Draft Response To Regulator's Consultation on TOU Pricing

2010-11 Time-of-Use Consultation (EB-2010-0364)

I’ve prepared some remarks as I consider a response to the Ontario Energy Board (OEB) review of the Retail Pricing Plan (RPP), and specifically the Time Of Use (TOU) pricing. 
The Board notes, in Kirsten Walli’s letter of October 18,2010, that now that the board has directed all residential customers be moved to TOU pricing, and many customers already have been moved to TOU pricing, it’s a good time to review TOU pricing.   The December 6th, 2010 letter provides details on the consultation.  That letter notes that there is an intention “to ensure that the design of TOU prices is fair and meets the objective of ultimately reducing overall power system costs,” and Appendix A of the document identifies a number of specific issues that give some direction for the arguments.

I think the time would either be before they installed 4 million smart meters (or whatever the figure is), or after they have some real-world data to mine on the existing 750,000 customers.  But now is the time the Board is asking, so I’ll try to respond if only to utilize my amateur’s knowledge of smart meters, and dynamic pricing schemes.  Comments, either on this site or by e-mail, would be appreciated.

Before addressing the specific issues identified by the Board staff, there are some issues that should be first addressed related to framing the discussion.  The Board has contracted the Brattle Group to facilitate the discussion, and that group prepared both”Assessing Ontario’s Regulated Price Plan: A White Paper,” and a related Powerpoint presentation.   The Brattle Group is fully aware of dynamic pricing alternatives to TOU that deliver far greater reductions in peak demand (such as Super Peak TOU, CPP, VPP, ant RTP charted on page 6 of this The Brattle Group document for the Smart Grid Latin America Forum 2010). 

Specific to Ontario, there are other statements from the consultant I would reject off hand.  While the theory appears broadly accepted that managing peak demand can save the costs of constructing, or maintaining, additional generation capacity, there is little indication that would lead to fewer emissions – of green-house gases or anything else – in Ontario.  The OEB would not be protecting the broad consumer interests of Ontarians if they judged the value of a reduction in peak demand against any value other than the cost of generating capacity.    Regardless, the OEB should be aware, as it’s consultant is, that TOU is not the best Demand Side Management (DSM) mechanism to reduce peak consumption.

The alternative rates discussed by the Brattle Group are of no use, because all build off of the first which is “The existing TOU with the addition and reallocation of expected wind and solar GA costs to the peak period (price ratio = 2.7-to-1).”  That violates the OEB’s starting point of ensuring that the TOU prices are fair.

Wind output in Ontario is not only well known, due to the excellent data maintained at the IESO, but it really hasn’t varied all that much from initial studies on the potential of wind supply in Ontario back in 2005.  Wind is expected to produce at about an annual capacity factor of a little under 30%, with a summer (June, July, August) capacity factor around 17%.  My interpretation of the IESO data is that it has been doing that, and this graph shows wind capacity factor by month are as they were expected to be:

The latest 18-month outlook from the IESO lists the forecast capability at summer peak as 178MW for an installed capacity of 1235 MW of wind, which is realistically optimistic.  Last years’ peak had 1085MW of capacity producing 72MW of output (half the IESO’s hoped for capacity factor this year).    It is not fair to put the cost of wind onto summer peak hours.  I would point out how ‘fair’ in an economic sense is impacted through increased wind and solar penetration.  Because a functioning market requires price to fluctuate as a signal both to producers to change production levels, and consumers to adjust consumption levels, the ‘fair’ price of electricity will be increasingly dependent on how windy, and sunny, it is.  The price being dependent on supply fluctuations was made clear both in Texas and Alberta this winter as unexpected plant outages (coal, and gas) led to huge spikes in market prices, both during cold spells.  Gord Miller noted, on the Agenda last fall, an Ontario record HOEP of $1891.14/MWh – in arguing for TOU pricing.  That price occurred Wednesday, February 18, 2009, at noon – when Ontario demand was an unremarkable 19413MW.  That is not now an on-peak time, nor is it proposed to be.   The economic ‘fair’ price cannot be scheduled.

If fair is not presented in an economic sense, it needs to be defined.  That should be the first step of the OEB’s pursuit – and I think it might become the last as the groundwork of the current consultation seem a step back from the integrity of the RPP process that established the current prices.

Specific Comments to Appendix A issues

Are the current three price periods still appropriate?

3 prices are not appropriate.  The OEB pricing, if it must be done on a TOU basis, should be aligned with the simplified On-Peak and Off-Peak pricing currently in use in the IESO reporting.  The OEB is currently paying a private consulting company for worse data than could be mined from both the IESO and Hydro One and other utilities (particularly Hydro One).  Should political optics require maintaining TOU pricing, co-ordination with other public bodies to simplify data exchange should be a priority.

There is also no discernable difference, in Ontario consumption, between on-peak and mid-peak hours in the winter – the IESO methodology seems more tested, and reflective of market demands.

Is the current seasonal structure appropriate on a go forward basis?

