
My latest bill was 17.2 cents/kWh (1766 kWh consumption, which I believe is about average).
So the real cost has gone up 53% in 4 years.
According to McGuinty.
Also, McGuinty argues we should not leave our kids with the debt from our supply.
2 things.
The debt charge for stranded debt is .7 cents/kWh, OPG does receive under 4.4-5 cents average per kWh, and that we do pay 6.5 cents/kWh for. The math doesn’t work on calling that subsidized – or stranded.
Secondly, the debt is different than being locked into long-term extortionist contracts only in that McGuinty clearly feels the kids should be saddled with the contracts.
Scott, give us the link for the 2006 video. The McGuinty’s Youtube video I linked to was posted with a date stamp of July 27, 2010.
I tried to post a comment directly to the Youtube video, but my comment appears to be blocked. Here is the text:
The “real cost” shouldn’t include imprudence: buying at a time of vast
surplus supply; buying without competitive auction; not enforcing the
lobbying rules; buying without a power plan to map how the procured
power will operate on the grid. The OPA is loaded with political and
business self dealers. McGuinty’s hidden electricity taxes, levied
without the consent of the legislature, violate the Magna Carta. Your
power bill is a rip off.
It might disappear pretty quick – because the link is his office:
http://www.premier.gov.on.ca/journal/index.php?page=9&journal=3&Lang=EN
Fascinating. Thanks. It looks like the Premier’s Office is recycling old videos. The web site referenced in McGuinty’s script still features David Suzuki.
Your welcome. I’d read a couple of times McGuinty had claimed rates were no longer subsidized back in ’05 or ’06 and never found the source before.
I agree on your comments on imprudence. The last 5 days illustrate how much of the unreliable ‘green’ energy, coupled with the nuclear supply’s inability to match demand, is costing us. Yesterday – a Wednesday – average HOEP price was $28.7 per MWh, and average exports were 2792 MWh, with net exports a little over 2000MWh. I’d guess we averaged 7 cents payments to the suppliers, so that strikes me as around $1.8 million to subsidize exports on a typical Wednesday in September.
It is hard for me to understand how 2006 McGuinty didn’t want to saddle the kids with debt but 2009-10 McGuinty wants to saddle them with harmful long-term contractual commitments for unnecessary supply.
Concerning subsidizing exports, the following June 2009 article may be of interest: http://www.aegent.ca/newsletters/OntarioPowerExport.html
Scott: Thanks for digging out the old video link at the Premier’s own web site. When I published my blog post the other day, I had no idea that the video dated July 27, 2010, on the PremierofOntario YouTube channel, was recycled 4 year old video. That said, I think the same criticism applies (i.e., the same criticism would have applied in April of 2006). In 2005 – well before he made his April 2006 video – McGuinty offered new gas generation installations 10 cents per kilowatt hour (according to the reports I’ve seen). Arguably, then, when he made his video in 2006, he even then was misleading, because he mentions nowhere, in the video, that our prices will go up to accommodate an artificially high price for gas (an incentive he decided to offer after scaring away companies that wanted to build new generators and sell power at market prices).
Bruce: I’ll have a look at the link you provided. Thanks.
Paul, the only reason it struck me as odd was Duguid was on the radio yesterday spinning an entirely different story. When I found the 2006 file I thought there was something fishy, and apologize for thinking that may have been your intent.
I have also seen the figure for gas at 10-11 cents, and actually posted some figures on a thread on the Globe demonstrating both how little output is purchased at the market price, and what the cost of the contracts we aren’t privy to could be estimated to be.
It was around 10 cents. My point then was to argue the global adjustment is a measurement of how poorly the market is managed/implemented.
Bruce Sharp, this piece of Cameco’s 2nd quarter reporting for 2010 is interesting: “BPLP recognized revenue of $80 million this quarter under its agreement with the OPA, compared to $172 million in the second quarter of 2009. The equivalent of about 39% of BPLP’s output was sold under financial contracts this quarter, compared to 60% in the second quarter of 2009.”
