Wednesday, February 24, 2016

Dylan and the law and electricity and carbon pricing - in Ontario

Today Ontario is announcing its carbon pricing scheme.
Newspapers are writing on it.
Natural gas utilities have some relevant numbers on it.

Also, there is a new report out on electricity in Ontario from Energy Probe and the Consumer Policy Institute, and another from the C.D. Howe Institute.

I want to note the error being broadcast about Ontario protecting electricity consumers from price exempts in effectively exempting the sector from paying for CO2 emissions, and I want to write on less specific issues with Ontario's electricity sector culture.

Two days ago the New York Times wrote on the Supreme Court and Bob Dylan, featuring in the article:
“‘When you got nothing, you got nothing to lose.’ Bob Dylan, Like a Rolling Stone, on Highway 61 Revisited (Columbia Records 1965).”
 The quote was introduced on the topic of "standing" - but it's relevant to Ontario's low emissions electricity sector too. Here's how Union Gas presented the impact of a $100/tonne carbon price:

Ontario's electricity sector doesn't emit much CO2, so there would be little lost in charging for what there is.

$42/year at $100/tonne said Union Gas - in 2025. Many Ontarians, using electricity for heat, will see increases of more than $42 in February 2016 over February 2015.

Keeping in mind $100/tonne would cost $42/year, and that's a dreamy /tCO2e figure given all current price schemes world-wide, here's how the Globe and Mail's Shawn McCarthy reported on news the electricity sector would be excluded:
The electricity sector will also be covered, though its allowances will be free and it will not face a declining cap in recognition of the huge costs to consumers from previous emissions-reduction policies.   -see addendum at bottom for clarification/correction
Not to imply Mr. McCarthy is responsible for misleading people, he's just sucked in on the disinformation campaign of Ontario's Premier. From Global news:
[Premier Kathleen Wynne] revealed economic impacts Wednesday, a day before her government introduces its budget, which is expected to include more details about carbon pricing.
However, revenue from the cap-and-trade auction set for next year will be used to “protect” consumers from an electricity rate hike and could even lead to rates going down, Wynne said.
All total nonsense, but the issues seem too confusing for the broad public.

Ontario's industrial pricing policy requires a low Hourly Ontario Energy Price, and the cost of generating with natural gas should set that price. Excluding gas-fired electricity generation prevents cost shifting to industrial users from consumers. Last year I wrote:
The element of Ontario's "hybrid" electricity market requiring manipulation to maximize the shift of costs away from large "Class A" consumers is the market price, which can be treated as the Hourly Ontario Energy Price (HOEP) for analysis. If I were to make a list on how to lower the HOEP it would include:
  • committing to far more generation than necessary;
  • paying marginal generators separately for capacity, ensuring if fossil fuels (natural gas) supply is necessary generators will have little incentive to price above the cost of fuel;
  • paying large consumers to curtail production when prices may rise;
  • make demand reduction a key focus even when awash in pre-purchased supply.
All these things have been done and the IESO continues to expand on all themes.
Add "exclude electricity generators from carbon pricing" to the list of how to depress the HOEP.

The Consumer Policy Institute has a study out showing how Ontario's government's have done on electricity pricing in the past decade - Getting Zapped: Ontario power prices increased at fastest rate in North America:


The C.D. Howe Institute has released a report by George Vegh, Learning from Mistakes: Improving Governance in the Ontario Electricity Sector
From the summary:
Over the last 10 years, the government has directed the expenditure of billions of dollars of public money on electricity projects with virtually no oversight or checks and balances. During this time, Ontario consumers have seen a large increase in electricity prices, with more to come.
“It is remarkable that the expenditure of billions of dollars can be made with the stroke of a pen with virtually no oversight,” commented Vegh.
In response to concerns about the rising cost of electricity and poor governance, most notably from the Auditor General’s report last December, the Ontario government has touted its proposed Bill 135 as the solution. However, far from solving the concerns about electricity-sector governance, the proposed Bill entrenches and expands the status quo and provides no role for oversight of government electricity directives
I'll return to Vegh's paper before concluding this, but wanted to stay on Bill 135 for a moment. Tom Adams posted notes from his Bill 135 deputation, and in that post he linked to Mark Winfield's post on the same topic. From that deputation:
I have followed the evolution of the province’s approach to electricity system planning since the concept of system planning was reintroduced through the Electricity Restructuring Act in 2004. I have published a number of articles and papers ...

Back to the New York Times and Dylan and the Supreme Court:
“Bob Dylan captured the whole notion behind standing,” [Chief Justice Roberts] added. “In that case, the party didn’t have anything at stake in the case and had nothing to lose, and the case should have been thrown out on that basis.
What is anti-nuke professional Mark Winfield's stake at the OEB?
iPolitics reports "The Canadian Environmental Law Association, Greenpeace and the Green Energy Coalition hold a press conference regarding the proposed changes to Ontario’s energy planning laws."
These organizations are all stable-mates, or direct actors, in the green energy act push that replaced professional energy planning in Ontario. None are generators or transmitters or distributors and none represent the consumers of such entities.
What is the standing of such organizations in energy planning?

I return to George Vegh's "Learning from mistakes..." I find attaching Bill 135 to claims it may have prevented wasteful spending unfounded, because the people most capable of manipulating the OEB process (which includes enumeration for sanctioned participation) were also the most skilled at manipulating politicians outside of the process.

Vegh claims, "the proposed Bill entrenches and expands the status quo..." I disagree on the power system planning impacts - process was used to avoid accountability and for a decade professional planners were side-stepped. The issue was not public servants, it was private lobbying and cutting off their public funding can strengthen public planning.

I get no joy in saying that, as reading intervenors objections to proposals at the OEB demonstrates high quality work time and again. However ... the results are what they are. Power system planning is unlikely to get worse.

More pertinent to today's news, I challenge this conclusion:
The provincial government should move away from controlling electricity planning and instead leave the acquisition of supply to those who are responsible to meet fact-based demand requirements or, in the alternative, the government should only set broad policy objectives and not make choices on which technologies and which suppliers should receive government contracts.
I would love to agree with this. However, it seems to me in order to move to any market bidding a government would first have to recognize the losses inherent in current contracts/liabilities, and then price externalities appropriately before entertaining bids.

The first the government did in 1998, but the promise of competition evaporated by 2003. Even if 1998 was repeated there'd by no confidence in an Ontario market.

The second prerequisite, pricing externalities, Premier Wynne just announced she won't do.

There's all sorts of dogs in Ontario's electricity sector, but returning to private participation isn't one that's going to hunt.


Odds now seem to indicate Ontario will make natural gas consumers pay for their cap. After the budget details were release I had an exchange on Twitter where the writer I quote above confirms the situation changed to where quota would not be free (but also would not reduce over time).
Dan Wrightman notified me of the draft regulation, which includes:

I'm not confident that won't change again before regulations are finalized - but today it looks like I'll be wrong.

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