The current seasonal structure is inappropriate.  On the demand side, peak usage periods are related to temperature, and meal times.  On the supply side the supply mix would, if not overbuilt, cause periods of over-supply (increasingly true as illustrated by Surplus Baseload Generation), and shortages of supply.  The supply argument is for RTP (as noted by Direct Energy), not TOU.  There need not be any great cost associated with changing the approach.  The OEB has consistently set RPP levels that have coincided very closely with the wholesale rates during the same period.  The problem in the retailer market has been the global adjustment – which is also an enormous impediment to RTP being meaningful to the wholesale market – which I believe is now larger than the residential market being discussed.  There is an implication that the destruction of the HOEP pricing mechanism through the excessive contracted supply can be rectified through consumer pricing tricks.  It cannot. 

Regardless, Direct Energy has submitted comments they can provide tools to facilitate RTP for their customers.

Given that the Ontario electricity system is summer peaking, would it make sense to adopt a structure which specifically addresses the summer peak?

Yes – and no. Yes, it would make sense to allow a functioning market to set a higher price when calling for reduced demand – and in that the highest peak being reduced should, in theory, reduce generation capacity needs, the restriction to the summer peak seems sensible.  But we only have higher summer peaks now because we have fewer households heating with electricity.  A spike in natural gas prices could change that entire dynamic.  Market mechanisms can adjust to such changes.

or

No, it would not make sense because the total system peak is only one issue the variable pricing might address.  The other is smoothing of the usage pattern over the course of a day.  I believe there are emissions implications in the amount of ramping up, and down, of supply – and there are definitely supply mix issues.  I have graphed the average daily variance in Ontario Demand (the maximum less the minimum hourly use reported in the IESO data), by month.  The desire to level off the consumption pattern in November and December is similar to the need to do so for the summer months (although hot summers see the greatest variance as well as the overall greatest demand):

Are the RPP Manual target ratios of 1:2:3 still appropriate?

The Board is aware the 1:2:3 rations are not appropriate.  They started with those prices, and have moved away from them.  The flattening of TOU prices is matched at the wholesale level reflected in the HOEP, and, as stated previously, the existing RPP planning used by the Board has produced realistic rates.  The narrowness in the rates fairly reflects a dysfunctional market (resulting from both demand destruction and supply mix/over-procurement issues).  This chart illustrates the averaged HOEP rates for the different peak periods (as per my calculations from base data at the IESO site):

The Board should continue emphasizing RPP supply cost recovery as the primary objective, and ignore the ratios.

The Board should not use GA cost assignments to enhance the TOU ratios regardless of “cost causality”

I conclude with a reminder of what fairness has, historically, meant to us.  It has meant that the little guy should not be singled out to pay the brunt of costs for our mistakes.  It has meant a progressive pricing element (such as the lower price for the first 600/1000kWh - that does mean switching to TOU is a rate hike for those with usage under 900kWh/month).  The OPA should be able to locate studies by the Conservation Office (prior to it being rolled into the general OPA site) which studied the entire market at peak use times.  I recall that document stating at those times demand was about 1/3^rd commercial, 1/3^rd industrial, and 1/3^rd residential.  The claims of The Brattle Group that a 4% reduction would be 1064MW doesn’t appear to account for this – The RPP group may only account for 1/3^rd of Ontario demand at the peak, and that reduction would be about 350MW based on last year’s 25000MW peak.  This seems like a lot of work to discourage one coal generation unit from staying on standby when it’s hot.  I end with a quote from Severin Borenstein:   “...: in an electric system that must always stand ready to meet all demand at the retail price, the cost of a constant-price structure is the need to hold substantial capacity that is hardly ever used. But utilities optimize by building "peaker plants" for this purpose, capacity that has low capital cost and high operating cost. The social cost of holding idle capacity of this form turns out to be not as great as one might think.”

 

Note to the OEB: Benchmarker, Benchmark Thy Self

I was intrigued by the news that Chancellor Merkel created an ethics commission to study the use of nuclear power in Germany.  It’s an interesting challenge, and not just for nuclear energy.   Merkel’s creation of an ethics commission to investigate nuclear generation struck me as a second cynical act (the first being simply removing older reactors from service for 3 months).  Voters in regional elections weren’t inspired, as her party lost power this past weekend anyway. 

The morality issue seems increasingly involved in electricity policy everywhere.  My main focus is Ontario, and I am a fan of an appropriate amount of nuclear generation in a supply mix.    CBC news just said the government of Japan is now considering putting TEPCO out of it’s misery, and nationalizing.  That could be interesting.  I noticed yesterday some flak in the American industry about demonstrating their structure, of private ownership with public oversight, provided the safest, and cheapest, industry.

Here at home we have a regulator deciding against the public generator being paid 6% more - for not meeting private sector measurements from a recent benchmarking effort. 

The OEB’s ruling March 10^th rejected Ontario Power Generation’s request to raise rates, primarily on the sections of the application for nuclear rates.  Most of the ruling (I skimmed it until I figured out the basis of it) is based on benchmarking data.  I like data, but there is an ethical use of data (which is to have knowledgeable people utilizing it to make better decisions), and there is an unethical use of it.  The OEB is not a nuclear plant operator, and wasn’t the appropriate body to fiscally restrain OPG having decided, “there was room for a potential reduction of 48 FTEs (28%) in the Radiation Protection Function, of which 13 FTEs could be eliminated altogether."   The regulator attacked spending on the Radiation Protection Function in a ruling released one day before Fukushima’s reactors lost cooling ability.  I’m OK with OPG erring on the cautious side, whether or not the private businesses are doing so.

This benchmarking can aid the OPG management in managing OPG – but the OEB should be looking at other benchmarks, related to pricing fairness, in their rulings.

