Tuesday, January 21, 2014

NDP's Tabuns flags losses on electricity exports - 3 years too late

NDP Energy Critic Peter Tabuns got strong coverage for his belated, and problematic, claim on electricity export losses yesterday.
Parker Gallant was making a similar calculation for December alone, while Parker and I were noting that even the best revenue day, on export sales, was not a great help given the scope of Ontario's electricity sector expenses.
This is a complicated topic that has been a frequent focus of my blog, and was the particular focus of my first collaboration with Parker Gallant in the Financial Post, 30 months ago (Ontario's Power Trip: Power Dumping).  
First I'll note the day's news, and then I'll comment.

Ontario paid $1 billion to export surplus power in 2013, NDP say | The Canadian Press (via CTV)
TORONTO -- Poor planning by Ontario's Liberal government forced electricity ratepayers in the province to subsidize the sale of excess power to neighbouring jurisdictions at a cost of $1 billion in 2013, the New Democrats charged Monday.
The government signed contracts for so much unneeded electricity that Ontario had to export the surplus, at a loss, to Manitoba, Quebec, New York, Michigan or Minnesota, adding $220 a year to the average household electricity bill, said NDP energy critic Peter Tabuns.
"We found that last year Ontario subsidized power to people in the United States and Quebec and Manitoba to the tune of over $1 billion," ...

"They have pursued private power contracts that have given us more power than we can consume, which goes back to bad planning and to (energy) policies that are extraordinarily expensive," he said. "This is the logical outcome of the way the Liberals have approached this privatized power system."
A spokeswoman for Energy Minister Bob Chiarelli said "Tabuns' math is inaccurate" and insisted that exporting surplus power actually saved hydro ratepayers about $300 million that they would have had to pay for the unneeded electricity last year.
"According to the Independent Electricity System Operator, Ontario's consumers benefit from the electricity exports," said press secretary Beckie Codd-Downey. "They do not subsidize them."
The entire article is worth the read - there's also coverage in The Sun, and in the Star (the topic not being a good one for its Liberal party, the Star doesn't appear to be allowing comments).

So what's a billion dollars?  
I've updated a spreadsheet I used in a column following up on comments to the Power Dumping article (expanding on a graphic in the article)- it shows that the losses on just exports could be assessed at $1.1 billion, but using the methodology we used in 2011, the figure is $800 million - net exports being a more honest measure.

The claim of $1 billion is based on valuing electricity at the market (HOEP) rate plus the class B global adjustment, and assuming revenues of only the market rate (Parker and I accounted for the opposite calculation applied to imports).
Simpler yet: 18.3 million MWh at an average class B global adjustment rate of $59.22/MWh (pg 21 here) is $1.08 billion.

The problem being that figure doesn't accurately reflect losses on exports. 

Yesterday, in hour 21, exports jumped up in hour 21 (9pm) as the HOEP jumped to $189 - because exports were setting the high price.  
The monthly global adjustment rate is estimated at $36/MWh, but it would be silly to think losses on those exports were $36/MWh.

Not that there aren't enormous, and growing, costs to Ontario ratepayers that are demonstrated by the gap between what is received for exported supply, and what is paid within the province.  I wrote on this in September's Ways to estimate Ontario's losses on electricity exports.  Again I've updated/recreated a graphic indicating four different methods, of which the most realistic, in my opinion is the lowest figure.

Note they are all bad.

They also all depend on assumptions - which is why the continued references to the IESO by the Ministry of Energy are obnoxiously unprofessional - and can only have the impact of harming the public service:  
The IESO has no reason to assess the profitability of Ontario's electricity sector.

As for Peter Tabuns ... his broadcast of the message on the cost of export losses immediately reminded me of the Bob Dylan's Tombstone Blues lyric:
Now I wish I could write you a melody so plain
That could hold you dear lady from going insane
That could ease you and cool you and cease the pain
Of your useless and pointless knowledge       Tombstone Blues
The issue is complicated, but two enormous contributors to oversupply are the Global Adjustment mechanism itself, and the Green Energy Act with it's companion feed-in tariff contracts.

Peter Tabuns likely understood much of this 30 months ago but sat stupidly silent when on July 4, 2011, another 1000 MW of supply was contracted.  These contracts will be an enormous driver of inflation over the next few years.

It would be wonderful if picking up the message I developed in 2011 does not present itself as "useless and pointless knowledge" for him.

I remain skeptical.


  1. Your use of the term Billion concicendentally is similar to my recent post in the Energy Reality facebook group

    "When we use "$BILLIONS" to explain energy costs it's usually with NUCLEAR - But a power plant that cost billions gives billions back.
    That's the part that needs explaining We have a responsibility to put coal, oil, methane and renewables in the same "$BILLIONS" perspective because the politicians and the general public rarely sees the math when they read headline that quotes the $BILLIONS in costs.

    We need to get in the habit of understanding the economics because that is where NUCLEAR excels. DOES ANYBODY DISAGREE? LET'S DO THE NUMBERS.

    We need to look at lifetime of the plant.
    The maintenance costs.
    The fuel costs.
    The power density IE how much land per MegaWatt
    and also explain the difference in power, IE output over time
    the role of the energy source IE and BASELOAD or INTERMITTENT etc.

    We don't want to trivialize renewables but it is important to demonstrate BASELOAD vs INTERMITTENT - Both very different classes of power sources. RIGHT?"

  2. How did our exported low cost electricity affect energy companies who compete for market in the US?

  3. I'd have to look up the names Rick, but there's at least 2 smaller nuclear reactors in New York that are very much threatened by the depressed market pricing that is largely a result of natural gas, but also of cheap Canadian imports (also from New York) - Forbes had a short list of the most likely reactors to close and they were on it.

  4. That would be kind of pathetic Canadian Nuclear forcing US nuclear out of business. I never heard a satisfactory explanation why Kewaunee nuclear plant shut down in Wisconsin. It was suppose to be low cost natural gas.
    Rick Maltese

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