Last month, energy consultant Bruce Sharp made a presentation to the Association of Energy Engineers, Southern Ontario Chapter. He focused on how the commodity portion of your power bill works, the outlook for power costs, and the impact of energy conservation. Here is a selection of Bruce’s presentation slides. His show is a wonderful antidote to the junk pumped out by Official Ontario.
My favourite is his slide #22 mapping the shell game of cost transfers between different classes of consumers and taxpayers.
For any Ontario consumers considering hedging their cost of power, first do the right thing. Call Bruce before you sign anything.
Bruce’s qualifications are noted below. His guest columns debunking the then McGuinty government’s utterly dishonest claims about the cost of the cancellation and relocation of the Oakville and Mississauga gas plants — columns first appearing on this web site — were one of the key reasons that a legislative inquiry into that issue was undertaken. That inquiry gave rise to important findings of official wrong doing by the Information and Privacy Commissioner and the Auditor General. An OPP investigation of one of McGuinty’s principle agents is apparently still ongoing.
Sharp’s explanations about what is happening to your power bill today are particularly useful to perplexed consumers because Official Ontario relies on keeping you confused about your power rates.
Bob Chiarelli at the Mystery of Energy rarely makes a statement on energy that is not based on Orwellian doublespeak. While Chiarelli proclaims that “promoting energy literacy among Ontarians certainly is a top priority for the ministry”, he is simultaneously pumping out an endless stream of junk claims.
For example, Chiarelli repeatedly claims that Ontario’s power exports are vastly profitable. In the real world, Ontario consumers are footing the bill for reselling power into export markets at pennies on the dollar while Chiarelli orders more excess supply. He also claims that conservation programs are saving consumers vast sums. In the real world, Ontario consumers are footing a vast but undisclosed bill to pay generators to not generate. Chiarelli would also have you believe that the power agencies he actually micro-manages are “independent”, and that fickle wind and solar power are replacing reliable coal power.
When he breaks from doublespeak, another of his rhetorical tactics is to attack anyone documenting Ontario’s deteriorating electricity situation as an ignoramus. A classic instance of this tactic was Chiarelli dismissing the Auditor General’s 2014 report on massive failures in government’s flagship “smart metering” program. Chiarelli dismissed the findings of the AG saying, “Electricity is very complex, is very difficult to understand.”
Official Ontario’s network of government-controlled power agencies follow Chiarelli’s lead to create an ocean of misinformation.
Here are a few examples:
Parker Gallant recently alerted me to the IESO’s current explanation for electricity pricing in Ontario. It is riddled with errors and omissions. The IESO claims on this web page, apparently aimed at a general audience, that Global Adjustment “covers the difference between regulated rates to nuclear and large hydroelectric generators and the market price” as well as for conservation. However, as Gallant notes, this gloss omits the fact that Global Adjustment also includes rates for wind, solar, biomass, small hydro-electric, and gas generators. The direct cost of paying for these latter categories of generators outweighs the direct cost of conservation programs by about an order of magnitude.
Some poor soul relying this linked page, which purports to explain residential rates, might conclude that the only residential consumers paying GA are those served under retailer contracts. Notice also that Ontario Clean Energy Benefit is not included in the explanation of residential rates.
The Ontario Energy Board also plays its part in promoting energy confusion notwithstanding its claims that it is committed to public education (such as in this speech by Chair Rosemarie Leclair to a group of industry insiders). This week or next, the Ontario Energy Board will announce the next residential commodity rate increase, which will apply to consumption starting November 1. If it follows its historical pattern, the OEB’s press release announcing the biannual rate increase will only report the increase over a six month interval and report the commodity increase diluted by the non-commodity portions of the bill.
If the OEB was interested in promoting energy education, one initiative it would take would be to report the year-over-year change in commodity rates on an undiluted basis. For reference, in November 2014 the weighted average regulated rate was 9.25 cents/kWh. For consumers on time-of-use rates, the off-peak/mid-peak/peak breakdown was 7.7/11.4/14 cents/kWh. For consumers on tiered rates, the first 1000 kWh/month were charged at 8.8 cents/kWh and the remainder at 10.3 cents/kWh.
The May 1 and November 1 commodity price increases are widely reported by the mainstream press, but those press reports rarely do anything but regurgitate the OEB’s misleading press releases. One noteworthy exception is the Tom McConnell Show on 610CKTB radio in Niagara and 1290CJBK radio in London.
Bruce Sharp’s Qualifications
Bruce Sharp is a University of Waterloo-educated mechanical engineer, a 28-year Ontario energy industry survivor and a P. Eng. CEM, CMVP and Chartered Industrial Gas Consultant. His background is in power generation, energy management, industrial natural gas utilization, energy marketing and energy consulting.
