Constraining wind power in Ontario

Making your head spin or, how Ontario’s energy sector is regulated

Enbridge Gas Distribution recently received the blessing of the Ontario Energy Board (OEB) for a 40% hike in what they charge Ontario’s consumers for distributing natural gas, claiming, because of the high demand during a cold winter they were forced to purchase it at a high market price.  The OEB granted the approval despite many objections by various interested parties who pointed out that Union Gas had requested a smaller increase.

This note was in the OEB’s approval:  “This means that Enbridge plans for lower storage deliverability requirements and transportation capacity” requiring gas purchases at higher spot prices on the open market.  One wonders why Enbridge is not required to maintain a larger storage capacity, which would have allowed them more prudence in purchasing the supply of gas, but that is presumably a question for the OEB to ask!

While the OEB was weighing their decision, another arm of Enbridge was constraining their production of wind-generated electricity.  That was to allow the Independent Electricity System Operator (IESO) to protect the grid and prevent blackouts or brownouts by requesting constraint.

Constraining wind power—and paying for it—started September 11, 2013. Since then Enbridge has been paid for not producing about 83,500 megawatt hours (MWh), which should have generated close to $9 million.

Enbridge was not alone: Brookfield didn’t produce over 29,000 MWh and IPC/GDF Suez (where the CEO is Mike Crawley) didn’t produce 12,800 MWh, and TransAlta didn’t produce 17,100 MWh.  In total about 161,000 MWh were constrained since IESO started paying wind developers—that means  ratepayers picked up the $16 million cost.  And that cost doesn’t include what ratepayers pay for remote meteorological stations to ensure wind developers don’t lie about what they may have produced.

Interestingly enough if one checks out Elections Ontario to determine what those wind developers contributed to the three major political parties in 2010, 2011 and 2012, you find that the NDP received nothing, the Ontario PC party received $1,080 from Enbridge and the Ontario Liberal Party or OLP received $8,000 from Enbridge, $14,840 from Brookfield and nothing from the rest.  The CEO of IPC did donate a total of $555 to the OLP.

The wind power lobby organization Canadian Wind Energy Association (CanWEA) contributed $16,620 to the OLP over the last three years and zero to the NDP or the Ontario PC party.  I wonder why?

This situation is a win-win for some of the parties involved, but a hit to the pocketbook of the average ratepayer.

©Parker Gallant,

May 22, 2014

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




What voters don’t know about Ontario electricity costs


Here from Ottawa-based energy economist Robert Lyman, a summary of the “hidden” costs of generating electric power from renewable sources…what the government has done over the past five years.


Ontario residents can be forgiven if they fail to understand the public debate during the current (2014) provincial election about the costs of different types of electricity generation and why these have caused electricity rates for consumers to rise so much over the past ten years. The complexity of the system makes it difficult to explain the costs associated with one source of supply, namely the renewable energy generation  (industrial wind turbines and solar power generators). In this note, I will nonetheless try to explain in layperson’s terms why these costs are significant.

Electricity supply in Ontario takes place within the framework of the policy and legislative framework established by the Ontario government, an important part of which is the Green Energy and Economy Act of 2009 (GEA). Historically, the goal of Ontario electricity policy was to keep electricity rates for consumers as low as possible consistent with the goal of maintaining adequate and reliable supply. Within the current framework, however, that is no longer the goal. The GEA seeks to stimulate investment in renewable energy projects (such as wind, solar, hydro, biomass and biogas) and to increase energy conservation.  To do this, it:

  • Changed the review process for renewable energy projects to reduce environmental assessment and hasten approvals
  • Created a Feed-in-Tariff that the Independent Electricity Systems Operator (IESO) must pay, guaranteeing the specific rates for energy generated from renewable sources (typically, the rates are fixed for the full term of the twenty year contracts, with inflation escalators)
  • Established the right to connect to the electricity grid for renewable energy projects and gave renewable energy source preferential access over other sources of generation
  • Implemented a “smart” grid to support the development of renewable energy projects
  • Eliminated local approval requirements that local governments previously could impose on renewable energy projects

The guaranteed rates paid under the FIT system are not negotiated based upon the actual costs of production. In fact, the actual costs of production are largely unknown…


Wind power: not free, not reliable

Last week the wind power industry lobby organization, the Canadian Wind Energy Association or CanWEA, put out a news release stating that wind power ought to be part of every government’s (or governments-in-waiting) energy strategy because it is inexpensive and reliable.

