Ontario Power Rates Headed for #1 by 2013

The Ontario Government’s Long Term Energy Plan (LTEP) issued in the Fall of 2010 forecast that monthly residential costs would rise from $114/800kWh in 2010 to $167/800kWh in 2015 — a 46% nominal increase or a 33% inflation-adjusted increase.Here are examples of new cost pressures driving up rates that have developed since the LTEP was issued:

  • The LTEP did not include Global Adjustment (GA) cost shifting. GA cost shifting will add about $3.50/MWh to residential rates by 2015 or 2%.
  • The LTEP did not break out its price projection by cost element, so we can’t easily track against actuals. However, the LTEP did provide an illustrative TOU bill for June 2011. The actual TOU rates last June were higher by 8%-12% depending on the time slice.
  • The LTEP assumed that wind would provide 10% of system energy in 2030 and solar would provide 1.5%. The IESO is currently assuming 6800/7900MW of wind by the end of 2015/17 respectively. That would translate into 12% of the LTEP’s forecasted demand in 2015 and 14% in 2017. This level of production is substantially higher than the OPA was publicly discussing last fall. Solar also appears to be far ahead of the LTEP outlook. Only a fraction of this power will be delivered to the grid but almost all of it will be paid for by consumers.

The delivered cost of residential power by 2015 appears to be on track for rates in the order of $180/800kWh.

Although it claims to be working for the benefit of future generations, the government is using cost concealment measures that shift costs off into the future. One example is the Ontario Clean Energy Benefit which shifts 10% of today’s household power cost to the provincial deficit. Another example is cost recovery limits on Crown corporations which digs a financial hole to be refilled by future ratepayers.

Despite these cost concealment measures, Ontario’s power rates have blown past California’s and by about late 2013, Ontario’s residential rates will exceed the highest rates in the contiguous U.S. states.

Rates in most of the highest cost U.S. states have been dropping and the US EIA’s new long-term forecast in its Annual Energy Outlook issued Monday says residential rates should remain static for the foreseeable while dropping over the next 5 years significantly for commercial consumers and more significantly for industry.

In the next couple of years, unsubsidized solar PV will reach grid parity in Ontario. Dramatic rate redesign or other measures will be required as PV approaches grid parity to prevent a fundamental public sector solvency issue from developing.

Access to Cost and Rate Information

There is very limited transparency for Ontario’s basic cost and rate information.

State-level data published by the U.S. Energy Information Administration is far more detailed than any available information on Ontario’s power system. Notice that the best national comparative rate surveys for Ontario consumers are done by Hydro Quebec and Manitoba Hydro.

Here are a few examples where Ontario consumers are getting ripped off or costs are being shifted between classes but information that would quantify these costs is missing or available only by way of complex calculations:

  • The overall power system’s revenue requirement now, over history, into the future is not accessible.
  • The average per customer usage volume for customers served under the regulated price plan (RPP) is not available. Without it, consumers cannot see the cross-subsidy from relatively large volume users within the RPP class to relatively small volume users. This factor is why moving from RPP to Time of Use pricing causes the bills of small users to rise.
  • There is no public tracking of the cost of new commitments. For example, the public is not allowed to know the contract terms for OPG’s Lower Mattagami development notwithstanding the fact that the contract is between two government-owned entities — the OPA and OPG. It appears that the capital cost for Lower Mattagami development has escalated from an earlier estimate of $1.5 billion to a current estimate of $2.6 billion although no explanation for this cost overrun appears to be publicly available and the project costs and benefits have not been subject to any public review.
  • Programs that claim to be promoting industrial energy efficiency are now piling up substantial cost for non-participant consumers. As of January 2011 consumers with demand over 5 MW are now able to shifting onto the account of smaller consumers a substantially fraction of the Global Adjustments (GA) costs they would otherwise be exposed to. The extent of this cost shifting in 2011 was $225 million. Average Class A customers shifted $10.97/MWh at the expense of Class B who added $1.88/MWh. These amounts will rise rapidly in future and no official long-term rate forecasts for Ontario are currently available reflecting GA cost shifting. In addition to GA cost shifting, many large industrial customers are now participating in massively subsidized conservation programs — particularly “Demand Response 2″ and “Demand Response 3″ and  “Industrial Accelerator”. There is no public documentation available on the extent of double and triple dipping by eligible users.

Ontario is in the midst of a policy-created power crisis of profound significance to the future of the provincial economy. This crisis will cause greater harm to the province than the California crisis of 2000-2001 caused there.


  1. Nice work, TA! Has your site been blocked from gov.on.ca & OPG & OPA & Hydro One computers yet, or is it still just TO Hydro? Wait for it!
    BTW, I recall a few years back when you pooh-poohed a recurrent prediction of mine that sounded just like “In the next couple of years, unsubsidized solar PV will reach grid parity in Ontario. Dramatic rate redesign or other measures will be required as PV approaches grid parity to prevent a fundamental public sector solvency issue from developing.”!