I have collected the figures from Bruce Power’s reporting, OPG’s reporting, and calculated how much was left[i].  While the “Other” category is a figure I don’t have high confidence in (these figures should be a little higher than warranted[ii]), I am confident the methodology is consistent, and the trend for pricing is as shown:

OPG started off as the low-cost producer, and is increasingly lower cost than the “Other” category.  If you were the Ontario Electricity System, what would you be buying more of? 

These are the figures, for production I have a very high degree of confidence in:

We are buying more and more of the increasingly expensive stuff.  How’s that benchmarking protecting the Ontario consumer?

Even with the higher, and more rapidly escalating, charges for new private supply, we don’t have an honest reflection of the extra cost for the new sources of electricity.  To get that, we need to look at residential pricing, which would include the cost of the smarter grid to facilitate the purchase of expensive supply.  I’ve tracked my billing data, and it shows the most rapidly escalating portion of the bill is the delivery charge, which has gone up about 3 cents/kWh since 2005[iii]:

To put an exclamation mark on the obscenity of Ontario’s current regulated pricing regime, the least valued generation source, in the eyes of the OEB, is hydro (regulated at under 4cents/kWh) – much of that hydro being the cleanest, and first choice, for peaking.  

This is an intentional devaluation of public assets.  The approximately $1.6 billion made by reselling Ontario Hydro’s output, bought at the rates regulated by the OEB, at the higher wholesale rate, determined by the IESO, is transferred to the private wind, solar and, primarily, natural gas generators.   These public bodies should start serving the public.

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[i] My spreadsheet is here

[ii] The IESO figures for OEFC-NUG’s, in the global adjustment, include, I think, some charges related to writing off coal units that are being retired early.

[iii] I calculate rates on metered usage, so the line loss factor is taken back out – my usage is down about 60%, which could make the comparison distorted

Conservatives Begin Canadian Election Campaign With Elusive Majority In Sight

I predict a strengthened Conservative government, and probably a majority. There are a number of reasons for that, most having nothing to do with timely specifics, policies, or image. The trends are towards a Conservative majority, and I don’t believe anything has occurred that changes that trend.

Tracking elections since Mulroney’s 1984 triumph (the last time the victor won over 50% of votes) is instructive. Since that victory, the Bloc split (largely taking votes that went to Mulroney’s PC’s), and so has Mulroney’s party, with first the Reform party and then the Alliance and then a return, in the merger/takeover of the PC party. Aside from the 2004 election, was the first following the merger, and many PC’s appeared to avoid voting rather than vote for the Conservative party they considered taken over, this vote has been relatively stable since the 1993 election that saw Kim Campbell’s party reduced to 2 seats . It is stable in terms of the percentage of ‘electors’, which is Elections Canada’s term for eligible voters. In the following graph the votes were added for all of the predecessors of the Conservative party. On the left, while articles started to circulate suggesting it last year, we really have nothing new occurring. Chretien’s enormous 1993 victory saw a very small NDP vote, and while it is most likely when these parties do add a vote, it comes at the expense of the other, the relationship is less clear.



That purple line is the voter turnout percentage, as indicated by the axis on the right. So the trends are for Conservatives to collect about 22% of the eligible voters, and less of the other eligible voters to vote.
There isn’t anything at work to change this trend. While the anti-Harper sentiment is strong, it has been since 2004, when figures show PC voters couldn't accept him a that time. They seem to have gotten over it - and the other 78% of the electorate are, more than anything else, not voting at all.
Elections are, most meaningfully, 308 concurrent, but separate, elections. A few months ago there were some reports that the Conservatives had identified 190 seats to concentrate on for achieving their majority. A few years ago (in 2009), I was commenting at the Globe and Mail something along those lines (and being ridiculed for it). My approach was examining the margin of victory – looking at seats where the margin of victory was under 10%. Recently I read an article with a Liberal bias along the same lines, but claiming seats under a 15% margin of victory should be considered ‘in play.’ I won’t review my data, but the notes I have from that time are that only 28 (of 143) Conservative seats were won by under 10%, 25 (of 77) Liberal seats were, and 14 (of 37). So not only do the Conservatives start with the most seats, they start with the greatest percentage of secure seats.
However, many of the seats that were won by under 10% depended on the split between the Liberal and the NDP votes – and many others the Conservatives really weren’t in the picture regardless. The list I made 2 years ago is:
Edmonton-Strathcona, Burnaby-Douglass, Nanaimo-Cowichan, Elmwood-Transcona, Western Arctic, Esquimalt-Juan de Fuca, Vancouver South, Ajax-Pickering, Brampton-Gore-Malton , Brampton-Springdae , Brampton West, Kingston - and the Islands, Mississauga South, Sault Ste. Marie, Malpeque, Guelph, Eglinton-Lawrence, Welland, and York Centre
The outcome of general elections in Canada has some luck involved – which makes for some strange campaign moves. I’m not in a position to predict the outcome in those ridings, but I do think there is evidence many Conservatives looked at the same things I did, and they’ve been doing the groundwork since early 2009 to prepare for this election in many of these ridings. I don’t believe it is possible to predict BC at the best of times – this time might be no different, although the last poll I saw looked very promising for the conservatives there.