Not so, says this Alberta letter writer.

Wind power is neither reliable or inexpensive

By Letter to the Editor on May 17, 2014.

Re: Wind energy has proven to be reliable and cost competitive Herald May 6, 2014

Mr. Weis, representing the Canadian Wind Energy Association (CanWEA), told us that wind generation is reliable and inexpensive. Wind power is neither.

Weis failed to mention that over time, wind facilities produce a mere 32 per cent of their design capacity because they are so unreliable. Over the past half day, the output of wind turbines in Alberta has been less than one per cent of their design capacity! Reliable? And all of this “nothingness” for a few billion dollars? CanWEA also will not tell you that when the wind is blowing, coal and gas plants remain running to stabilize the power grid. As a result, there is little or no reduction of carbon dioxide.

You will recall the decades-old mantra, “Reduce. Reuse. Recycle.” However, installing wind facilities is the opposite of “reduce,” because wind farms duplicate existing generation capacity. They also require massive investments in new inefficient transmission lines. In 2012, Alberta Energy reported, “The existing capacity of the transmission system . . . is insufficient for additional wind-powered generation.” They estimated the cost, in the next four years, at $2.8 billion. Inexpensive? You and I will pay for these lines.

CanWEA does not want you to know that wind turbines are slaughtering thousands of bats and birds annually in Alberta. The Alberta government recently wrote, “Post-construction surveys (showed) . . . 16 bat mortalities per turbine.” Mitigation practices have been studied and proposed, but apparently best practices are not followed and wind companies are not monitoring mortalities at new wind facilities. If monitoring is being done, then animal deaths are being covered up by CanWEA members because they don’t want you to know the gory statistics.

“an expensive environmental scam paid for by Alberta’s citizens”

If we received actual economic or environmental benefits from wind turbines we would all support their development. But wind generation duplicates efficient conventional generation; wind facilities are expensive; wind generation does little or nothing to reduce emissions; wind generation compromises the stability of the power grid and turbines kill thousands of bats and birds in Alberta annually.

Reliable and inexpensive? Hardly. Wind electrical production is an expensive environmental scam paid for by Alberta’s citizens and businesses.

Clive Schaupmeyer

Giving points for honesty about Ontario’s economy (or, just how bad are things, really?)

From today’s National Post, editorial writer Kelly McParland, on Tim Hudak’s gamble with honesty, and Premier Wynne’s response.

Ontario Conservative Party Leader Tim Hudak buys flowers for Mothers Day with his daughter Miller at Growers Flower Market on Avenue Rd. in Toronto.


Kelly McParland: Hudak tests Ontario’s fortitude by offering an honest choice

| May 12, 2014 | Last Updated: May 12 1:19 PM ET
More from Kelly McParland | @KellyMcParland

Tim Hudak has done an odd thing, so odd most Ontarians probably haven’t quite grasped what he’s up to. In announcing his plan to take an axe to the public sector payroll – and admitting that teachers would be included along with everyone but police, nurses and doctors – he’s openly declared his intentions and offered voters a clear choice.

In doing so he’s rejected what has become the accepted norm of Canadian politics. Honesty is not usually viewed as a good policy among candidates seeking election. Spin is the rule of the day. Even if a candidate has a clear plan, it’s considered best to obfuscate the fact until after the votes are counted and it’s too late for voters to change their minds. You might hint that some sort of “restraint” will be needed if the economy is to avoid going over the edge, but you wrap it among promises that no jobs will be endangered, no impact will be felt, and spending can continue to grow at the same old unsustainable pace. That’s certainly been the Liberal party’s approach to winning elections in the province.
Kathleen Wynne says Liberal government made ‘mistakes’ (under McGuinty) and she’s the one to fix them

Premier Kathleen Wynne says there’s no doubt the Liberals have made mistakes in the past, but she’s committed to running an open, transparent government if elected next month.

In an interview on CBC Radio’s Metro Morning in Toronto, Wynne said she had a “good working relationship” with her predecessor, Dalton McGuinty, but didn’t always agree with him.