    This development isn’t just about PV cost reductions, but also reflects the changes in our demand curve, from winter (dark cold) peaking to summer (hot sunny) peaking. People who still use the word “baseload” as a synonym for “good, valuable, reliable, essential” haven’t been paying attention. Solar fits our changing needs better then nukes!! If only those num-nums were risking their own money, they’d just lose their shirts; in our system, they’ll lose OUR shirts. 

    • Norm,
      You are right that I have been in the past too skeptical about the economics of solar. I was wrong on that one. I also agree with your observations about the importance of the changing characteristics of demand.

  2. I would be interested in knowing what proportion of the cost reductions for solar are based on the current oversupply of materials (particularly from China). Most people still aren’t too excited about solar power in Nevada. Proponents aren’t willing to build wiothout onerous supply contracts. Also, the made-in-Ontario provisions might negate some savings. Of course, if your benchmark is Darlington expansion, even cloud power is competitive.

  3. Tom,

    The LTEP’s 2010 – 2015 increase of $ 53/MWh for a 800 kWh/month customer is a 6.63 cents/kWh or $ 66.25/MWh.

    I just revisited Aegent Energy Advisors’ CME work from 2010. Our predicted HST-inclusive residential increase for 2010 – 2015 was $ 61.19/MWh. Accounting for our GA Class B increase of $ 1.88/MWh for 2011 and projecting forward to 2015 and adding GST, that’s an additional $ 3.37/MWh. Making that adjustment, the total increase is $ 64.56/MWh or 6.46 cents/kWh.

    Aegent was high on the FIT component and low on TX and (more so) DX.

  4. Glenn Fox & yours truly got $60.94 MWh + GST (63.98 MWh)for our forecasted increase in the Omitted Costs, Inflated Benefits study which is pennies away from Aegent’s forecast without the shift. Sounds like we are all in the same ballpark despite the “bogus” call on us by Duguid.

  5. Tom, thanks for this great piece… I’m afraid I won’t be adding anything to it.
    It’s silly to imply changing demand patterns enter into a baseload discussion.
    Total demand now is where it was around 1989, and in 1989 the minimum demand was far lower than it is now (http://www.ieso.ca/imoweb/pubs/marketreports/10year_odf_2005jul.pdf). Ontario keeps exacerbating it’s baseload problem – but it isn’t because the minimum is dropping. We really are just that dumb.
    It’s also not a real difficult thought experiment to figure out what 20-30GW of solar capacity would work out like.
    Solar: Cheap and easy yes.
    Fun for a fling … probably.
    Probably not the tech you’ll marry.

  6. Scott, my point was only this: If you have to rely on a take-it-or-leave-it source like nukes, solar, wind, or ROTR hydro, there are output curves that are better than flat, and PV’s avg output curve is one of them.

  7. Well, Tom, as you know we disagree on the generation future on Ontario.

    Unfortunately your comments focus on cost alone, without considering environmental or economic benefits, or the importance of being an early adopter. Someone has to take a leadership role in renewable energy. You may think that coal can suddenly become clean, but there is precious little scientific evidence to back that up.

    Common sense says that capturing the energy in natural processes (like sunlight, wind, and flowing water) will in the long term be the best way to harvest energy for human use. Is it more expensive today than burning things? Certainly. But the way to change that is not to keep burning things. The way to change that is to encourage the renewables market, so that in our lifetimes our kids will have energy that is both cheap AND clean.

    Or, let me put that another way. When the first laptop computers came out, how much did they cost? Is it true that today they are orders of magnitude better, yet cheaper? When they were clunky and expensive at the beginning, was that a good reason to say, let’s not go down that path?

    If we are to hand the future we want to our kids, we have to have leadership and vision. Saying “it’s too difficult” or “it’s too expensive” is not a good response.

    As you can see, I am strongly and viscerally opposed to your anti-renewables thinking. Show me how coal, or nuclear, or natural gas, is our legitimate long term future. If not, let’s talk about how to make renewables happen faster and better. Let’s not just slag them because they are not already the perfect solution.

    • Jay,
      Maybe I need to be more careful in presenting my views on renewables. I oppose technologies pushed into the market before they are mature. I oppose subsidies to any kind of industrial energy development, although I support subsidies for research. Coal power got terminated in Ontario on the grounds that it is a health hazard for folks down wind. The health claims were junk science.* The health crusade against coal ignored the performance of scrubbers which routinely deliver low cost smog-free coal power. I oppose the official dishonesty that claims wind power can replace coal power. Caring for future generations includes bequeathing a growing, opportunity-rich economy. I think that renewable energy development proposals should undergo real environmental assessments and be subject to local zoning rules.