Poll watching is great fun, and most polls have regional breakouts. The data for the last 3 elections (all minority government outcomes) helps interpret the polls as they come out – this data might provide some context for the curious as the election polls come out daily:



I’m watching one set of polls, the EKOS polls, slightly different. These polls usually have a break-down for the major cities in them too. Vancouver, Toronto, and Montreal census metropolitan areas (CMA's, which are much larger than the individual cities) comprise about 40% of their respective province’s populations. The 905 region surrounding Toronto is included in the Toronto CMA, but we know the 905 behaves somewhere between rural Ontario and the heart of the city of Toronto (it was even evident in Rob Ford’s recent victory in Toronto’s mayoral election).



This has set up, entering the election, perfectly for the Conservatives. They have rural Ontario, rural BC, and apparently they are the federalist option in rural Quebec (rural including secondary cities). The election was triggered by a Liberal motion of non-confidence in respect to the contempt finding . I doubt anybody is winning or losing votes on that issue. While people complain about politicians endlessly (ie. have contempt for them), it seems to require bags of money changing hands to incite people to alter their voting habits. Ontarians, in particular, have tended to punish whatever party is seen to have caused an election – although in this case my guess is the minority had a long enough life this won’t be a deciding factor.
I don’t believe there is yet a compelling reason provided for the vote, and failing that I’d expect the trends of declining turnout, and Conservatives maintaining their core turnout better than others, continuing. Campaigns should change things – and I hope we have one that does have some big ideas and a discussion of meaningful issues - but entering the campaign the situation is positive for the Conservatives, and the stage is set for an outcome that will infuriate many people. The road map for majority government doesn’t show the old cities of Toronto, and Montreal.

As Japan Copes, Cynical Opportunists Thrive

I haven’t written a blog entry since the earthquake and tsunami rocked Japan.   I switched on the television that day and the video coming in turned my stomach as I recalled the initial reporting on the quake, and tsunami, in the Indian Ocean.   The situation has unfolded, now as then, with the extent of the massive devastation being unveiled slowly.  I have 3 sons in the house and I discussed it with them as we watched the footage – attempting to empathize.  It’s a tough thing to do. Their uncle, out on Gabriola Island, would be a better person to ask about living on the shores of an area prone to earthquakes, and susceptible to a tsunami – or their newer uncle who had lived at the base of an active volcano for some time.  People live in danger’s path.  We also discussed engineering, with my little knowledge of it, including redundancy, passive safety features, and the law of diminishing returns.  And I opined the active in this world usually work in the realm of probability, lacking the certainty, and paralysis, of absolutes.

The first reports of nuclear trouble that raised my eyebrows involved Japan declaring emergencies at 5 reactors, and that they may not have pumps to cool the reactors.    
Again, I can’t emotionally empathize – although compared to being suddenly swallowed by a massive wall of water, having time to pick up and leave struck me as a far better situation.  There is an element of awe at the minor power of man in the face of nature, including the scope of damage multiple core meltdowns could do compared to nature’s power that initiated the problems at the reactor sites.  Perhaps elevating nuclear fears is an act of hubris.  Evacuations don’t particularly scare me much.  I was one of the Mississauga residents told to leave their homes for a train derailment years ago, and my in-laws showed up for a morning coffee not too long ago having been told to leave theirs until another train wreck site was made safe.  Things happen - you leave, and hopefully you come back.

I grew up (to some extent) by AECL’s headquarters, without ever being particularly curious when kids said they did nuclear tests in some test reactor back in the hidden building with the huge doors and no windows.  I am at ease with nuclear power.  That may be irrational, and with the events still unfolding I felt it best to hold my tongue.  There were a couple of exceptions in the links I posted at coldaircurrents, and comments I made elsewhere.  One point I felt needed to be made is that if nuclear is now more dangerous, that didn't make renewables better, coal cleaner, or frac gas suddenly environmentally sound.  On the 17^th I commented on an editorial at the Globe and Mail:  
I'm yet to hear a reference to the Banquiao Dam failure - which wrought far more devastation than Chernobyl.
There is also never any examination of the coal health claims - so Premier McGuinty can say experts have said coal costs us $3 billion a year in health costs without it ever being noted this claim is from a 2005 study claiming coal killed 668 people a year. [Page 6 here]...
We assess risk and make choices.
There needs to be a period of reflection - the initial story is that there was insufficient caution in engineering the backup of the backup of the pumping system.
Some claim the worst case scenario won't be particularly bad.

We are yet to know any more about nuclear power than we did a week ago. What we do know is that the line between political prudence and cowardice is rapidly blurring, and knee-jerk decisions are already leading to increased emissions, and threatening far greater fuel poverty.  My courage to now note this more confidently was inspired by finding George Monbiot had already written "Even when nuclear power plants go horribly wrong, they do less damage to the planet and its people than coal-burning stations operating normally."

The nuclear doom is still pending for an unfolding disaster that still hasn’t produced Godzilla - although it’s produced some horrifying media bits.  Saša Petricic ends his bit on Japan (Hiroshima) with:

“As Japan tries to get back on schedule, to get its nuclear plants back under control, it turns out the lessons of Hiroshima, and Godzilla, cannot be ignored”, and Evan Solomon then takes control as the anchor and says something like:  “You heard Sasa mention Hiroshima; he also talked about Godzilla… The 1950’s monster was indeed created as a metaphor for that country’s nuclear fears, it is indeed still used as a teaching tool … Godzilla lived peacefully in the ocean for thousands of years before it was irradiated by nuclear testing.