Wynne has faced tough questions in recent months about the cancellation of two gas plants when McGuinty was premier, which could cost up to $1.1 billion.

Mr. Hudak has rejected that approach. After 11 years of Liberal rule, and the precipitous decline of the economy that was once Canada’s strongest, Mr. Hudak has chosen to be straightforward about his intentions. His promise on Friday to chop 100,000 public sector jobs left no room for doubt. “I take no joy in this, but it has to be done if we want job creators to put more people on the payroll in our province,” he said.

In doing so, he is being honest, candid and — depending on your point of view — either courageous or foolhardy. He’s trusting voters to assess the situation and make their choice based on a full understanding of the options. He evidently believes voters understand the damage that’s been done to the province under the Liberals, and the danger of continuing down that path, and being mature enough to choose between repairing it, or continuing along the same route…
Read the full story here, including,  ” It would have been simple to blanket the province with images of Dalton McGuinty and the slogan  ‘Had enough?’ “

Rex Murphy: Ontario Liberals should be ‘toast’

NOTE: this is a reprint of an opinion column in The National Post.

Rex Murphy: The Ontario Liberals’ impossible dream

Rex Murphy | May 10, 2014 | Last Updated: May 9 2:48 PM ET
More from Rex Murphy

What’s a good sign your political party has a few problems? Well, one would be that your most recent leader, who won three successive victories, has gone into voluntary, necessary exile. It may be Harvard where Dalton McGuinty is hiding, and Harvard may have given Mr. McGuinty a few classes to front, but it is political exile nonetheless.

If there are any posters of Premier Dad in this campaign, they will be mounted by those hoping to blast the Liberals out of existence. After successive revelations about the cancellation of those gas plants, the result of his own shameless electioneering during the last election campaign, the sight of him would only recharge Ontarians’ disgust at the billion dollars wasted and the smug attempts at cover-up.

There are other signs the Liberals know how brutally they are regarded right now. A very telling one is the artificially induced presence of Stephen Harper in the days-old election campaign. Mr. Harper, the universal bugbear of all right-thinking citizens, is the object of some of Premier Kathleen Wynne’s strenuous early assaults. She was out and about this week arguing the Prime Minister was “smirking” at old age pensioners and implying, at least, that the real issue of this campaign is electing someone to “stand up” to him.

There was a time when Ms. Wynne gave every sign of being above such cheap tactics. But “Victory is All” is still the Liberal mindset — the very one that provoked the whole gas plant mess in the first place. If they think it might work, why not pretend Stephen Harper is their opponent instead of Tim Hudak, who actually is?

So there are two substantial indicators that the Liberals feel desperate, and are acting as only a desperate party would. Indeed, in any world other than Ontario, the Liberals and Kathleen Wynne would be toast, burnt and disposed of at that. She would be purely a stand-in figure, awaiting an inevitable wipeout at the polls. The opposition would be on cruise control. It would all be over but the voting.


Read the full comment here.

See also John Ivision

The never-ending Thunder Bay power plant conversion

The ongoing saga of the conversion of Ontario Power Generation’s (OPG) Thunder Bay 300-MW coal plant took another twist on Budget Day, May 1, 2014, as Energy Minister Bob Chiarelli used his hammer to force a contract between the Ontario Power Authority and the OPG in respect to the allowable cost recoveries after conversion.  The Minister issued a “sole shareholder” directive to the OPG on budget day that set a limit on Annual Operating Costs, reducing them from the $40 million plus indexing (2013 dollars) he included in his earlier conversion directive of December 16, 2013.

Looking back to former Energy Minister Brad Duguid’s time in the Energy chair, he also issued a  directive to the OPA in August 2011 to convert Thunder Bay to gas, but negotiations between the OPG and the OPA failed to reach agreement, and that deal fell away by November 1, 2012.

Then on November 15, 2013 Minister Chiarelli made the initial announcement that Thunder Bay would be converted to “advanced biomass.”  That announcement was followed by the visit from Al Gore, the high priest of global warming, to heap praise on the government.  One month later, the December 16, 2013 directive was issued.  But that also didn’t lead to a contract agreement between the OPA and OPG as noted in OPG’s  press release (four months later) of April 15, 2014 disclosing: “OPG is currently seeking suppliers for the advanced biomass fuel and negotiating a power purchase agreement with the Ontario Power Authority.”