      *Koop, Gary, Ross McKitrick and Lise Tole (2010) “Air Pollution, Economic Activity and Respiratory Illness: Evidence from Canadian Cities 1974-1994” Environmental Modeling and Software 2010,

  8. I agree with Tom. Everyone is entitled to their opinions and should be able to present transparent, thoughtful analysis without being labeled as “anti”. As you can see, I’m opposed to blind anti-anti-renewables.

    Oh and enough of the coal BS. It was a politically driven decision that morphed into ideology. Natural gas replaces coal. Period. While renewables may turn out to be our long-term salvation, they could very well be our short-term downfall.

  9. Bruce, I don’t in any way mean to put Tom down personally, and I’m sure he knows that.

    We have quite different perspectives on renewables, though. My view is that we should start by figuring out where we want to end up, then figure out the best route to get there. I’m not sure that anyone disagrees that, in the very long term, only renewables make sense as the core of our power generation portfolio. As Tom correctly points out, dispatchability still has to be solved (perhaps with new storage options, perhaps with combustion technologies like natural gas or biogases), but the logic of harnessing unlimited natural processes to generate energy sources is pretty unassailable.

    So the real question is the best way to get there.

    I agree with Tom that there are limits to how much the government should seed the marketplace. On the other hand, I disagree that technologies should not enter the market until they are mature. They will never get mature if their development is not enhanced by the rigours of the marketplace. This is about balance.

    So, for example, I think there are limits to the subsidies we should provide to solar and wind, and we have to be pretty tough in expecting those technologies to be more self-reliant, and quickly. If we don’t do that, we’ll end up with the same problem we had with nuclear: can’t ever succeed without subsidies.

    As well, I think that telling local governments that their concerns are being swept aside needs to be re-thought. Yes, make sure that our energy future doesn’t get sidetracked by unreasonable local positions or decisions, but don’t simply cut local residents out of the equation. Balance.

    Similarly, I agree with you that natural gas replaces coal. We are not going to get to the endpoint in one crazy leap. There will be transition, and natural gas likely will play a key role in that transition, first as a straightup replacement to coal, and later as solely a peaking option. In the long term, though, natural gas for electricity is not really a very good idea. Burning something to use the heat is efficient, so natural gas for space, water, and process heat is excellent. Burning something to then lose more efficiency converting the heat to electricity is not the optimum solution. It will work for a while, but the underlying logic says it can’t be the longer term solution.

    I have to tell you, though, that the fact we are even having this debate is a huge improvement from twenty years ago, and I credit the government with some vision (and guts) for putting renewables on the policy agenda in this way.

  10. Let’s blame it on Steve and Jack — ya, the dead guy. They pile on Stephane Dion and his Green Shift plan and the general idea of putting a price on carbon. Harper — sure, no surprise but Layton — his focus on cap and trade and big, bad business was almost as unfortunate.

    Conservative implied carbon costs in Ontario are big wind @ $ 150/tonne and big solar @ >> $ 500 / tonne.

    Put a price on carbon, price other stuff such as nuclear spent fuel management, ancillary services for intermittent generation, connection costs, use a much more realistic CDM free-ridership rates (not a goofy 30% but something north of 50%), close the FIT “open bar” … I could go on forever.


  11. Bruce, that’s your choice of dialectic? Well, what you’ve described is called the tragedy of the commons. I thought we got beyond that decades ago – actually, before my now-adult kids were even born.

    When everything has a true dollar value, in what direction do you propose to head? And, how do you propose to get there? Stop complaining, say what you want. If what you want is lowest cost NOW, I understand, but don’t expect me to sign on to such short term thinking.

  12. The concept that the elasticity of substitution, of existing energy supplies, is greater than the elasticity of demand is probably outside the scope of knowledge of witches and fortune tellers – but its an established concept and supports a carbon tax.

  13. Jay, you have delayed my reply by forcing me to go off to the interweb to look up the word dialectic. Thankfully I had heard of the tragedy of the commons. “I’ll be back”.

  14. Jay, you should also know that when you get a person like Scott defending a carbon tax, it may not be a slam dunk that you’re on the side of the angels.

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  17. Post from “James” Mon, May 7, 2012 at 11:07 AM (manually transferred during site renovation)

    On top of that, they’re looking to charge us even more money for smart meters: http://www.smi-ieso.ca/node/2327

    I’ve been hearing about all the wonderful information we are supposed to get from smart meters but I can’t even see it as the Hydro One portal hasn’t worked properly for quite some time. If I’m lucky I get in once every 20 attempts. If we can’t trust them to run a simple website, how can we expect them to handle our smart meter data correctly!

    I’m sure whatever their solution is, it will just involve increasing our bill even more!

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