”

The English translation of Godzilla could be Energy Probe. 

With the media bitch in heat, Norm Rubin was sent out to spread his anti-nuclear seed.  An Energy Probe blog entry proudly includes this quote to tease you into viewing the Rubin on The Agenda; “I would like to get rid of the Nuclear Liability Act that is protecting the owners and operators of all of our nuclear plants against liability; against responsibility for their actions.  If they think it’s safe enough, and they’re willing to pay the bills, then I’ll live with it.”  Fair enough by itself, but the question it responded to (at around 11:30 here), was “What do we need to do, as a province, this week?”     Norm didn't appear to be a man of action - just a cynical critic with an audience.

Earlier in the week snippets on BNN from Mr. Rubin, “Let’s back up and squint … this is already an uneconomic endeavour … you turn a non-starter into a joke … 3 words: debt retirement charge"

All very interesting statements, except that last year OPG received 1.7 cent/kWh less for its output than you paid for it – and then you paid another .7 cents/kWh on all the electricity you used.  The debt retirement charge is mostly going directly to the piratization folks - essentially this is stealing from the public asset to fund nutty solar, wind, and natural gas projects with either boastfully insane contracts, or totally hidden ones (in the Korean syndicate’s instance, it’s a blend of both).  

Energy Probe was recently active in opposing OPG’s application to receive $60.43 cents/MWh for nuclear output, up from the $54.98 they were at.    Interesting where the average consumer price is currently $68.38 (up from $62.15 1 year ago), and the wholesale customer is at $69.21 (up from $64.88), the inexpensive nuclear was held back by the OEB in it’s ruling.   The OEB feels that OPG has too many people that are too well paid, because the benchmarking of OPG’s nuclear assets, done only against non-CANDU reactor operators, shows it to be so -- not that the OEB has any ability to assess whether those costs should be different, or if there is a benefit to the CANDU technology that would justify higher operational costs.  As an aside, the OEB ruling, on March 10th, 1 day prior to the tsunami in Japan, specifically demanded reduced spending in OPG's nuclear Radiation Protection Function (page 85 here).

To summarize Mr. Rubin’s math abilities, a hidden $7/MWh makes $54.98 more than $69.21.

Spinning is the current mode at the Probe, which today posted a 4:59 long clip from a Richard Muller where he explains the “trick” used to “hide the decline.”  The entire presentation shows the clip (starting about 29:50 in) lacks context.  Professor Muller is not a denying the conclusions, he's deriding the lack of respect for the presentation of it.  There is also has a fascinating graphic for Canadians at 35:27 presentation.

 

If you take the time to view the 52:14 entire presentation, I think you'll find some worthwhile themes.  One will be dishonestly omitting the portions of evidence that don't support your view. If you view it in the context of it's posting almost 6 months ago, you'll see it has been influential.  I have frequently argued that the only contribution we (Ontario) could possibly make to impacting GHG emissions growth, from electricity generation, is to uncover a method to make cheap, clean and plentiful energy (most recently in a comment here).  I'd also offer that the project discussed is the Berkeley Earth Project, and the initial, still preliminary findings, agree with the other 3 data sets, on a warming trend.  It simply seems tacky to post a snippet, out of context, in a presentation that includes an effort to be entirely transparent in presenting the data and modeling algorithms.  I must state I very much respect Aldyen Donnelly and Tom Adams, both of which have been, or are, associated with Energy Probe. The organization has simply been extraordinarily tacky in the past week.

But they aren't alone there.  A later portion of the Agenda program Mr. Rubin was on included the Environmental Commissioner of Ontario, Gord Miller, announcing there were media reports of the death of  people in Japan from radiation poisoning.  Very sad -- and as far as I can tell, also unsubstantiated.  What should we think of a government watchdog that goes on a government broadcaster and spreads disinformation?

Another government watchdog appears to be doing its job, with a politician strutting to pretend he's the reason.  The Canadian Nuclear Safety Commission (CNSC) issued requests to all major nuclear facilities in the country on the 17th.  On the 18th the Ontario Minister of Energy sent a letter off to Ottawa asking them to do so. 

My position on nuclear is changing based on all of this.  I've been a proponent of refurbishment based on cost visibility - by which I mean the $5 billion to refurbish Bruce 1 and 2 is very likely to be profitable at a price of $X/MWh over the next 25 years.  New builds are a cost gamble.  I am now far more motivated to explore new builds of Gen III+ reactor designs than I was two weeks ago.   If not during a hot summer, by the end of next winter I suspect many more Europeans will be too.  That discussion can wait until Japan starts to thrive again - which is my immediate hope.

Premier McGuinty Links Kindergarten and Electricity Policy

As our federal government is cited for contempt of Parliament, it is notable that our provincial government also seems to be lacking in respect for the provincial legislature.

From the Hansard for March 8^th (heavily edited to try to get just the question, and answer, and the two follow-ups):

Mr. Tim Hudak:

“...Premier, exactly how much higher are hydro rates going to go to pay for your mismanagement?”

Hon. Dalton McGuinty:

“... if he’s truly committed to ensuring that we keep costs down for Ontario families, then he’s going to want to take the opportunity right now to commit to full-day kindergarten for all four- and five-year-olds in Ontario.”