The OPG press release of April 15 was meant to add validity to the Energy Minister’s announcement on the same day which stated,  “The Thunder Bay Generating Station, Ontario’s last remaining coal-fired facility, has burned its last supply of coal” and further that “Converting the station to advanced biomass will retain 60 jobs in Thunder Bay.”   One has to assume the 60 jobs to be retained were included in the $40 million of “operating costs” per the original directive of December 16, 2013.

The May 1, 2014 directive is explicit in terms of the maximum recoverable operating costs by stating,  “Despite the December Direction, the Contract shall allow for the recovery of Annual Operating Costs which shall be deemed to be $30 million per year on average over the Contract term (for a total of $150 million) with no adjustment for inflation.”  Minister Chiarelli seemed intent on cleaning up this matter before he knew if the budget would pass, perhaps to ensure no “electricity” related matters were left blowing in the wind!

This Ministerial decision appears to be the opposite of the gas plant moves where all of Ontario’s ratepayers and taxpayers picked up the costs.  This time it will be Thunder Bay losing a $10-million annual benefit through lost jobs, and the rest of the province’s ratepayers and taxpayers benefiting from a $10-million savings on their electricity bills.   It’s not going to have quite the same effect as the cost of moving those gas plants though, unless the contract is extended for 110 years!

©Parker Gallant

May 6, 2014

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


Parker Gallant on the problem of expensive, surplus power

Save energy, use's too big for you to understand
Save energy, use energy…it’s too big for you to understand

When you do a little research on the issue of energy in Ontario, it becomes obvious that the problem is surplus and very expensive electricity.  Ontario companies who use a lot of electricity and compete across the U.S.-Canada border are finding they are under siege from their U.S. competitors—their clients are getting better prices from U.S.-based border companies.

Two companies mentioned in the speech by Minister Chiarelli at Giant Tiger last week were held up as examples of a change to one of the programs that former Energy Minister Chris Bentley brought in.  That program was the Industrial Electricity Incentive (IEI) program. …

Let’s look at the two companies that Chiarelli is asking us all to support, and the many more that may follow now that the bar has been lowered to increase consumption!  Before going there, however, I should explain that one objective of the IEI is to reduce our export volumes. For 2013 that was 18.3 TWh at the average HOEP of 2.65 cents per kWh.  At one point Minister Chiarelli mistakenly suggested Ontario had earned a profit of $6 billion on exports but since his discovery of that mistake he perhaps believes it is better to at least keep some of the jobs at home.   The cheap electricity was Ontario exported was creating jobs elsewhere like New York and Michigan.

One of the companies that Minister Chiarelli mentioned was Detour Gold, a relatively new gold producer located in Northeastern Ontario south of James Bay.  The following was found in their latest annual report:  “In January 2014, the Company was accepted into the Industrial Electricity Incentive Program for a 6-year fixed rate electricity contract at CAD $0.05/kWh with the Ontario Power Authority which is estimated to reduce power costs by approximately CAD $20,000 annually.”*  Now if you run the numbers on the savings at, say, 4 cents a kWh, it works out to consumption of 500 MWh annually or  enough to power about 50 average homes, or less than 1% of a TWh.

The other interesting fact about this is that Elections Ontario reports that Detour Gold in 2012 contributed $9,300 to the Ontario Liberal Party—about 50 % of their reported annual savings. Makes you wonder…

Read Parker’s full article here: Minister Chiarelli surplus electricity production


*Addendum to Post of April 29, 2014: 

While Detour Gold claim a savings of only $20,000 annually in their annual report as a result of their IEI six (6) year contract the actual amount that they will save is probably closer to $20 million or $120 million over the 6 years.  We base those calculations on the information recorded on the Environment Ministry website where they record their approval in 2010 of an application for a 230 kilovolt (KV) transmission line to supply the mine with 120 megawatts (MW) of power.  On that basis 120 MW could supply Detour Gold with in excess of 1 million MW hours annually and at a price of $50 a MWh would produce annual savings of $20 million.  That is a much better pay-back on  the $9,300 contribution they made to the Liberal Party and it will be extracted from all the other ratepayers in the province!  Kind of sounds like a new way of creating one of Premier Wynne’s “Revenue Tools”.