According to Jan Carr, former CEO of the OPA, back in June 2008 we were supposedly paying the full cost of electricity supply. Page 7 of his presentation as follows says so:
http://www.powerauthority.on.ca/Storage/74/6947_Jan_Carr_–_MarketView_08_speech_–_June_5.pdf
So just over two years ago Jan Carr was saying we were fully priced on electricity so the last two years of increases must reflect global adjustment and the advent of new wind, solar and gas coming on stream. Just imagine how much worse it will be when all of the new OPA contracts hit us.
> supposedly paying the full cost of electricity supply
Maybe I’m reading this wrong:
“Under the hybrid structure that is used in Ontario, customers do pay the full cost of supply since any costs that are not covered by market price are included in the GAM.”
I read this to say “the billings from the customers do not match the price we pay for the power, and the difference is made up in the GAM”.
Is my understanding incorrect?
Maury,
The contention historically was that consumers were not being charged the full cost of power because the Crown utilities were borrowing with government loan guarantees, paid no taxes and dividends, and that nuclear waste disposal and decommissioning costs were at first ignored and later not fully counted. The worry was that future consumers would be ripped off by being left holding the bag for the cost of servicing previous consumers. There was also a concern that Ontario was consuming more power than it could justify. Before McGuinty, those arguments used to be reasonable.
Now the cost story has completely turned around. Our utilities, like Hydro One and OPG, with the encouragement of the government, are seeking approval to force consumers to prepay for new construction. Staggering contractual commitments have been signed requiring consumers to pay for vastly overpriced power for the next 20 years. OPG is allowed to earn a profit on its nuclear waste disposal and decommissioning liabilities. Now both current and future consumers are getting ripped off.
Tom
When the price of power fluctuates by the hour, and we are being billed on the avg
Why is it that we are making Ontarians pay “Full” price and then export the rest at a loss?
OPG is being subsidized to the tune of hundreds of million of dollars at our expense
The debt retirement charge doesnt even cover the interest on the debt
What about the salaries of OPG and hydro one??
Our “consumption” since the installation of the smart meter has gone up 50% nothing has changed here.
Was the line loss charge initiated to cover the cost of implementing the smart meters???
I am all for conserving but when I pay 10 grand to implement a conservation program and dont see ann net benifits I start to wonder who is lining there pockets
I am losing the lining in mine
Does Joyce Mc lean leave the lights off in her office during the day??
She better start practicing what she preaches
Gord Miller better practice up on his math skills He was partially right the fit program at 80 cents is 20 times today price its more
“The worry was that future consumers would be ripped off by being left holding the bag for the cost of servicing previous consumers. There was also a concern that Ontario was consuming more power than it could justify. ”
I’m not sure “worry” is the right way to phrase this… after all, when Eves put on the 4.3 cent price caps back in ’02, that added something like a billion to the debt repayment on your bill. So, indeed, we, the future consumers, are being ripped off in a fashion not entirely unlike the prediction. All for vote-getter, not that that’s anything new!
Thanks for the reply, I understand what you are getting at now.
On that topic, it’s interesting to consider a calculation I did some time ago… if you add up the developed and undeveloped hydro resources in Canada — just the big ones mind you, not the microhydro or anything like that — there’s enough power to power all of our houses, all of our industry, and (get this) all of our cars if we switched to electric. Just think about that for a moment.
There’s clearly no energy crisis in Canada, but there most certainly is a political one. Since NEP, energy policy from the federal level has been largely non-existent. Is there any hope this might change?
Ian noted: “The debt retirement charge doesnt even cover the interest on the debt”
Actually that’s no longer true. The debt is being paid down now at about $1.5 billion a year. Still got 12 to 15 years to go though! It was going up for a while, but that’s not the case now.
The reason it was going back up for a while is that no one had the guts to raise rates to the point they needed to be. Consider the fact that power averages between 12 and 23 cents in New York (state) and they have basically the same power mixture we do. So one would suspect that rates would be similar but slightly lower here (OPG pegs nuclear at 7.7 cents wholesale IIRC). The current 13.3 cents that you’re paying today — all in — still isn’t the real cost.
Lets also not forget that the price of power compared to your disposable income is still lower than it was 25 years ago. It’s not the cheapest it’s ever been, but it’s pretty close to it. All this furor over rate increases that are still lower than inflation. Sheesh.