Selling Hydro One and rate hike threats for Ontario

The government of Ontario recently announced it would try to sell off it's public transmission company, Hydro One. The rumours became fact as a Premier’s Advisory Council on Government Assets released its final report on this topic, which was quickly accepted verbally and is formally now recognized in the Ontario's 2015 Budget.

One of the concerns with the government's plans to sell off part of Hydro One is the impact on rates. I tend to think the pressure on rates will be slightly up, only initially, for Hydro One distribution customers, but actually downward for customers of Ontario's other local distribution companies. That will require some work to explain in a separate post, but I'll note the existing cost concerns with a list as I had been collecting stories on rate impacts prior to the announced plan to sell of 60% of the transmission and distribution assets:

• Ontario Electricity Rates – the Invisible Gorilla | Bruce Sharp | Cold Air
• Ontarians should brace for shocks from electricity market changes | the Globe and Mail
• Ontario’s Power Rates Are Going Up How Much? | Tom Adams Energy
• Compared with Ontario, our electricity is a real bargain | Montreal Gazette
• The lowdown on hydro increases | Vander Doelen | The Windsor Star
• Ontario's hydro situation getting worse: Expert | Toronto Sun

Rates in Ontario are going up, and up.

Onto the debt.

Ecomodermism: One new manifesto, one less blog

Earlier this month I read "A Farewell Post" from Keith Kloor regarding his Collide-a-Scape blog. Kloor and Brad Plumer are two writers that I enjoy because they feed biggish concepts succinctly but in a way that is digestible. Events the same week made this section of the farewell post notable:

...there are some ideas (or at least a term–eco-modernism) that germinated at my blog which I elaborated on elsewhere at Discover and atSlate several years ago, and which seems to have now been picked up on.

It's notable because the same week that was written a collective released An Ecomodernist Manifesto.

Reportedly Frank Lloyd Wright's Manifesto for his apprentices

Just by the gravitas of words, manifesto seems the opposite of blog;
The Communist Manifesto was the only other manifesto that came to mind upon seeing this one. Through googling I found many; Lulemon's is currently one of the more popular ones.

I'm inclined to support the Manifesto as it's signed by many people I've read or listened to: Barry Brook (who has written on it at his Brave New Climate blog), Stewart Brand, David Keith, Ted Nordhaus, Roger Pielke, Jr., Michael Shellenberger, and Robert Stone - as well as people I should get better acquainted with including Rachel Pritzker, Joyashree Roy, Christopher Foreman, Ruth Defries and John Asafu-Adjaye. Additionally, I'm "eco", having added a lot of insulation to my home and planted dozens and dozens of trees,and I exist right now, which is surely modern. Ecomodernism sounds like it might be me.

An Ecomodernist Manifesto is quite readable. I'll boil it down to 3 points:

• people will continue to move to cities
• affluence requires power and sustainable affluence require power that is "cheap, clean, dense, and abundant"
• biodiversity, and related wild nature, are desirable and worthy of encouraging

OEB panel notes gaming opportunities for traders and growing data deficiencies

The Market Surveillance Panel (the Panel) of the Ontario Energy Board (OEB) recently issued it's report for the period from November 2013 to April 2014. Having ripped into the the Panel for what I saw as poor and petty portions of its previous report, I thought I should comment on this one as it is a return to higher quality.

Perhaps the most important section of the new report notes the data deficiencies clouding all analysis on Ontario's electricity sector.
Market Surveillance Panel: April 2015 Monitoring Report on the IESO-Administered Electricity Markets for the period from November 2013 – April 2014

3.1 Data on Embedded Generation, Embedded Consumption, and Behind-the-Meter GenerationSeveral shifts in the electricity industry in Ontario have highlighted to the Panel that data in certain important categories is not readily available. The lack of data has made tracking changes to certain aspects of the market—and assessing outcomes in the market—more difficult. The Panel has identified three main categories of unavailable data that affect the accuracy of metrics that are important to understand several aspects of the industry. These categories are embedded generation, Embedded Class A consumption, and behind-the-meter generation. 

Negotiations slow on Bruce Power contracts: issues with Ontario's nuclear refurbishment scheduling

Shawn McCarthy wrote a column on slow-moving negotiations regarding the refurbishment of Ontario's nuclear reactors, primarily those operated by Bruce Power. In the week since it was written it inspired 0 comments - and here I am expanding on the topic!

Ontario news these days is on the sale of Hydro One and budgets and cap-and-trade, all of which I'll likely get to at some point, but most of those stories are simply about sleight of hand to hide debt, and grabbing funding for a favoured constituency from unfavoured ones.

The operation of Ontario's nuclear reactors is, in contrast, not simply a flavour-of-the-day story.