Mr. Tim Hudak:

“... Premier, can you explain to Ontario families why you say you’re going to cut the civil service by 5% on one hand but they’re going to get stuck with a bill for 300 new employees at Hydro One? Why are rates going through the roof?”

Hon. Dalton McGuinty:

“...If he’s committed to ensuring that Ontario families have some help with their costs, then he’s going to want to commit right now to putting in place full-day kindergarten for all four- and five-year-olds.”

Mr. Tim Hudak::

“...Premier, when will you rein in the public sector costs? Why do Ontario families always get stuck with the bill for your mismanagement of the energy—“

Hon. Dalton McGuinty:

“I expect this will be a recurring theme. My honourable colleague says it’s important to rein in public sector costs. I want to translate that so that Ontarians can better understand what he means by that.

“Public sector costs” means we can’t afford full-day kindergarten for our four- and five-year-olds in Ontario. “Public sector costs” means we can’t afford the smaller classes that we have in our schools. “Public sector costs” means we can’t afford the 11,000 more nurses that we’ve hired in Ontario. “Public sector costs” means we can’t afford—“

Mr. Hudak took his opportunity for a second question to follow the same theme along another tack:

Mr. Tim Hudak: “...Premier, why are the only families getting any relief in hydro customers in Quebec and New York? Why are you sticking families with the bill?”

Hon. Dalton McGuinty:  “I’m not sure there’s any foundation in fact for any part of that question whatsoever...”

Mr. Tim Hudak: “...Premier, why is it the only families getting a break today are families who live in Montreal and in Buffalo?”

Hon. Dalton McGuinty: “Again, I disagree fundamentally with my colleague’s assertion and with those numbers...”

Mr. Tim Hudak: “…Premier, you’ve signed deals that make us get the most expensive power—your pie-in-the-sky schemes for solar and wind—even when we don’t need it, and then you have to discount bills to people in Montreal and Buffalo. Why is it the only way to get relief from the hydro bill is to go across the Peace Bridge into Buffalo, New York?”

Hon. Dalton McGuinty: As they say, everybody is entitled to their own opinion, but not their own facts...In 2002, under the previous government, $500 million was what we paid for importing power. In 2003, we paid $400 million to import power. Since 2006, as a result of the massive investments we’ve made in new generation and new transmission, we have so far $1.5 billion for net exports. We’re now in the business of exporting and making money off of our systems. We didn’t have enough electricity in the past and we were buying electricity. That’s the difference. Those are the facts.”

Those are indeed facts, according to both the National Energy Board Exports and Imports of Electricity reports, and statistics available from Ontario’s Independent Electricity System Operator (IESO).  They are facts devoid of the context that would note $1.6 billion since 2006 is attached to 34,404,312MW hours, averaging $46.44/MWh since 2007, but only $35.01 in 2009, when a large customer in Ontario would have paid $62.17/MWh (page 30 here), or $27.16/MWh less in export markets than Ontario – and $41.44/MWh in 2010, when Ontarians paid $65.03/MWh – which is 57% more than foreigners paid/MWh.

The IESO figures aren’t available for all of 2002 – but in 2003 the imports compute to around $600 million (close to $300 million was charged on exports), and the totals from 2006-2010 are $1.5 billion for 42.13TWh of net exports.  The largest reason the data sets differ is interprovincial trade (not in the NEB data), which indicates Quebec is receiving Ontario exports cheaper than the US customers.

Those are the facts, and the context for them, that answer Ontarians' questions.  But the Premier also mixed in a lie with his statement – and 2002’s figures help illustrate the supply mix problem that is increasingly Ontario’s burden.  Exports, in 2004, averaged $40/MWh, while imports were $71.45 (NEB data) – which is typical of Ontario’s large baseload capacity (we imported to match peak demands and exported in off-peak hours).  But the difference in total output between 2002 and 2010 is only 1 TWh, while nuclear output has increased 20 TWh due to 2 Bruce and 2 Pickering reactors that came back online by 2005 – projects initiated by the predecessors of a McGuinty government.  The spike in exports is due to the supply mix we have and the declining demand we have experienced – the Premier’s government has been ineffectual at halting what was occurring despite it.

Mr. McGuinty illustrates the confusion when politicians forget the opposition is there as representatives of people.  He is likely avoiding an answer to avoid what it would mean to his LTEP hallucination and his FIT fantasies, but he is certainly demeaning debate.  He is demonstrative of why Prime Minister Harper may not pay much of a price for his government being found in contempt of one of the country’s legislative bodies.

Everybody else is.

The data from the IESO starts in May 2002.  These charts are created, by me, from base data files available at the IESO site for imports/exports, HOEP pricing, and Global Adjustment figures.  2011 data on pricing is current as of March 1^st.
Imports have not changed to nearly the extent exports have - most notably in 2008, as demand began it's decline.

  

Import/export pricing doesn't include the Global Adjustment (GA), which is the mechanism used directly (Wholesale market), or indirectly (RPP customers) to recover the cost of contracted supply (now over 92% of all supply).  The Wholesale/MWh in this graph is the HOEP plus the GA.  The contracts are driving up the price in Ontario - the low usage is driving the price down elsewhere.

