I posted the latest weekly reporting figures this afternoon, and the data, fittingly, indicates a new record. Week 16 is notable as the first week with Ontario demand growth over the previous year (Easter weekend was in 2011's week 16) - but the growth average for Ontario's demand was only 305MW/h, whereas the growth in net exports was 828MW/h. The increase in net exports, combined with pricing remaining a third lower than in 2011, caused the export subsidies, by my estimation, to surge to record levels - for the third week in a row.
TORONTO - Energy Minister Chris Bentley hasn't abandoned the idea of having a "real name" for the merger of the Ontario Power Authority and the Independent Electricity System Operator after all. Bentley complained the energy sector is full of agencies known by acronyms like the OPA and IESO when he announced the planned merger of the two electricity planning agencies. The minister said at the time he wanted the new agency to have a real name, but in legislation introduced today, it is known as the Ontario Electricity System Operator, or OESO.
In rearranging the Ontario Power Authority and the Independent Electricity System Operator, Minister Bentley kept on 4 of the words: Ontario Electricity System Operator (OESO) is the working title.
25.30 (1) The Minister may, in consultation with the OESO or any other person, develop and, with the approval of the Lieutenant Governor in Council, issue energy plans.
The Minister of Energy has had a draft proposal of an Integrate Power System Plan (IPSP) since before Mr. Bentley was the Minister of Energy. Despite that, he recently cheered on not only continued purchase of more supply, but at an accelerated pace. This is a reference to the conclusion of the 'review' of the Green Energy Act's Feed-In Tariff program (GEA, FIT ... FUBAR).
George Smitherman, former occupant of the Minster of Energy's office, introduced the GEA on February 23, 2009. At the time demand had dropped about 5TWh over the past year, and was about 10TWh off it's 2005 peak. Increased exports had essentially replaced the reduced domestic demand during that period. However, as 2009 progressed, in recession, exports no longer were capable of replacing the continued reductions in demand - and we came to know the concept of surplus generation. A hot summer in 2010, along with a slight recovery in industrial demand, saw exports drop for a short time, but when demand leveled off exports rose again (because we continue to bring supply online). A warm winter saw demand dropping rapidly once again, but export opportunities don't seem to exist, even though pricing, since early in March, has dropped below $20/MWh.
The disaster is just beginning. February commodity rates for Ontario's Class B customers were $72.94/MWh; March $77.79; April is estimated at $92.10 ($74.70 global adjustment estimate and month-to-date HOEP of $17.40), and May should be really bad. Supply is so overbought that any drop in demand will increasingly send pricing higher and higher.
There was a flurry of activity concerning Ontario’s electricity sector last week. Following up on the previous week's budget bill's "plans to move forward with a comprehensive review of the electricity sector and its various agencies," the ministry of energy first announced a "Clean Energy Economic Development Strategy," and then an "Ontario Distribution Sector Panel." The communications indicated some recognition that there are structural problems in Ontario's electricity sector.
Unfortunately, they actually communicated the government has no intention of facing up to the structural problems in Ontario's electricity sector.
The government is not alone in deliberately avoiding dealing with the obvious. Last week I wrote a brief comment on an unimpressive report from the right-wing Fraser Institute. [1] That report compared pricing for new generation (poorly), trusting existing reports about how much new generation would be required, and excluding the consideration of the mix of sources in costing out scenarios. I dismissed the report quickly as an earlier report from the Conference Board of Canada, which I did put some effort into discrediting, had deliberately avoided the same realities. These reports are all built around the premise that generating growth is good, and all the arguments are secondary.
“We didn’t sell the right message.” Instead of arguing that environmental responsibility could co-exist with economic growth, he thinks, in effect, that the movement should have argued that we must abandon the quest for economic growth altogether. “We thought if we stop this dam, if we stop this clear-cutting, that’s a great success. But we didn’t deal with the underlying destructiveness, which was the mindset that attacked the forest or wanted to build the dam.”