Negotiations delay TransCanada’s Bruce Power nuclear reactor updates | Globe and Mail

Bruce Power and the Ontario government are mired in negotiations for a $15-billion deal to refurbish six nuclear reactors, delaying the planned project past a self-imposed deadline and posing new questions about the province’s future energy mix.
The Liberal government insists it remains committed to refurbishing Ontario’s aging nuclear fleet. However, both sides have signalled they are concerned about potential cost over-runs, and Bruce and its shareholders worry about the province’s schedule, which would require the company to take units off-line before the end of their commercial life.

"TransCanada also wants to squeeze as much cash from the existing reactors as possible before having to invest in upgrading them" is the easy way to keep the article newspaper length, but a closer look might point the interest to OPG's Darlington, and question if they operate their reactors to maximize value as Bruce Power does.

Ontario Energy Board boldly moves to fixed distribution charges

“allocating common costs is like trying to find a black cat in a dark room. [pause] Where there is no cat.”

The Ontario Energy Board (OEB) released, on April 2nd, A New Distribution Rate Design for Residential Electricity Customers (.pdf), along with many documents from the period leading to the publication of the new Board policy.

It's notable beyond Ontario's borders as many jurisdictions are also attempting to cope with changing revenues and similarly looking to change pricing models.

From the OEB:

FIXING DISTRIBUTION RATES RATE REDESIGN BACKGROUNDER

On April 2, 2015, the Ontario Energy Board (OEB) issued a new rate design policy that will change the way local distributors bill their residential customers. Distribution charges, currently a blend of fixed and variable (per kilowatt-hour) rates will be an entirely fixed monthly service charge by 2019. Fair billing, grid innovation and enabling customer uptake of new technologies are among the OEB’s objectives for this change. 

I agree with the change, although not without concerns  - some of which I noted when writing on the initial discussion document. I'll have more to say on the policy document on my Cold Air blog - because the OEB's documents are poor, which is almost certainly requisite for any document produced in Ontario's ridiculous electricity policy environment.

I'll try to keep my comments, and citations, in this short post relevant to a broader audience.

Utilities in many jurisdictions, including Ontario, are dealing with a need to maintain infrastructure while demand levels are dropping, and the problems are particularly acute where solar panels are being rapidly installed within distribution networks (often net metering jurisdictions).

Hydrogen's promise - and avoiding common mistakes about energy

Today, some information on hydrogen and the promise it has to power the future.

But first, the consistently lucid Brad Plumer has a post that leads into the space hydrogen promises to, at least partially, fill.

The most common mistake that news stories make about energy - Vox: "

Repeat it over and over: "electricity" is not the exact same thing as "energy."
Last week, I wrote about a nifty milestone in Costa Rica — the country had gone 75 days without using any fossil fuels to generate electricity. It was intriguing news, and lots of other outlets also covered it.
Except a number of stories featured headlines that were quite wrong, saying that Costa Rica was now running completely on renewable energy:
That's not true, and this subtle error pops up a lot in energy coverage. "Electricity" and "energy" aren't perfectly interchangeable.
Yes, Costa Rica's power plants were all running on renewables (mostly hydro) and delivering clean electricity through transmission lines. But the country still had plenty of cars running on old-fashioned gasoline. There were still airline flights in and out of Costa Rica powered by jet fuel. The country has two large cement plants that were still burning coal in their kilns. It simply wasn't true that, as one outlet put it, Costa Rica had "eschewed fossil fuels completely."

I suggest people read this entire article, and Plumer's other work.

image from Student's Guide to Alternative Fuels

I received an e-mail noting work posted to the site of the "Auto Insurance Centre." I'm not sure I would have opened the link if it had not cited a work of mine that I enjoyed compiling/writing (Exporting more U.S. Coal can lower global emissions?)
I'm glad I did, as it summarizes a number of alternatives for powering transportation; I was particularly interested in the section on hydrogen.

Students Guide to Alternative Fuels

Germany's electricity market policy this week: A pure energy market with a safety net

There are 2 aspects of German energy policy that are clearly desired:

1. they wish "renewables" - which for the sake of this post are better called by Rod Adams' term "unreliables"
2. they don't want to subsidize fossil fuel generating stations

The two desires probably aren't compatible if one defines paying for capacity as a subsidy, which seems to have been the government's position since prior to the last election when then Minister Altmaeir stated; "I am against blanket subsidies for fossil energy, which would only increase power prices."

I'll review some recent news of how Germany's attempt to structure a market that could allow sufficient capacity at all, or maybe just most, times

New power market design without capacity mechanism in ministry plans | Clean Energy Wire

The German energy ministry has opted for a reformed energy only market (EOM), in which back-up power stations are financed through sharp peaks in power prices. Utilities insisted that a decision on the market's design - either an energy only market or their preference, a capacity market - was still open, saying they needed to be paid for keeping capacity available in the absence of power from renewable sources.
The government has rejected the idea of financial support for fossil-fuel power plants to back up fluctuating power from renewables, a leaked document agreed by the energy ministry and Angela Merkel's chancellery shows. In the paper seen by the Clean Energy Wire, the government argued it was convinced its plan without a capacity market would "guarantee a high level of supply security at low cost."
Reforming the power market is one of the next big steps in the country’s transition to a low-carbon economy, the so-called Energiewende...

continue reading at Clean Energy Wire.