 

An update, inclusive of February data, for the running 12-month total of how much less export markets are paying, for the power they receive from Ontario, than Ontarians would pay for the same MW total (and the supply/demand relationship that necessitates dumping the excess production elsewhere):

 

Forecast –Misanthropic with A Chance of Perception

I noticed at The Globe and Mail site an article, on yet another Climate Change study, which began “Climate change will have the greatest effect on those least responsible for causing the problem, a new study suggests.”  The most successful parts of the planet did industrialize early, and the most productive countries have tended to be northern.  I think we could spot a coincidence, if we weren’t looking for a morality tale.  The modeling seems designed to leave the impression that wealthier societies are villains.

There is a study done for National Geographic, the Greendex.   The Greendex Housing index includes such factors as: is the house heated; does it contain an "energy-saving television"; does it purchase “green” electricity.  What I found interesting was the survey question “Owning a Big House Is a Very Important Goal in My Life.”  20% of Indians strongly agreed, and another 28% somewhat agreed, and in China, the figures also came close to half (16% and 30%).  In Canada only 5% strongly agreed it was an important goal, and another 8% somewhat agreed. 

Increased electricity consumption in the house in the past year:  India and China were in the top 3.

Increased fuel consumption, they were 2 of the top 4.

Societies pulling themselves up out of poverty were using us profligate wasters as the ideal of what a wealthy society was.  I read a description of the Copenhagen meeting being an attempt to structure the transfer of wealth from the poor of rich countries to the rich of poor countries.  China lobbied to be a champion of Africa going into Copenhagen, to argue specifically that position - if not simply handed cash, the developing world needed to be free to pollute as the developed world had.  And they are.  China, currently meeting on it’s pending 5-year plan, got some nice press last week, but closer looks reveal numbers such as a planned 48GW of wind capacity, and solar capacity of 5GW, more than offset by 260GW of additional coal generation.

I assumed it would be increasingly clear that if we wanted a world with fewer emissions, we’d need to find ways to create, and define, wealth in ways that had fewer emissions.  If energy consumption is evil, the developing world wants in on villainy.  Self-flagellation amongst the wealthy isn’t going to accomplish anything.

Another article came out of McGill on the weekend, “Get Smart.”  Apparently Nikola Tesla was Electric Jesus and he would want a smart grid.  Electric Jesus isn’t presented as the brightest bulb in the chandelier.  This article follows the rule that the higher the price, and the weaker the value proposition, the more likely the term “real” will be used to justify cost.  The real cost of an electricity system in a regulated environment is mostly the cost of the infrastructure to meet peak demand (not so much the incremental cost of the next kW itself, despite ECO 101).  Severin Borenstein noted in one study, “in an electric system that must always stand ready to meet all demand at the retail price, the cost of a constant-price structure is the need to hold substantial capacity that is hardly ever used. But utilities optimize by building "peaker plants" for this purpose, capacity that has low capital cost and high operating cost. The social cost of holding idle capacity of this form turns out to be not as great as one might think.”  

Especially if it already exists.  In Ontario, we must be ready to meet around 26000MW of demand during a summer’s day.   “Get Smart” notes the blackout of 2003.  At 3pm August 14^th, 2003, Ontario demand was 23891MW.  Production was 21846MW.  This year the IESO forecast is for around the same peak consumption, unless we have extreme heat; 23561MW in normal weather, and 25941MW for extreme weather.   That leaves about 2500MW of capacity, to meet possible demand, in extreme conditions, that we aren’t likely to need.  In 2003 demand exceeded 23500MW only 31 hours, in 2008 it was only exceeded 11 hours, and in 2009 only 7.  The cost of the savings from smart grid technologies needs to be measured against the cost of the marginal capacity.  We are replacing cheap supply, for the last 2500MW of marginal capacity, with the most expensive.  What will be the global lesson of Ontarians lowering their standard of living by removing 4GW of coal capacity as China increases theirs by adding 260GW?  I think it is a net negative.  The crucial measurement has to be the benefit to Ontarians in the present tense, and for that attempting not to use coal is a noble goal – replacing coal with expensive sources that don’t match capacity requirements is not.

Speaking of Electric Jesus, and expensive, another recent article indicated the “Christian Farmers Federation of Ontario (CFFO) says a number of farmers who have invested or borrowed money to install solar panels on their farms have been treated unfairly in the province's relentless push toward green energy.”  This one has me at a loss as I was unaware of Christians disavowing the Golden Rule – and I don’t believe anybody selling electricity to their neighbours, collectively, at over 60 cents/kWh, is paying more than 7 or 8 cents/kWh for electricity supply themselves.   The article makes the same argument made, last summer, when the government attempted retroactive roll-backs on the FIT because of these horrid ground mount arrays being snuck into the category meant for urban rooftop installations last summer.  If they didn’t have a contract, firm, whether or not the government intended on awarding them one should not be relevant.

The green religion seems to have a basic tenet that small is better.  I’ve been to a couple of sessions regarding some large solar farms awarded FIT contracts in my area.  I’d been led to believe, by opponents of the installations, that lots of topsoil would be stripped away and enormous amounts of concrete poured.  I may have been bluffed by Recurrent Energy, but that didn’t look to be the case when I asked them about it – and it didn’t seem to be the case because they weren’t mounting the panels on trackers (equipment for moving the panels about like some technological devotees half prostrated to their solar deity).  The big installations don’t use trackers because it isn’t cost effective at 44.3 cents/kWh.  Smaller, at 20-38 cents/kWh more, seems worse.