These comments do bring up a couple of points of interest:
the debate occurring between pro-nuclear environmentalists, such as Monbiot, Lynas, Brooks ... and what might be called the Greenpeace anti-nuclear faction (here is a sample)
the arguments about the role of mankind within the environment, which I'd refer to as abstinence (creating areas restricted to mankind), or stewardship (read here)
the accumulation of debt burdening societies with a requirement for growth that would otherwise be totally undesirable (read here)
I don't believe Suzuki would debate on any of those issues, and in fact video posted on the Globe's site concludes with him claiming a world without fossil fuels is economically and technologically possible. Regardless, to deflect the MSM's attention away from the composition of the "Clean Energy Task Force" announced by ENGO patron Dalton McGuinty's government, Suzuki took to the mainstream media to claim the federal government is targeting environmental groups who violate the rules for non-profits' political activities. While Suzuki claimed he was being bullied, younger ENGO'ers, and their favourite playmates, were being gifted a role in planning Ontario's economy (or the end of it):
Andrew Heintzman of Tides
Tim Weiss of Pembina
Rick Smith of Environmental Defence
David Timm, CanWEA
James Murphy, CanWEA member Invenergy
Harry Goldgut, Brookfiled (CanWEA member and hydro provider receiving far more than OPG does)
This is not a group that is representative of either the public, or the electricity sector. It is likely all 9 of these people have a goal of eliminating nuclear power in Ontario. Considering there were 14 people named, this looks like a panel set up to kill nuclear - a task Suzuki irrationally places far higher on his priority list than addressing greenhouse gas emissions. The government is content to carry on with the misleading narrative that renewables have been replacing coal, despite the eality that nuclear, natural gas, and demand reduction are far more relevant in the reduction of coal-fired generation.
The panel's set-up, to fake studying economic planning in the energy sector, are indicative of an older meaning of "man up," an apparently Liberal meaning:
“to supply with adequate manpower.”
This explains the obnoxiously bad choices on the government-financing dependent Pembina, Environmental Defence, and MaRs on the panel - all of which returned favours with political support in last years' election. Unfortunately, this "manning up" is the opposite of dealing - or manning up - with the energy issues impacting Ontarians.
While the energy industry has struggled where actual free-market companies are exposed to markets, as growth disappeared and abundant natural gas supplies combined to lower prices, the liberal manning up industry is flourishing in Ontario. Ex-Deputy Premier and high school Graduate George Smitherman was reportedly paid $158,000 by Ryerson University in order to set Ryerson's leader up with "senior decision makers."
Unfortunately, Ontario's government now has a very long history of separating the government from the decision makers, and, in so doing, separating the decision making from public sector subject expertise. When Bob Rae won the 1990 election, Ontario was directly employing close to 107,000 people. Today it is closer to 93,000 - not far from the 88000 30 years ago [2]. For provincially owned business enterprises, in 30 years the figure moved only 2000 employees. That should not be confused with how many employees there are in the overall public sector (education, health, municipal, and government owned businesses at federal and local levels).
McGuinty's spending growth isn't because of the number of people directly employed by the government of Ontario; the growth is in health, and education (the government indirectly finances those cheques - but it does not sign them directly). In the electricity sector, inflation is being driven by spending against the people of Ontario, not by the salaries of our employees. Ontario's public sector organizations -the OPA, the IESO, OPG and Hydro One - are capable of stopping the uncontrolled inflation in Ontario's electricity sector; the people the government awarded needless panel positions are not. They are purchases, using our debt, to man up Liberal support for the next election.
An election that will come very soon only in the unlikely event of Andrea Horwath doing the right thing when the budget comes to a vote.
Which is to man up.
[1]I was delighted that it was noted at Steve Aplin's Canadian Energy Issues blog, which I've followed for years. [2] Statistics Canada's CANSIM data series 183-002. I eliminated figures for federal employees
As the government loses control of electricity pricing, the Ministry of Energy continues to put out a monthly press release on exports that would make Baghdad Bob blush.