Five ways the Liberals are ‘messing with’ Ontario’s economy

(Or, five more reasons why this government should go)
Scott Stinson, National Post, April 28, 2014
Kathleen Wynne has spoken repeatedly in the past month about how her Liberals are the only party to be trusted with the fortunes of a province that is still unsteady on its economic feet.

Ontario, the Premier has said, needs her “safe hands” to guide it through its recovery, not those “reckless schemes” of the two parties in opposition.

Other Liberals have picked up the thread. In blasting the NDP for its demand of increased corporate tax rates, Transportation Minister Glen Murray last week said the province, “is emerging from the global recession. However, our recovery remains fragile.”

Add a couple of seafaring metaphors about troubled seas, and the comments were perfectly in line with what the federal Conservatives were touting in the 2011 election: now isn’t the time to mess about with our delicate economic recovery.

Except there is a key difference: the Ontario Liberals are furiously messing with the economy.

On Thursday, after the federal Tories announced plans to tinker with public pensions, Ontario Finance Minister Charles Sousa all but rolled his eyes at the proposal and insisted that the province will forge ahead with an Ontario-only enhancement to the Canada Pension Plan. It is fair to say a debate remains over whether a CPP top up is needed, and if so whether a mandatory plan as envisioned for Ontario is the solution. But there is little such debate in the business community.

“It’s going to have a devastating impact,” Nicole Troster, senior policy analyst with the Canadian Federation of Business, said in an interview. Among the key concerns for the CFIB, Ms. Troster said, is that mandatory pension contributions are essentially a profit-insensitive tax. Even struggling businesses would be hit with a new, additional cost. Other business groups have lined up to express concern over the Liberal proposal: the Ontario Chamber of Commerce, the Certified General Accountants of Ontario, the Canadian Chamber of Commerce, among others.

Read the full story here.

Parker Gallant: the Energy Minister’s announcements

The Liberals’ promise of ‘significant relief’ on power bills: a closer look

The April 2014 Liberal event calendar has had a minimum of an event a day, including the Energy Minister Bob Chiarelli’s delivering a message on how the government plans to help small and medium Ontario business deal with electricity bills. The event was held at Giant Tiger’s HO in Ottawa.

Bob Chiarelli and friends: did they look at the numbers, really?

These daily announcements are leading up to the budget presentation on May 1st which is widely expected to trigger an election.

Not once in the 27-minute podcast did the Minister mention “Timmies” coffee in the context of either what it would cost ratepayers or how much it would reduce hydro bills for those small and medium sized companies. But what he did was to spin the bad news electricity story: first they rob Peter and Paul to pay wind and solar developers, and when Paul becomes vocal you rob more from Peter to pay Paul. As soon as Peter laments, you tell him you have a plan to give him a break and you simply stick Paul with higher rates. Then, while you are telling Peter he will soon get a break, you rob the company that employs him so they can no longer afford to hire Paul. Shortly after that the company laments that they may have to lay Peter off so you rob even more from Peter and Paul, so that they will be able to keep Peter on staff and may even be able to afford to hire Paul.

Should you decide to watch Chiarelli’s podcast you’ll see he doesn’t make it quite that simple. Instead, he talks about “pillars,” points and electricity acronyms like “IEI” (Industrial Electricity Incentive) or “ICI” (Industrial Conservation Initiative) programs. Like the other promises of prosperity coming daily from the government, the benefits are all in the future. Only one of his suggestions came with a specified time (2015). That was one that will instruct your local distribution company (LDC) to become a lending institution! They will be told to provide financing for “up-front capital costs” associated with “conservation programs.” Needless to say this and the other programs will be financed by other ratepayers via the Global Adjustment (GA).

The day before, the announcement was about ending the Debt Retirement Charge (DRC) at the end of 2015, and was clearly aimed at residential ratepayers (people who vote). Premier Wynne said it would bring “significant rate relief.” The DRC will continue to be collected until 2018 from those to whom Minister Chiarelli promised relief too, from his perch at Giant Tiger. By the end of December 2015 we will have paid $15.5 billion to retire the original $7.8 billion of “Residual Stranded Debt” but they want more, so they will take about $1 billion from most commercial and industrial clients before they will finally declare it paid—evidence of the Liberal trick of robbing Peter to pay Paul!