The article notes that in an Energy Only Market. "Supply for peak demand should be secured by letting investors in back-up power stations make very high profits in times of scarcity." I'll opine this is a theoretical belief (I suspect the odd rolling blackout would be preferred), but it is the theory, and the place it's most pursued is probably Texas, where the maximum market price is being raised towards $10000/megawatt-hour.

Handelsblatt has a subscriber-only article on the topic titled, Gabriel Pulls Plug on Utility Bailout.

So the first storyline is that there will be no capacity market - because paying for capacity would just be propping up old utilities and their fossil fuel generating stations.

The other storyline is that Germany will be putting out calls for capacity

Ontario's outlaw Premier "will will discover that there is no juice to be squeezed from Hydro One"

Tom Adams and Mike Hilson have a column in the Financial Post today which cites one of my works.

Ontario’s Outlaw Premier Plots to plunder Hydro One is the work of mine that is cited in today's column. It's on my Wordpress site, which I'm using increasingly for posts I want to start and finish in the same sitting, perhaps leading to more analysis on my main Cold Air blog. In this instance you may want to read the post as background for the work by Adams and Hilson - theirs is the broader piece I'd hoped to have written on the topic.

Actually, that should be topics.

No windfall in selling off part of Hydro One notes multiple financial issues, including:

Even if the legislation was silent on the disposition of sale of Hydro One assets or if that legislation was repealed, the taxpayers would still be on the hook for all of OEFC’s liabilities.
Today, the book value of Hydro One is included as a financial asset in the government accounts. Any dilution of this interest would decrease the value of the investment. To avoid increasing the Province’s net debt, the proceeds of any sale would have to discharge existing debt. Only any premium over book value could be claimed as a gain, but the prospects for such a premium don’t look promising.

...and:

Similar questions arise with respect to Hydro One’s regulatory assets. Former teacher’s pension fund manager Jim Leech in his August report found the pension to be under water but all that is treated as an asset to be recovered in future rate increases. With power demand already retreating in the face of punishing rates, how solid are assumptions about future regulatory decisions to recover costs incurred to date but left for later recovery?

OPG's strong 2014 results: aka how I made OPG $243 million

OPG's final 2014 results have been released and the net income they are reporting is, if my records are correct, the highest since 1998

[Toronto]: – Ontario Power Generation Inc. (OPG or Company) today reported income of $568 million, before extraordinary gain, for 2014 compared to $135 million for 2013. Net income, after extraordinary gain, for 2014 was $811 million, compared to $135 million in 2013.

Let me tell you about extraordinary items.
but first...

There are new business segments for contracted generation (biomass, hydro and gas partnerships) and eliminated business segments (thermal, or fossil fuels, and non-regulated hydro).

I've flipped through OPG's 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS and spotted some things of interest to me, relevant to many things I've written.

There's news in OPG's reporting that, I'll just put out there, maybe I should get a nice cheque for.

Big Think's response to anti-nuclear emoters' attack

Self-identified environmentalists went to Madison Avenue and got a slick campaign against nuclear energy.
Today David Ropeik wrote about it.

Naive Anti-Nuclear Videos Demonstrate the Danger of Thinking with Our Hearts, Not Our Brains | Big Think:

Five environmental groups have just released a series of videos attacking nuclear power that demonstrate a disturbing and frightening truth, a truth that has nothing to do with nuclear energy. The videos make depressingly clear that our intellectual ability to think carefully and objectively about the enormous and complex threats we face is hogtied by powerful subconscious instincts that produce perceptions based far more on emotion than reason. The videos are a stark reminder that for all the rational firepower of the human brain, the subjective and instinctive aspects of human cognition pose serious limitations on our ability to figure out how to keep ourselves safe 

The videos were produced in part by more strident, absolutist environmental groups, including Greenpeace, Friends of the Earth, and the Sierra Club. These groups all advocate action to combat climate change, of course, including clean energy. But to them, nuclear power remains a technological bogeyman that any true back-to-nature environmentalist is simply expected to oppose. Opposition to nuclear energy remains an established belief of the tribe, to be unquestioningly accepted and supported as a demonstration of one’s loyalty to environmentalist values. Which is why a good many greens will cheer these videos, and uncritically accept what they say as true. 

This instinct, to see the evidence the way our groups do, is ancient and powerful. We have evolved, as social animals, to depend on our tribes, the groups we identify with, for our very health and safety. It feels safe to go with what the group says, rather than think independently and take the risk of disagreeing with the group’s belief. That instinct for tribal loyalty may help us feel safe, but as these videos demonstrate, it can badly warp how we see the facts, and overwhelm our ability to keep an open mind and think about things carefully and objectively.

Read the entire work at Big Think.

This work (Ropeik is at Harvard) is not dissimilar to work I noted yesterday by Dan Kahan (Yale).