2012: 2nd highest year for volume, lowest revenue in 5 years
April 12, 2012 1:00 PM Ontario's electricity market generated over $14 million in March by exporting electricity to other states and provinces, bringing total net export revenues to over $55 million this year. This revenue helps Ontario: Keep costs down for families Build and maintain a clean, reliable and modern electricity system
Following the reference to the data that is the basis of their claim, it is based on 0.9 TWh of exports, which would be 1.6 cents/kWh (and that is exaggerated due to rounding). This is far below the rate net exports claimed in previous years, and far below the rates we pay generators to produce the exported power.
The rate for Ontario's businesses will rise to around 7.8 cents/kWh for March 2012. 5 times what export customers paid. Looking at the historical data from the IESO, since 2005 the McGuinty government has been helping Ontario's families by jerking up rates in Ontario while dropping the rates for export customers.
Rate caps didn't allow the charges in 2003-04
The press release from the ministry of misinformation notes that "Since 2006, the electricity market has generated $1.8 billion through net exports compared to 2002 and 2003 when Ontario paid $900 million to import power." We did pay to import power as the McGuinty Liberals were elected the first time, and it was more expensive than our domestic supply. But not as expensive as the cheapest procurement contract this government has signed since 2008.
Ontario's energy policies continue to raise rates within Ontario, while dropping them outside of Ontario.
Ignoring the issues causing that to happen will not make them go away.
The past 5 weeks comprise 5 of the 10 lowest weeks for the average Hourly Ontario Energy Price (HOEP) rates since the IESO data starts 10 years ago. I've noted the decline while updating my weekly shadow reports, and this post will put the trends within the context of broader markets, and longer trends (including those Parker Gallant and I wrote about, in the Financial Post, last July).
The price of electricity on wholesale markets is very low. While negative prices catch attention, there is only a very slight difference, in the cost to Ontario ratepayers, of -$1 and +$1. The last time I worked out an estimate, the average price paid to Ontario's suppliers, due to contracts and regulated rates, was $68.23/MWh. With the HOEP averaging around $13.50 over the past 35 days, that means a big revenue shortfall.
The wholesale market price, or HOEP, in Ontario is artificially low because of the over-commitments to supply, but in most North American markets the price will be very low as natural gas fired generation generally sets the market price, and natural gas prices are at 10 year lows. Adjacent markets have been paying rates slightly above the HOEP rates, but not by much. The market structure in Ontario can be seen as containing a pot that pays all the suppliers once a month; revenue from the HOEP sales fills the pot, and if it isn't full enough to pay the commitments, then the difference is gathered from Ontario ratepayers via the Global Adjustment mechanism (GA). March's estimated $62.23/MWh was nearly 25% above the previous high of $50.62/MWh, and the estimate for April, $74.68, adds 20% to March's high.
The Global Adjustment is a subsidy in that it recovers the production costs of exported generation from provincial ratepayers. Last July, in the Financial Post article, we estimated the amount of the subsidy as the cost of all the net exports (GA + HOEP priced for exports plus the HOEP priced on imports) minus the revenues (GA+HOEP applied on imports, and only GA on exports). The current weekly chart uses the same formula, with the area portion of the chart showing 52-week running totals:
Unfortunately exports aren't driving the global adjustment up even higher ... which is to say that the global adjustment increasingly includes charges for periods where suppliers are paid to cut production, as there is no market for the power at any price. We had shown, using the forecasts from a couple of sources, that as contracted nuclear, wind and solar came online Ontario's net exports would soar to over 20TWh in the coming years. The gas supply glut, accompanied by widespread moribund, and in Ontario's case declining, demand, now make that unlikely to be possible. The average hourly net export required for 20TWh is nearly 2300MWh; thus far in 2012 we've managed only a little over 1200MW on average (at a price of just over 2 cents/kWh).
