Michigan and New York’s best friend – Ontario

This article is a collaboration between Parker Gallant and myself.

It appears on the Energy Probe site, but is reproduced in full here, with a slightly different graphic.

Michigan and New York’s best friend–Ontario | Energy Probe:

The press releases flowing from the Ministry of Energy offices have been many over the past several years claiming a variety of wonderful things despite the mundane attributes of the electricity sector.

One such release of January 12, 2012 claimed Ontario earned $13 million by exporting our surplus power in December 2011 and that it “keeps costs down” for ratepayers. It also said 20,000 jobs had been created and that the GEA was on track to create 50,000 jobs by the end of 2012.   Fast forward a year and a half and a June 20, 2013 press release about the revisedSamsung contract claimed the GEA had created just 31,000 jobs.

The latter claim indicates that the target was missed by at least 19,000 jobs. We now know that most of those jobs were short term construction jobs to erect wind turbines and install solar panels. We no longer see press releases that claim we earn money from selling our surplus power to the likes of Michigan and New York perhaps because the Auditor General in his 2011 Annual Report stated that “from 2005 to the end of our audit in 2011, Ontario received $1.8 billion less for its electricity exports than what it actually cost electricity ratepayers of Ontario.”  When you examine the Independent Electricity System Operator’s data you quickly learn why the Ministry no longer brags about earning revenue from exports or keeping costs down for ratepayers.  The exporting of our surplus power was the subject of a joint article over two years ago but the impact at the time was at a lower dollar level.

Looking at data for the first eight (8) months of 2013 and comparing it to the same period in 2012 discloses that while we are exporting more power (an increase of 23% year over year) it is costing Ontario’s ratepayers more.   For the first eight months of 2012 we sold Michigan and New York 8.3 million megawatt hours (MWh) or enough to power over 800,000 homes and for the first eight months of 2013 Michigan and New York bought 10.1 million MWh or enough to power over 1 million Ontario homes.  The market value (Hourly Ontario Energy Price) of power sold to NY and Michigan in 2012 indicates approximate revenues of $182 million and $262 million for 2013. On the surface it makes it appear that Ontario earned $80 million more but that sale price doesn’t include what we Ontario ratepayers refer to as the Global Adjustment (GA) which is described by IESO as:

“The Global Adjustment (GA) is the difference between the total payments made to certain contracted or regulated generators/demand management projects, and market revenues.”

The GA is the huge basket that picks up the difference between the guaranteed “contracted” generation and the market price (what we sold our power to Michigan and New York for).  That basket has been growing at an incredible pace over the past few years as renewable energy (wind and solar) are added to the grid.

The difference between what a "Class B" customer pays in Ontario, and export pricing, is the global adjustment (GA) rate.  Export figures are net; estimated from IESO intertie data.

What that means is that Ontario’s ratepayers wound up subsidizing those export sales.  We estimate that in the first 8 months of 2012 Ontario’s ratepayers picked up the GA costs of $420 million and in 2013 the subsidy bill was $584 million or an increase of 39% for the same period.  Put another way; for each kilowatt hour (kWh) of exports in 2012, Ontario subsidized GA costs of 5.1 cents per kWh and for the same period in 2013 that subsidy had jumped to 5.8 cents per kWh. At the time of the Auditor General’s report, only 20 months ago,  the subsidy was estimated to be 3 to 4 cents per kWh.

Since the Auditor General reported on the cost of exports, we estimate the net exports through New York and Michigan interties have sold for over $1.2 billion less than Ontarians paid for the same amount of  electricity, which makes the estimated gas plant moves seem cheap as those subsidies will continue to grow.   The Ontario Power Authority (OPA) has delivered contracts to the wind and solar developers that will increase their generation capacity by upwards of 60% with most of that cost flowing to the GA basket.

What Ontario exported in the most recent eight month period is equivalent to what might be produced (intermittently when its not needed) by 3,700 MW of wind turbines (another 1,700 towers spread throughout Ontario) or 8,000 MW of solar panels (using 64,000 acres of land).  The foregoing  assumes wind turbines produce at a 29% level of capacity and solar panels at a 15% level.

The interesting and disturbing fact that has emerged since Premier Wynne has become the leader of the Liberal Party is that we have seen an acceleration in the implementation of contracts awarded for wind turbine projects despite the downsizing of the Samsung contract.   Under Wynne’s short term as our Premier, Ontario has awarded as many or more Renewable Energy Approvals for wind turbine projects as were granted under McGuinty’s term.  The reasoning behind this sudden rush to do so has caused consternation throughout the Province as 67 municipalities have declared themselves as “unwilling hosts” which they were invited to do by Premier Wynne in her Throne Speech.  While mouthing a desire for conversation with the “unwilling hosts”, Wynne is set to add over 3000 MW of “transmission connected” wind capacity in the next 18 months; double the amount existing as she became Premier.

The projection of an $8 billion annual Global Adjustment basket in the “Power Dumping” article of two years ago looks set to become reality near the end of the current year.   In the interim both Michigan and New York are no doubt very happy the Ontario Liberals have created such a mess of the Ontario electricity system and hopefully appreciate the generosity of Ontario’s ratepayers.

Scott Luft and Parker Gallant

September 17, 2014