“Significant relief”?

Let’s look at Wynne’s “significant rate relief” claim. Just one year ago the Ontario Energy Board announced a rate increase that cost the “average” ratepayer $3.63 a month or $44 annually, and followed that with another increase in November raising rates by $4.00 a month or $48 annually. The more recent increase of April 14, 2014 saw another increase of $2.83 a month or $34 annually, and those announcements didn’t include rate increases for the “delivery” or “regulatory” lines on our bills, which also increased. So, in just one year the electricity rates jumped $126 annually and Wynne’s announced rate relief won’t happen until the end of 2015. That’s the year the Ontario Clean Energy Benefit (OCEB) ends. The OECB reduces the average bill by $13.30 per month or $160 annually. The “average” bill (electricity only) at the start of 2016 will be $286 higher on an annual basis than it was as of April 30, 2013. Adding the HST brings the increase to $323.
We should also expect additional increases from the OEB’s scheduled rate setting on December 1, 2014, May 1, 2015 and December 1, 2015; those add a minimum of $100/120 to our electricity line.

In other words, the average bill will have jumped by approximately $425/$450 by which time Wynne’s “significant rate relief” will become insignificant. Just as the annual DRC charge of $67 falls away, another scheduled charge from the Wednesday announcement (aimed at reducing energy poverty) of $11 will be added, so we may see a measly $56 decrease at that time.

25% increase in two years
The “average” ratepayer will have experienced an increase of over 25% in electricity prices in slightly more than 2 years by the time the December 31, 2015 date arrives. At that time our electricity costs will be charged out at over 21 cents per kilowatt (kWh). That only gets worse as more contracted wind and solar enter the grid. The price will rise further should OPG prove successful in their “significant” rate increase request now before the OEB. Add in increases expected in the “delivery” and “regulatory” lines, tack on HST and all-in costs will be in the neighbourhood of 30 cents a kWh! That average $133 monthly bill will suddenly be $240 and Ontario residents will be challenging Germany and Denmark for the privilege of having the most expensive rates in the industrialized world.

It seems the Liberal Ontario government has apparently abandoned the “Chiarelli” math (units are based on the price of a Tim Horton’s coffee) and have now moved on to a shell game. They tell us their management of the energy portfolio is constantly saving us money—you just have to look for the pea under the right shill, oops, I meant shell!

©Parker Gallant,
April 26, 2014

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

Parker Gallant: New Ontario Council told to boost value of OPG and Hydro One

Are 11 years of active depressing value to end?

What spurred the decision by Ontario’s Finance Minister, Charles Sousa to announce on April 11, 2014 that the Ontario Government is appointing a council to recommend ways to improve the efficiency and optimize the full value of Hydro One, Ontario Power Generation (OPG) and the Liquor Control Board of Ontario (LCBO”? Was it a sudden realization that Ontario had undervalued assets? Or, was it an attempt to deflect attention from the gas plant scandal?

I’m betting the latter. Why? The shareholder value of the first two Crown corporations listed have been continually interfered with by this government.  Everything from “smart meters” to coal plant closures, multi-billion dollar tunnels, run-of river hydro and coal plant conversions (to biomass) have played a big role in the current value of both OPG and Hydro One.  Add that to above-market rates for wind and solar developments, and billion dollar transmission spending to hook them to the grid—the only reason OPG and Hydro One have any value is that electricity rates in the monopolistic electricity sector have been allowed to rise by over 100%.  Four Long-term Energy Plans in 11 years and several dozen “directives” on how the businesses should operate have done nothing to enhance the value of those two entities.

Under the benign governance of the Ontario Energy Board (whose role was eviscerated by the government),  electricity prices have increased at an average annual rate over 10%  and driven well paying jobs from the province, as a result.  Creating value seems to have been overlooked in the process. Is this another “Council” that will present a report that will simply be ignored as in the past?

What does Sousa expect?

Already, I see problems: Minister Sousa seems unaware the Auditor General in his 2011 report noted that  Ministerial (Energy) directives to contract for above market priced wind and solar generation were executed without a cost benefit analysis.