The Global adjustment was 25% above the previous record in March, and another 20% higher in April. The escalation is largely because exports have hit a ceiling and our oversupply problems are increasingly more expensive.
Ontario's Independent Electricity System Operator (IESO) released it's 2011 Annual Report just prior to the Easter weekend. It didn't get much attention, because it didn't say anything.
Some quick estimates for an alternate 2011 Annual report: The market the IESO is tasked with operating shrank from 157TWh to 154TWh, with the Ontario demand portion shrinking from 142.2 to 141.5. The price drop was more severe, with the Hourly Ontario Energy Price (HOEP) dropping to $31.46/MWh from $37.85 in 2010. Exports shrank less than imports did. Because Ontario has a Global Adjustment mechanism that recovers the difference between the prices guaranteed to producer and the market rate, these numbers indicate Ontario's ratepayers had over $450 million added to their costs to recover the difference between the average cost power was purchased from generators at ($68 including other systems cost), and what it was dumped at in adjacent markets ($31.46). Looking at it another way, in 2011 prices for Ontario customers rose by 10% while prices for export customers dropped by about 20%.
Ontario's government finances are also diminished by the low HOEP, as only unregulated hydro assets are now subject to the downs and downs of the market, and those are all public OPG assets.
Things are much worse so far in 2012, despite the implementation of a new vision statement at the IESO during 2011:
“A reliable, efficient and innovative electricity marketplace that enables informed decisions by all participants, including consumers.”
As mentioned by myself, and the handful of other sentient beings interested in the market, all generation, except for unregulated Ontario Power Generation assets, have a price guarantee outside of the market (in some cases, including coal and natural gas, the amount is for capacity - so these sources do have some reason to bid into the market when prices signal to do so) . "Efficient," "marketplace," and "participants" are all pretty questionable terms.
The accomplishments the IESO touts (page 6) are what the rest of us would call planning - or bs:
There was considerable progress on the Renewable Integration Initiative in 2011.
The Visibility Technical Working Group was established in February 2011
The Dispatch Technical Working Group was established in May 2011
The Floor Price Focus Group was established in November 2011
Page 12 of the annual report lists the studies done concurrent with establishing groups.
Perhaps some will find more meaning in the IESO's bold mission statement initiated during 2011:
The IESO acts in the interests of the people of Ontario to ensure a reliable and effective Ontario electricity sector. To accomplish this, the IESO will:
Operate a reliable power system through forecasting and meeting real-time electricity demand and coordinating power flows with its interconnections
Provide customers, or their agents, with relevant, timely and transparent information and services needed to enable their effective participation in Ontario’s electricity marketplace
Foster needed change in the way that electricity is produced, delivered and consumed
Develop collaborative relationships with participants and stakeholders
Provide superior service in the administration of an efficient wholesale electricity market
Attract, retain and develop a talented, highly professional workforce
I'm unclear what, if anything, would constitute failure in performing the stated mission?
Last week the IESO updated the report they put on the web to illustrate Surplus Baseload Generation (SBG). The update includes more stakeholder work, in the form of 'new centralized wind forecasting results.' Although the reporting from the Thursday leading into the Easter weekend showed an 'alert' for only a couple of hours (that minimum production would exceed the demands in Ontario and export markets), there were non-utility generators idled for the entire weekend. Non-utility generators hold contracts with the OEFC, so they shut them down only on a planned basis.
Some NUG's are refined jet engines (including the two idled a couple of weeks ago,- meaning the most appropriate generators we have for peaking supply are not only contracted to run at all times, but when paid to shut down, remain shut down during afternoon peaks other generators kick in for. What stakeholders brought up a forecasting system allowing this?
The IESO annual report doesn't include metrics on the cost of dumping exports (ie. the cost of an inefficient sector), nor does it include metrics on curtailment. It does include metrics on doing what it's told to do, including the Smart Metering Initiative:
4.7 million smart meters installed
3. 7million+ on time-of-use (TOU) rates
Implemented a central data repository (Meter Data Management and Repository (MDM/R) to service Ontario’s local distribution companies
Enrolled 64 of 74 LDC’s in the MDM/R
So?
