A lesson for Bob Chiarelli on the difference between profit and loss

Stipula_fountain_pen

Open “Tongue in cheek” letter to:

December 17, 2015

Ontario Ministry of Energy,

Attention: The Honourable Bob Chiarelli, Minister

900 Bay Street, 4th Floor Hearst Block Toronto ON M7A 2E1 Canada

Dear Minister Chiarelli:

I have noticed on several occasions that you seem to have some difficulty understanding the time and place to use the word “profit”. The most recent occasion occurred December 3, 2015 during Question Period in the Legislature when you used it to again claim the export of Ontario’s surplus electricity to our neighbours in New York, Michigan, etc. generated a profit.

I’m not sure why the questions related to selling our surplus electricity causes you this failure but perhaps over the holidays you might consider spending some time analyzing what I have included in this letter. I expect you were taught some basic mathematics skills in school but perhaps because of a lack of usage those skills may have been forgotten.   Hopefully this letter will refresh your memory and you may even get a grasp of how an actual “market system” works.

The intention of this letter is to focus on only one day in the life of our electricity system and the day chosen is November 12, 2015.

Visiting the Independent Electricity System Operator’s “Daily Market Summary” for November 12th you find a document that may be the cause of your confusion. That summary shows “Market Demand” averaged 18,210 megawatts (MW) per hour for total demand of 437,040 MWh (24 hours X 18,210 = 437,040 MWh).  Ontario Demand was much less averaging 15,165 MW or 363,960 MWh for the 24 hours.  The difference of 73,080 MWh represents Ontario’s net exports for the day.

Now what IESO don’t include in their summary is MWh curtailed (principally wind), or spilled (hydro) or steamed off (nuclear). This curtailed, spilled, etc. power can be significant and cost ratepayers as payment to all generators include undelivered production.  In the case of gas plants it contains “idling costs” to back up wind and solar.

Bob, hopefully you are still with me to this point so I will carry on.

By looking at IESO’s summary you would not be aware of the above costs, nor would you know the actual cost of production (Market Demand) if you simply looked at what they refer to as “Energy Prices ($/MWh)”!   On this particular day the latter averaged (weighted) 0.17 cents per MWh.  This may be where you are having your problems as you may have assumed the costs of producing the “Total Demand” for the day was only $82,796.80, i.e., 487,040 X 0.17 cents = $82,796.80 — but that is the wrong assumption!   The HOEP (Hourly Ontario Energy Price) referred to is really what the “traders” valued Ontario’s production at for this day.  In other words, the demand for our power on November 12th wasn’t very valuable in the market so prices offered were low.

As you have probably been told, the actual price ratepayers are charged for power includes what one of your predecessors referred to as the “Provincial Benefit”. It turned out to not be a “benefit” so the term was changed to the “Global Adjustment Mechanism” (GAM).  GAM reflects contracted prices for the various generation sources and they can be very high in comparison to the HOEP.  As one example you or your predecessors contracted for rooftop solar at $702.00/MWh and on the day in question even though they were paid that amount IESO were only able to sell it for the .17 cents/MWh contained in their summary.   Hope you are still with me but to clarify we might have paid say IKEA $702.00 for one MWh of generation which we then sold for .17 cents meaning we lost $701.83 for that MWh.  Hope you get that?

Now in an effort to help you to better understand the math behind your Ministry’s rather confusing arrangements, I contacted my good friend Scott Luft and asked if he could produce a one-page summary estimating contracted costs for November 12th.  He did and I have attached his summary1. (too bad IESO couldn’t do this) and while the production numbers are out by a few MWh (equivalent to about five minutes of demand) as compared to IESO it reflects actual costs including: contracted prices, costs for curtailed, spilled, steamed off power and embedded production (IKEA is the example as noted above) which Scott refers to as Distribution (Dx).   As you will note, Scott’s estimate of the cost of the day’s electricity (he excludes conservation, transmission, IESO’s costs, etc.) comes to $39.5 million, i.e., the “cost” of the GAM of $39.3 million and the “HOEP” of $ .2 million.

OK, we are now ready to complete the final math on this exercise! Using the actual cost of generation from Scott’s summary you will note the per MWh cost of “Ontario Demand” of 363,960 MWh is approximately $108.00/MWh. The math exercise is simple: divide the $39.5 million by the 363,960 MWh!

The conclusion, Bob, is Ontario ratepayers paid about $7.9 million for the net exports of 73,080 MWh (73,080 MWh X $108. = $7,892,640) and sold them for .17 cents each generating $12,424 (73,080 X     .17 cents = $12.424).

So we ratepayers paid $7.9 million for the exports but got only $12,000 from our friends — that, Bob, is a loss of $7.9 million, not a profit of $12,000.

If you have trouble with any of the numbers I would be pleased to sit down with you and review them again but hopefully I have spelled it out sufficiently for you to understand.