He is also either unaware or in direct conflict with his party’s Energy Minister, Bob Chiarelli, who, just two days before Sousa’s announcement said, “The government is not currently looking at the disposing of any of our energy companies.”  So, why “enhance value” if there is no plan to sell? Was Premier Wynne aware of this conflict or did she endorse both positions hoping that the new council would confuse the issue, and the electorate?   Perhaps the gambit is to gain credibility to reduce or freeze energy sector salaries, or force a change in the way pensions and benefits are paid, to enhance value?

As recently noted OPG, had 77% of their employees on the “2013 Sunshine list” and Hydro One 67%; both have unfunded positions in the pension and benefits programs.  A council isn’t necessary to figure that out!

So exactly what is Minister Sousa expecting from the council?  OPG and Hydro One are both taxpayer owned institutions with one (Hydro One) holding a monopoly on the transmission business and on distribution of electricity to one quarter of Ontario’s ratepayers.  OPG on the other hand has seen its share of the generation market fall since the PC government split old Ontario Hydro into five entities.

The final annual report of Ontario Hydro had this to say about their contribution to Ontario’s electricity supply: “ OPG facilities now supply about 85% of the province’s electricity demand. Under an agreement with the provincial government, that proportion will be gradually reduced so that by about 2010, OPG will control no more than 35% of the province’s total supply options.”

By the end of 2013 (three years later than planned) OPG had come close to achieving the “agreement” with 16,229 MW of installed capacity compared to total Ontario capacity (per recently “revised” Long-Term Energy Plan) reported as 38,374 MW giving OPG about 42% “of the province’s total supply.”   That OPG capacity of 42% produced 80.3 terawatts (TWh), equal to 57 % of Ontario’s demand in 2013 and in 1999 had produced 136.2 TWh equal to 85% of demand.

The bottom line

On the financial side, OPG’s first full year of operation (2000) generated a profit, net of PIL (payments in lieu of taxes), of $605 million; by 2013 their profit had fallen to $135 million.  So, OPG, based on history reflects itself as a business in decline.  OPG are also about to undergo costly retrofits of their nuclear plants which have traditionally gone over budget.  If Ontario sold OPG at, say, a 12 times multiple on earnings, it would net them only $1.4 billion.  The best the province could hope to generate in a sale of OPG would be its current book value of $8.3 billion, but any buyer would demand guarantees on pricing of generation of all capacity and a guarantee of grid rights to ensure production is purchased.  What is good for wind, solar and gas plant generators would be demanded by any new private sector owners of OPG!  One also suspects a buyer would seek to cover any anticipated cost overruns on existing projects including nuclear refurbishments, biomass conversions, etc.  In other words, it is likely the “Council” will recommend keeping OPG—it may not be sellable!

Hydro One, on the other hand looks like the star with Net Profit (after PIL) of $803 million for 2013 up from $378 million in 2000 (+112%), while Gross Revenue (net of Power Purchased) increased from $1,728 million in 2000 to $3,054 million in 2013 (+77%), despite a drop in terawatts (TWh) transmitted.  An increase in employees of 1,173 however is cause for concern in respect to the transmission and distribution businesses.   If, as suggested by Jan Carr in an article in the Toronto Star, Hydro One gets split into two entities—transmission and distribution—the breakout (2012 year-end) in Net Profit for the “transmission” business is $488 million and for “distribution,” $258 million providing a Return on Equity (ROE) on the former of 18.1% and 12.5% on the latter.  The Return on Revenue (RoR) would be 32.9% and 25.8% respectively and above the comparable at, say, Enbridge with an ROE of 12.8% and an RoR of 18.8%.

Assuming the Council will suggest the two Hydro One businesses be split and could generate say 12 times their earnings in a sale, Ontario might generate $9 billion.  That would come from approximately $3 billion for the distribution side and $6 billion for the transmission business.  The sale would generate a one-time gain of about $2.5 billion for the province, or less than 25% of the current budget deficit.  The sale would cause grief for the Liberal Party from the unions within the Hydro One family and so might prove unpalatable.

I am betting the Finance Minister’s appointed “Council” will deliver bad news but probably not until after an election. This is simply another exercise to deflect from the numerous scandals and the mismanagement of the energy file overall  that are sure to be the message from opposition parties in a provincial election campaign.

©Parker Gallant,

April 14, 2014

The views expressed here are those of the author and not Wind Concerns Ontario policy.