Bruce is a self-employed and independent Ontario energy consultant and advisor. Prior to this, he was Director, Electricity at Aegent Energy Advisors. At Aegent, Bruce advised mainly on electricity procurement, economic natural gas-fired generator dispatch and the consumer impacts of energy policy developments. Related to his energy policy analysis, he has been a repeat electricity price forecast expert at Ontario Energy Board proceedings. On his own time, he has participated in Ontario Energy Board proceedings concerning the Energy Consumer Protection Act and testified at the Ontario legislature’s Justice Committee hearings into the relocation of the Oakville and Mississauga natural gas-fired generating stations.
To my mind, the interesting slide is #25. Is Bruce able to elaborate on his numbers? In particular, if self-supply is available at $175,000/MW and the avoided costs are $400,000/MW, are Class A ratepayers jumping on board? Presumably, the Class B analysis is based on avoided energy costs? If self-generation were to occur in large amounts, the adverse effects on revenues could be substantial (unless of course we no longer procure new generation or allow generation that has reached its useful life not to be replaced, but that does not seem to be happening).
The “killed or be killed” analogy also applies to residential customers. As a typical consumer of ~10,000 kWh/year in the years 2005-2007, I paid about $1200 per year for electricity. Following conservation and fuel shifting, I now pay about $700/year for less than 4,000 kWh/year, along with $40/year in increased natural gas costs. Had I not conserved, I would be paying on the order of $2200/year now. My electricity cost will rise to about $800/year with the dropping of the clean energy benefit, but still well ahead of the bear. The interesting issue here is whether substantial numbers of residential customers, like general service customers, will be able to self-generate in the future at a cost lower than the cost of grid consumption.
This is ugly now, but it can (and probably will) get much uglier for those unable to outrun the bear.
Micro-grids for individual residences could very well become a big issue in the near future. Generate your own power or do without.
Micro-grids for businesses is another issue. Which kinds of businesses can afford micro-grids and still stay in business.
Large retailers may be able to do this along with those in light manufacturing?
The issue of micro-grids was a hot item in energy issues meetings in New York late last month. Meetings that accompanied the September UN meeting.
Hello Rick,
Class A consumers are likely jumping on board and due to the low operating hours involved don’t need to worry too much about the marginal operating cost. Even with the cost of SCR technology, diesel has an advantage over natural gas. For Class B consumers, natural gas is economically mandatory, as pretty much is heat recovery. The annual savings for a natural gas-fired plant with heat recovery meeting the efficiency standard required to receive the IESO CDM incentive and running ~ 8,000 hours/year is in the order of $ 600,000/MW.
The $ 175,000/year/MW cost of alternative generation noted is larger-scale. Ballpark installed costs (i.e. not translated to annual fixed costs) for Class A (diesel, no heat recovery) might be ~ $ 1 million/MW and for Class B (natural gas, with heat recovery) might be ~ $ 2 million/MW (+/-, depending on scale).
Bruce
Thanks, Bruce.
Yes, I understand the $175K/MW to be a levelized capacity cost.
“Class A customers are charged global adjustment (GA) based on their percentage contribution to the top five peak demand hours each year. They are able to reduce their GA costs based on their ability reduce demand during the peak hours. The top five hours of peak demand in a year are those occurring on different days in which the greatest number of MW of electricity was withdrawn from Ontario’s electricity system.” (IESO)
Lower your percentage, lower your GA costs. Kill or be killed, as you point out.
It seems to me though that as the process evolves, the peak hours are likely to become less distinct as demand variability would tend to decline as producers either self-produce or curtail load during possible peak hours, lowering demand during those hours and bringing other hours into play as potential peak hours. I suppose this is the point – to level demand and get rid of the peak. However, it would seem to lead to Class A customers operating their on-site generation facilities more frequently, leading to marginal operations costs that may not be as low as they were initially.
In my view, the number of MWs among Class A users actually “chasing” the High 5 hours is somewhat limited — but still big enough to shift the hour in which the peak occurs. Among his great work on an impressive array of Ontario (and other jurisdictions’) electricity topics, energy blogger Scott Luft (http://coldair.luftonline.net/) has looked at this, including how some High 5 hours now occur in hours categorized by the Regulated Price Plan as off-peak hours.
The inappropriateness of paying a Class A user $ $ 400,000 plus per year for an avoided MW is that the cost is >> the centrally-procured generation alternative and that the cost is borne by someone — namely Class B. A Class A user installing generation could make the decision to spend the equivalent of well over $ 175,000/MW/year, with any expenditure above that level being uneconomic from a total system standpoint.
As you point out, it’s also true that as the High 5 hours shift around, a Class A generator would need to run more hours (and incur higher marginal costs) to ensure it’s running and so minimize its net load during eventual High 5 hours.
The end result could be that the costs of generating electricity will be shifted on to those who can’t generate their own electricity which includes small businesses and homes?
Gives an advantage to those such as large retailers?
There’s certainly an advantage for those that can economically self-generate. The higher the price of natural gas, the more waste heat must be used to make the decision economic. The strategy therefore tends to favour those with (among other things) year-round use of heat, scale and the money to make the investment. As you point out, this means that parties who can’t do it will be left holding the (GA cost) bag.