In the meantime I certainly hope you and your family have a Merry Christmas but please do remember to do your very best to only turn your Christmas lights on during “off-peak” periods to support conservation and to “saveonenergy”.

Yours truly,

Parker Gallant

P.S. The next lesson will be in respect to the cost per MWh by generating source followed by a special session on how “conservation” drives the costs up for ratepayers.

  1. Please note Scott has produced these daily summaries, so far, for November 1, 2015 to December 12th.
(C) Scott Luft
(C) Scott Luft

The opinions expressed are those of the author and do not represent Wind Concerns Ontario policy.

Comments

Andre Lauzon
Reply

I’m sure Chiarelli is convinced he is doing a good job because our lost is $12,000 less than would have been without his strong leadership in the Ministry.

Ed Engel
Reply

Just sold a stock for $1,200. that cost $11,000. Using Chiarelli and company’s thinking I made a profit of $1,200. I feel better now.
Thank you.

Ed

Raymond Beaudry
Reply

Perhaps send this to http://www.bobdelaney.com/ MPP Bob Delaney as he writes the speeches for Chiarelli in the legislature.

Gord Henrich
Reply

Whoops. Check the numbers, i thing there was a transposing number error: 437,040 became 487,040 a few paragraphs later.

Pat Cusack
Reply

Love it! Thanks.

Barbara
Reply

WikiLeaks Cable Sept.10, 2009

1. Summary:

“The steady supply of power from existing nuclear plants, combined with dramatically lower provincial demand for electricity, will mitigate any potential shortfall in electricity exports from Ontario to the United States.”

http://wikileaks.org/plusd/cables/09TORONTO215_a.html

Read the entire cable at the above website.

Barbara
Reply

WikiLeaks Cable, June 18, 2008

11.
“The interconnected nature of the U.S. and Canadian electric grid highlights the importance to the United States of electricity reliability in Ontario.”

http://wikileaks.org/plusd/cables/08TORONTO194_a.html

Barbara
Reply

WikiLeaks Cable, Jan.15, 2010

‘Nova Scotia’s Emera Inc.’

7.
“Instead, the company plans to expand to areas that promise the best returns to its shareholders, not what might be best politically.”

http://www.wikileaks.org/plusd/cables/10HALIFAX4_a.html

A Google search also turns up WikiLeaks Cables.

Barbara
Reply

Manitoba Wildlands, c.April, 2012

‘Comment: WikiLeaks Reveals Hydro Troubles’

Has links to the WikiLeaks Cables regarding Manitoba power transmission lines to Ontario. Or east-west link,

Reasons why the power transmission lines will be north-south to the U.S.

http://www.manitobawildlands.org/devlop_hydro.htm

Follow the WikiLeaks Cables at the end of this article.

Barbara
Reply

WikiLeaks Cable, Jan.21, 2010

‘Korean Consortium Hits Green Energy Gold’

2., “Negotiations for the deal, shrouded in controversy, apparently began long before the domestic content requirements for feed-in tariff eligibility were finalized and released to the public in late September 2009.”

http://www.wikileaks.org/plusd/cables/10TORONTO58_a.html

WikiLeaks has a searchable data-base.

Rob
Reply

Ontario needs Recall Legislation so we can STOP this madness from Wynne and her syndicate.
Please support us by Signing and Sharing the Petition
http://onrecall.ca/pet3.php

Richard Mann
Reply

Wind and Solar are not reducing C02. Ontario’s own Engineering Society is telling us this. See the report, “Ontario’s Electricity Dilemma – Achieving Low Emissions at Reasonable Electricity Rates.” Ontario Society of Professional Engineers (OSPE), April 2015.
http://www.ospe.on.ca/resource/resmgr/DOC_advocacy/2015_Presentation_Elec_Dilem.pdf

Page 15 of 23. “Why Will Emissions Double as We Add Wind and Solar Plants ?”

– Wind and Solar require flexible backup generation.

– Nuclear is too inflexible to backup renewables without expensive engineering changes to the reactors.

– Flexible electric storage is too expensive at the moment.

– Consequently natural gas provides the backup for wind and solar in North America.

– When you add wind and solar you are actually forced to reduce nuclear genera,on to make room for more natural gas generation to provide flexible backup.

– Ontario currently produces electricity at less than 40 grams of CO2 emissions/kWh.

– Wind and solar with natural gas backup produces electricity at about 200 grams of CO 2 emissions/kWh. Therefore adding wind and solar to Ontario’s grid drives CO2 emissions higher. From 2016 to 2032 as Ontario phases out nuclear capacity to make room for wind and solar, CO2 emissions will double (2013 LTEP data).

– In Ontario, with limited economic hydro and expensive storage, it is mathematically impossible to achieve low CO2 emissions at reasonable electricity prices without nuclear generation.

Barbara
Reply

Wasting this electricity or selling it bargain prices is the same as denying food to people and throwing the rest of of the food away or letting the food spoil.

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