Monday, February 27, 2017

Ontario electricity campaign positions take shape

Today the leader of Ontario's NDP unveiled a plan to "cut hydro prices." With the NDP position tabled, it's probably fair to speculate on the electricity policies the 3 main parties will campaign on in 2018's election.

The PC Party of Ontario has indicated they have 3 focuses: cancel the Green Energy Act, stop the privatization of Hydro One, and control public sector electricity salaries. While I agree the GEA is the single largest driver of high costs in the province, the other 2 pillars are populism - pure and simple.

The NDP's new paper indicates their priority is reversing the share sales of Hydro One.
The first bill tabled by an NDP government would return Hydro One to provincial ownership and control.
The paper implies a return to public power.
Direct the hydro system to provide reliable low-cost, environmentally responsible power for all Ontarians instead of profits for private companies
I felt the paper avoided the anti-nuclear rhetoric that can push people like me away from the NDP, but others find it in the sub-text.

Regardless, this strikes me as a basic socialist document that believes in public power.

The government/Liberal position is likely to be as able managers of a very clean system - and the PC's populist stance leaves them open to being the champion of market solutions.

The government's position will be based on polling, and strategy from David Hearle. Green energy won't be blamed (because people want to believe it is practical), but the elimination of coal will - it's been gone over 3 years, but blaming it's replacement as a cost driver persists as a convenient diversion - as will poorly supported claims of spending improving reliability (credible only due to one memorable black-out event in 2003).

From a numbers perspective, things may improve for the government prior to the next election.

I don't see great cost pressures in the next 16 months. There are far fewer expensive wind and solar projects due to come online. The Ontario Energy Board (OEB) allowed payments to OPG for nuclear production to drop for the start of 2017, and used those lower rates in setting the current regulated price plan while they hear OPG's rate application. It will be hard for the OEB to push back the rate riders that will have to be added (to compensate for the rate-setting period) to beyond the next election - but easy to push significantly higher rates for OPG's output beyond summer 2018.

Emissions from electricity generation will be spectacularly low - in part due to contract buy-outs that provide highly questionable value. The Liberals will enter the election campaign with one of the lowest emitting electricity sectors on the planet.

In general the political theory is public anger is not sustainable, which bodes well for the government, but the public seems to have moved beyond anger - and for good reason.

The industry people that have profited during the decade of cost increases are trying to dispel the perception/knowledge that price increases have been extreme.

If the NDP is socialism and the PC's populism, the Liberal party is corporatism.

Jake Brooks, Executive Director at the Association of Power Producers of Ontario (APPrO) has a disappointing post on Linkedin that's probably indicative of the propaganda Ontarians will hear repeatedly over the next 16 months.

Mr. Brooks asks rhetorically, "How do Ontario electricity rates truly compare with other provinces, with other regions of North America and with other countries?" and then references a newspaper article that compares residential rates with U.S. dollar conversion. I don't believe that's a useful comparison - as currency moves do little to change local residential electricity pricing. A particularly useful metric would be costs as a percentage of household income - such as Edgardo Sepulveda provided in a recent article - one it's appropriate to cite as the NDP takes a stand for a return to public power; Ontario’s Electricity Sector: Privatization and deregulation

People have not been imagining their costs increasing in relation to how much disposable income they have, and they probably aren't interested in knowing how costs have changed in relation to costs in Arkansas once currency values are accounted for. They might be interested in whether their lives are being impacted while others' are not.

I think people need one set of data to counter statements such as Jake Brooks':
There have been wild statements made to the effect that Ontario’s electricity prices are the highest in North America or that they have hit some other kind of stratospheric record. First of all, the public needs a dependable and credible base of information about prices on which to build their views. The Ontario Energy Report and the OEB’s Regulated Price Plan Report are reasonable places to start. These and other sources demonstrate that Ontario electricity prices may be relatively high compared to other provinces in Canada, but they are nowhere near the top in North America.
Neither of the reports have anything pertinent to comparing residential electricity costs. The cited Ontario Energy Report includes comparisons of pricing for large industrial consumers, whose prices were kept lower in 2016 through a one billion dollar transfer of costs to "class B" consumers via the Industrial Conservation Initiatives. Mr. Brooks seems to citing a number partly responsible for rising residential ,farm and small business rates as an example of how the rates aren't high!

Te data set of U.S. utilities that have an average residential rate of over 20 cents per metered kilowatt-hour inclusive of all charges, even taxes:

Jake Brooks' Ontario industry has been uniquely bad at delivering consumer value over the past decade, and pretending Ontario rates have not gotten very expensive doesn't bode well for the future.

I've updated this presentation with the utility's ranking when data is sorted from lowest monthly average consumption to greatest after noticing much of that list corresponded. 12 utilities have an average residential rate over 20 cents/kWh, of which 6 are in Hawaii or Alaska and others may have high seasonal residences (Bear Valley and Upper Peninsula).

Ontarians perceive rates as high because they are.

The greatest contributor to high rates is the rush of wind and solar generation contracted AFTER demand collapsed.

In a recent post I wrote:
The IESO's listing of contacts contains renewed contracts, and contracts for renovated power plants (such as coal-to-biomass conversions), but through filtering the list to include only new-build power plants it's clear the vast majority of contracted capacity since 2009 is solar (31%) or wind (65%). To be clear, the 6,430 megawatts of these sources contracted after 2009 is irrelevant in the replacement of coal-fired generation as all the capacity to accomplish that was previously procured.
Mr Brooks' listing of the "causes of price increases" with ones that are wrong, since demand collapsed in 2008-09, stuck out:
1. Ontario’s less than ideal natural resource profile
2. Political intervention
3. Phasing out coal
4. Yesterday’s artificially low rates and deficit financing

5. Green Power
6. Market inefficiency, often arising from inconsistencies between contract terms and shifting market dynamics
7. Unexpected drop in demand
8. Catching up with grid upgrades that had been postponed in past years

9. Social policy
10. Innovation – building a smarter more flexible grid

It's encouraging to see the NDP present a meaningful document on electricity policy - and honest discussion of meaningful policies would be a welcome motivator for voting.

Perhaps unfortunately, the traditional throw the bums out is also a valid motivator.

As is draining the swamp. 

EIA rate summary spreadsheet

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