Ontario's Surplus Baseload Generation Forecast Skyrockets

The IESO describes Surplus Baseload Generaton (SBG) as, “a condition that occurs when electricity production from baseload facilities is greater than Ontario demand. There are limited options available to lower output from baseload generators in order to maintain the balance between supply and demand. It is expected that incidences of SBG may increase as Ontario's supply mix continues to change. “

It is expected, because it is planned!

As we exit the highest demand period of the year (winter), one where the Hourly Ontario Energy Price (HOEP) has averaged only 3.31 cents/kWh but the contracts for supply bring that up to around 7 cents/kWh, the full extent of the foolishness in planning our supply is made apparent in the SBG report for March 8^th.

During the 26 days starting March 9^th, Ontario is expected to have excess generation 34% of the time, with a total planned purchase of 226,815MWh. At the average contracted price, $70/MWh, we have planned on purchasing approximately $16 million of product we will need to find external markets to dump at, if we are exceeding lucky, maybe half the purchase price. In terms of a supply mix that can be matched to demand, it is most notable that in the 6 hours of day from 12pm – 5 am, we are expected/planned to have excess supply 80% of the hours in the referenced report.

Around the same time the SBG report was generated, Pickering Unit 1 was taken offline. When the IESO wrote of “limited options available to lower output from baseload generators” this might be called the nuclear option. Bruce Power seems to have become very profecient at dropping the output level of 2 of the Bruce B reactors in surplus periods. My understanding, admittedly limited, is that this is accomplished by a steam bybass (the same fuel and operating costs are involved, they just don't output power!), but for extended periods of oversupply, it appears safe to assume Pickering is to be idled.

That's the plan.

Reviewing EIA data: Lessons for Wind, Nuclear, and Reduced Production

I’ve been looking outside my little setting in the province in Ontario for data indicating signs of intelligent life in the electricity policy universe.  The U.S. Energy Information Administration (EIA) provides a wealth of data, and forecasts.  I’ve started working with a number of tables/spreadsheets for the period 1990-2009.   The first thing I checked was for the correlation between wind and emissions reduction – but that initiated some queries to uncover the best performing states in terms of reducing emissions, and that led to some others to find out what metrics did relate to reduction of emissions.   Most of the data I formulated compared 2009 to 1997[i].  I chose 1997 because it was the year the Kyoto Protocol was negotiated – the base year for that protocol is 1990, but I’ve learned that was a negotiated date long after it had passed.  After a lot of work, the conclusions from the data are things we knew 25 years ago.  Generating less energy reduces CO2 emissions – as does producing a greater share of electricity with nuclear.

Ontario has great data available on wind generation, pricing, supply and demand totals, available at the IESO site.    I was expecting wind to mean very little, if anything, in terms of emissions performance in the U.S. data, and that was true.  Here’s the top 10 wind capacity states in 2009:

Notably, the top 10 wind states, as a group, trail the US in total, in the reduction of CO2, SO2 and NOX.  That begged the question of what did reduce emissions, which I'll answer in the next paragraph.  The price increase in the states that ramped up wind production is about the same as the increase everywhere else, and the exports[ii]  have jumped more.  The overall capacity factor in the wind states dropped at just about the same rate as the capacity factor for the entire country (all sources generation/all sources capacity).  So there is no indication that wind is particularly expensive, at least in this small group that includes the windiest states, but I also don’t know that any of the states in this list have a FIT (feed-in tariff) program, but instead utilize the far more efficient, and end-consumer friendly, RPSs or RESs (Renewable Portfolio/Energy Standards).  In Ontario the politics and economic structure appear to be escalating the price far higher than necessary.

The top 10 states for CO2 reductions between 1997 and 2009 are:

This shows what we should already have known.  The reason the states with the largest reduction in CO2 emissions are there is primarily due to the reduction in generation.   The states (and District) that are in the top 10 for reduced CO2 emissions are also in the top 10 states for reduced generation with the exception of Vermont, Connecticut, New York and New Jersey.  Connecticut had the largest growth, over 1997, in the share of its generation from nuclear plants, followed by New Jersey, Wisconsin and New York.  The only outlier in the list is therefore Vermont.

Vermont has one nuclear reactor providing over 70% of it’s state generation capacity, and also has substantial hydro contributions.  It also imports heavily, under contract, from Quebec.  The cleanest state is the one that is willing to look beyond its borders for cleaner supply.  While it should be expected that addressing what is seen as a global issue, AGW, it is quite the opposite in today's Ontario.  The increasingly few supporters of the current government continue to suggest Ontario can make a difference through giving outrageous sums of money to emission reduction schemes that have no ability to reduce emissions.

This is a very preliminary review and it doesn’t say much about the individual states.  Broader measurements of emissions intensity, security of supply, and accounting for substituting electrical heating, cooling and cooking with other sources (gas), might provide more insightful conclusions.  What this does indicate is that allocating resources to wind isn’t proving wise from an emissions reduction standpoint.  And if that is withdrawn as a characteristic, it seems unlikely it is wise from any other standpoint.

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[i] The data in this post is included in a spreadsheet posted here

[ii] I’ve calculated exports by subtracting the sales in a state from the generation in a state.  This approach does not balance as we know the US imports electricity (from Canada).  I assume that the difference is line loss, but have not yet followed up on the issue.