Page 23 boasts of $600K+ Paul Murphy's tenure leading the ISO/RTO Council (an organization with representation from organizations controlling the majority of the North American grid). An abbreviated version of the accomplishments:
Submitted comments …
Completed a white paper …
Completed an assessment …
Developed a detailed and comprehensive crisis communications checklist …
Page 26 of the Annual Report includes a sidebar on a key accomplishment from the year – a report from a forum created to produce a report instigating further fora. The Electricity Market Forum Report calls for further analysis and action in a number of areas including pricing, data and consumer engagement, among others. Glancing through that forum’s report I was struck by the starting perspective of the forum:
“On the whole, Market Forum members were of the view that the electricity market is largely working well. No participant or presenter recommended fundamental change.”
I guess the reason to have a forum examine a non-issue in order to report on the need for four or five more fora would be just for shits and giggles.
In Ontario’s electricity sector, shits and giggles are alternatively called stakeholders.
The stakeholders recommended more navel gazing and consulting jobs - here's the edited version of 12 recommendations:
The IESO should review…
The IESO should commission …
The IESO, the OPA and the OEB should jointly engage in a consultation …
The IESO should examine whether …
Any potential Market Rule changes should be co-ordinated…
The OPA’s procurement process should seek to better ensure …
The OEB’s approach … should be reviewed
The IESO should engage in a stakeholder consultation …
The IESO customer consultation should correspond with … the OPA’s review …
The OEB’s RPP (including TOU) should be designed to provide signals …
The IESO should consider improving, amending, or replacing …
The IESO should review whether there are …
The IESO 2011 annual report could have enraged if it attempted seriousness. It is likely the money put out for working groups, fora, and purchasing additional study is for the purpose of avoiding accountability.
The direction from the government is idiotic, and the expense is in finding a way to avoid saying so while acquiring coverage against being held personally responsible as pricing rises along with the escalation of supply mitigation measures.
On this website I've often examined the numbers on Ontario's electricity sector - particularly because one original reason for the site was to maintain some skills with data management while concentrating on the home front.
In reviewing the IESO report it is the experience of being a parent that helps to view the participants in the farce with some empathy - and bemusement.
If affordability problems are seen as reliability problems, Ontarians should be annoyed by the manner in which NDP Leader Andrea Horwath gives the Liberal government rope. Dwight Duncan has been on a spending spree procuring more and more supply for 8 years - first in the energy ministry, and then in funding from the finance ministry, the cover-up of the full costs of his reckless procurement with the Ontario Clean Energy Benefit,
In an effort to achieve these and other goals that will benefit electricity customers, the government plans to move forward with a comprehensive review of the electricity sector and its various agencies.
It's a noble sentiment written into the budget, but it's comical that it was read by Dwight Duncan.
Maybe not comical. He is the architect of the disaster that is Ontario's Electricity market, and the Pottery Barn rule, 'You break it, you own it,' has been used in stranger circumstances (including the foreign policy implications of invading Iraq).
In this case, the energy sector was broken through the common concurrence of arrogance and stupidity:
We looked at the old Ontario Hydro model, but that put us $38 billion in debt. Some want to move back to that model. I reject it. I want to move forward. We've looked at moving to a fully competitive market, but couldn't find one that worked…anywhere. We studied other jurisdictions to benchmark best practices. But you know what – there is no "right" way. So we've chosen what we think is the best way. A balanced approach. An approach that recognizes the balance between conservation and adequate supply. An approach that recognizes the need to balance public leadership with private investment. An approach that will outlive this Minister and this government. An approach that will begin to make up for over a decade lost in Ontario's electricity sector.
That balance has seen a diminishing consumption rate, in large part due to a shrinking manufacturing base, and continual growth in generation capacity. Markets (and there are market options to meet capacity requirements while avoiding the expense of excessive capacity) would be dialing back supply in response to continuing low demand levels. That has been prevented from happening, with the Duncan/McGuinty tandem killing the market in support of their pet projects.
