By Ray Rivers

September 8th, 2016

BURLINGTON, ON

Ontario’s Auditor (AG) had stated that electricity costs in Ontario exceeded the ‘market price’ by $37 billion, almost $4 billion a year. What on earth can that mean? Is this evidence that the provincial government is wasting our money?

Turns out the so-called ‘market price’ is a pretty imperfect instrument, an artificial value, given that the big sellers, OPG and Hydro One still dominate Ontario’s energy scene. And since the hydro and nuclear installations have already been paid-for or are part of the massive historical debt, these fixed cost assets don’t even figure into this market price.

Think of Ford Motors selling its cars for only the cost of the steel and labour that goes into making them because somebody else has paid for building and running its car plants. If the value of the fixed costs and the contracts securing long term energy supply were included in Ontario’s energy system, it would look more like a real market, the bids making up the ‘market price” would be higher, and the $37 billion residual would be much less.

That $37 billion comes with an unfortunate name, Global Adjustment fee – a catch-all phrase, a residual that covers the difference between those imperfect market prices and all the other payments the power companies need in order to stay in business and keep the electrons flowing and the lights on. Many of these costs are based on contracts, some of which go back in time to the break-up of Ontario Hydro back in the late nineties.

The most problematic of the contracts for the Auditor General were the open-ended ones, where the generator can sell all the power produced, even if there is a glut in the system – thus the criticism about paying energy companies to dump their power and selling at a loss. These contracts were either written in the days when energy shortages seemed more inevitable than gluts, or were designed for smaller generators who, for simplicity, are constrained by the capacity of their technology – rather than by market demand.

Ontario’s electric transmission system, along with railway lines cut right through the city.

But even with the global adjustment added in, Ontario’s energy situation is hardly a calamity. In fact the overall price of electricity in Ontario, including global adjustment, is not out of whack with that south of the border after exchange rates, where even more competitive electricity markets do exist and the fixed costs are included. And despite the steady rise in Ontario’s electricity bills, Los Angeles, Boston and New York residents pay more.

Coal mine – Ontario has at least stopped generating turbines that produce electricity through the burning of coal.

And the kicker – the Auditor almost ignored that Ontario has stopped burning cheap coal, unlike those operators in some other parts of Canada and stateside. Closing down the single largest source of greenhouse gases in the entire country should be worth at least a positive footnote. And in that vein it was unfair of her (the AG) to blame Hydro One for its faltering five year transmission system reliability, given that huge 2013 ice storm, the biggest in history which shut off power for over a week in some cases, was itself a consequence of our changing climate.

The right-wing media, and their stable of anti-renewable energy neocons, had been grumbling about energy management long before the AG gave her report, but she has emboldened them with her misleading and lopsided reporting. Most recently there was another letter in the National Post from a one of the solar power, advocates, lambasting the very program that butters his bread. He thinks there is too much money going into building renewable energy capacity, except for the solar producers he represents, that is.

So is the Province acquiring too much electricity generating capacity and is that why energy rates keep rising? It’s more complicated than that. But having slain the coal dragon, if the province wants to avoid simply substituting gas emissions for coal emissions it needs to strengthen its renewable component. That is at least until it has found some way to store the excess energy which gets produced on a sunny and windy day, such as converting that energy to hydrogen gas, to be used in stand-by hydrogen electric fuel cells.

Burlington Hydro leased an electric car for city Councillors to use – they provided the electricity as well. The data collected was needed to get some sense as to what average usage would be.

And if electric vehicles (EV) really capture the imagination of the motoring public, the demand for electrical vehicle plug-ins could be exploding in the near future – so better to plan for an excess rather than a shortage of power. By the way, higher energy prices haven’t been all bad. They have provided a huge incentive to develop and implement more energy-saving technology, e.g. LED bulbs – which in turn help to lower our bills.

It’s true that there have been mistakes that have helped push our rates up. Of course there are the billion dollar gas plant cancellations.

Then, as can be found in the AG’s report, the multi-million dollar energy conservation program is almost redundant now. And the number of agencies and all those bureaucrats with their fingers in the pie are still too many. The feed-in-tariffs for renewables are still too high and the open-ended contracts need to be curbed. And off-shore wind power, the most efficient way to make electricity without killing birds, is not even allowed.

Quebec is blessed with rivers that can be dammed up and used to generate electricity – much of which they sell into the United States.

Quebec has the lowest energy rates in Canada, since its source is virtually all hydro (water) power and it is managed by a government monopoly, Quebec Hydro, the way Ontario used to be. Mike Harris broke Ontario Hydro forever and we have been paying the cost of that mistake since. The Premier says she believes that electric cars must replace todays many gas-guzzlers, yet relatively high electricity prices mitigate against that. Perhaps that is the reason Ontario lags its neighbour Quebec in EV sales. What else would account for EV sales in that province being double those in Ontario on a per-capita basis?

Finally, the Auditor General. $37 billion is a mischievous red herring and she should have known better. It could be reduced but it is the cost of doing business in Ontario’s imperfectly decentralized market for electricity. Her report reads more like a series of sound bites and gripes intended to feed the opposition parties, rather than to constructively assist the energy sector to do a better job.

From her report it is not clear that she even understands Ontario’s energy system, let alone how it came to be this way or where it is going. I am not doubting her competence to perform a financial audit, but an operational or program audit requires more research and analysis and a lot more insight. Frankly I think we deserve better.

Ray Rivers

Ray Rivers is an economist and author who writes weekly on federal and provincial issues, applying his 25 years of involvement with federal and provincial ministries.  Rivers’ involvement in city matters led to his appointment as founding chair of Burlington’s Sustainable Development Committee.  He was also a candidate in the 1995 provincial election

Background links:

Ice Storm –  Solar Guy’s Gripe –  Global Adjustment –  More Global Adjustment –

Even More Global –  Finally More Global –  EV Sales –  US Energy Prices –   More US Electricity –