...regulation is "a lot better than to have every political party picking its favorite technology, and either subsidizing the hell out of it with government money or asking the utility to subsidize the hell out of it on customers."
The commodity price of electricity in Ontario is characterized by a collapsing market price (HOEP), and surging global adjustment (GA) costs; the GA is the mechanism to recover the full cost of the government's asinine procurement contracts from the province's complacent ratepayers (industry hasn't been as complacent - much of it left).
This week there is an 'industry' meeting in Toronto to plan the exploitation of the government's idiotic feed-in tariff (FIT) program. That program has already contracted 8000MW, of wind and solar capacity, on a must take basis despite it's inability to displace other generation. Consequently, the combined cycle gas generation (CCGT) needed to actually replace coal units could by attained only by offering suppliers net revenue requirement guarantees in their contracts - which are essentially capacity payments, without the efficiency of a capacity market. The result is that the less we use the CCGT capacity contracted by the Liberal government, the more expensive electricity is. A warm March in 2012 thus spiked the GA to a new record high (estimated at $62.13/MWh), pushing the commodity charge for the bulk of Ontarians up more than 13% over last year.
The Global Adjustment mechanism allows for a dysfunctional market, and should be seen as a measure of the market's dysfunction. In adjacent US markets, the price of electricity is being dictated by cheap natural gas, because the marginal, or peaking, supply is usually a fossil fuel, and gas is most suited to be the peaking supply, it is the price gas generators bid into the market at that sets the market price. In Ontario, we guarantee the marginal capacity supplier a capacity fee, and so guarantee an even lower price. As we continue to contract expensive supply on a must take basis, we amplify the trend of lower market prices also being experienced in adjacent US markets, with the Global Adjustment being added back onto Ontario bills more than compensating for the impact of reduced consumption in lowering prices, and instead driving the total commodity rate higher within Ontario. The weekly reporting I display on this website indicates the additional expense we increasingly incur in paying to curtail production.
In April, 2011, the commodity charge for electricity in Ontario was $73.60 ($29.71 HOEP, $42.89 GA) -- the first estimate for just the GA portion in April 2012 is $74.68. If the market price is $0 in April, our rates will still go up.
Mr. Duncan's 2004 playday creation of a faux market is a complete failure. Ontario's electricity sector is a playground for gluttonous procurement of supply that needlessly devalues the existing assets of the province (2011 revenues from Hydro One and OPG were $107 million below expectations, in large part due to "lower market prices for OPG's unregulated hydro and lower volumes").
Mr. Duncan included in the budget a couple of elements to punish rural Ontario for voting out Liberal members last fall. His embrace of Liberal celebrity economist Don Drummond's bizarre description of slot revenues at Ontairo racetracks as a subsidy allowed one churlish attack, and in the budget the capping of the OCEB (which shouldn't exist to begin with) at 3000MWh per month is a measure to disproportionately punish rural residents with farms, or simply without access to gas for heating.
'Prostitution, horse racing, gambling and electricity are irresistible to politicians"
Like the electricity policies, the attack on farmers will disproportionately punish low income families, as a far greater percentage of their income is spent on food and power. There was a time when regressive measures would be particularly repugnant to the party traditionally on the left of the political spectrum.
Ms. Horwath is doing a slow reveal of her conditions to embrace the budget, but none of them is likely to put Ontario's poorer citizens above the Greenpeace agenda that infiltrated the NDP, which prides itself on getting along - not matter how far from it's roots that takes it.
The removal of Dwight Duncan from any significant portfolio should be demanded, but it's unlikely to be a price the government will negotiate for the almost certain support she'll capitulate to give anyway.
I hope I don't find out what trinket she sells out lower income Ontarians for.
The story is seedy enough with the horse racing, gambling and electricity aspects.
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