Mr Premier; Who Wants Turbines?

This blog noted the article in the Belleville Intilligencer, yesterday – and Parker Gallant followed up with this letter

To: The Honourable Dalton McGuinty:

I read the interview that you recently had with the Belleville Intellegencer and noted your comments in respect to the placement of wind turbines in communities. To refresh your memory here is the preamble:

“The new wind turbine program will be key to circumventing the angst of factions in areas like Prince Edward County who have vehemently opposed the implementation of wind turbines in their community, Premier Dalton McGuinty said, during an exclusive visit to the Intelligencer Friday.” which you followed up with as follows:

““I’ve got all kinds of communities that want them,” he said. “I don’t need the headaches that are associated with them going into communities that don’t want them.”

On the latter note could you (or Minister Bentley whom I have copied on this) please supply me with the list of the communities/municipalities who “want them” to determine if the list dovetails with the list of communities that have rejected them.

Your early attention to the above question would be greatly appreciated and (assuming the two lists are compatable), greatly relieve many of our members who may be causing some of the angst and headaches you refer to.

Yours truly,

Parker Gallant, VP
Wind Concerns Ontario

Yes Minister, its been an interesting 6 months

Parker Gallant’s latest – A portable document format is posted here

Yes Minister, its been an interesting 6 months

It has been 6 months since the Liberals were returned to power in Ontario with a “major minority” and almost 6 months on the job for Minister of Energy, Chris Bentley. Since his appointment a lot has happened in the energy sector that may not have received the attention it deserved, having been overshadowed by the ORNGE scandal which, in terms of costs to Ontarians will look like a rounding error when compared to the Energy Ministry. In no particular order here are some of the events that Minister Bentley has faced:

Pay Freeze for some, Frozen Daiquiris for Others:

The Executive Pay freeze that Premier McGuinty announced back in March 2010 apparently doesn’t apply to several of the Crown Corporations such as OPG nor does it apply to the Municipally owned local distribution companies such as Toronto Hydro despite McGuinty’s appeal back then when he said, “I would invite the municipalities to take a long hard look at what we are doing here.” When the 2011 sunshine list came out the five top executives at OPG collectively received 21% more ($846,000) then they were paid in 2010. This huge raise came despite OPG’s revenue decline of 5.7%, profit decline of 36% ($233 million) and market share drop of 2.5%. In the case of Toronto Hydro’s CEO he had to contend with only a 12.4% ($94,000) increase bringing his compensation to $851,983 which means he earns 5 times Mayor Ford’s salary and $330,000 more then the CEO of Hydro Quebec. Raises at the other crown corporations like Hydro One were much more modest and generally less then 2%. The Ontario Power Authority CEO, Colin Andersen, received no increase.

Auditor General’s Report:

The Auditor General’s Report was a scathing rebuttal of the Energy Ministry when it was released in December 2011. Under a barrage of questions from the opposition parties in the Legislature Minister Bentley had little outward respect for the report except for; “I very much thank the Auditor General for his report and for his good advice. We’re already acting on the recommendations to improve the approach.” and the other responses were generally as follows: “We made the choice to get out of coal. They disagree with that. There’s a cost to stay in coal: $4 billion-plus a year, human suffering, illnesses. At the height of the recession, we made a choice to create jobs for Ontarians and accelerate the cleanup of the air. The 20,000 jobs, billions in investment—it’s all about the choices you make. We stand for clean air, good health, jobs for Ontarians and a brighter future for this province.”

Bentley clearly ignored the elephant in the room!

Fit Review:

Minister Bentley was the recipient of the two year FIT review mid March that was prepared by Fareed Amin, Deputy Minister of Agriculture and took only three days to bless the recommendations. The review called for minor adjustments to the pricing offered for wind (15% reduction) and solar generators (20% reduction). This has left Ontario with subsidized prices for these two sources well above all countries in the G20 including Germany, the poster child of the existing and prior Ontario Ministers of Energy. Germany recently announced significant cutbacks on their solar tariffs which will reduce payments for solar generators to as low as 18 cents a kWh versus Ontario’s lowest at 35 cents a kWh. The bankruptcy of the largest German solar company, Solar Millennium also impacted the US as their US subsidiary filed for Chapter 11 financing despite being the beneficiary of a US$2.1 billion guarantee provided by the US Energy Department. China has become the solar king and Ontario has no hope of ever becoming a force in the manufacture of solar panels. The same applies to any major inroads in producing wind turbines. Any hope is faint hope, if the Liberals believe they can replace some of those good manufacturing jobs lost in Ontario because of high energy prices.

Law Suits:

That gas plant in Mississauga that was cancelled during the election campaign, to ensure the re-election of the Liberal MPP, also returned to haunt Mr. Bentley as a $300 million law suit was launched against the Province. Bentley had this to say: “ A statement issued Friday by Energy Minister Chris Bentley said the province would vigorously defend against the claims, but declined further comment because the case is before the courts.” Another $1 billion law suit was also launched against the Province for the Province’s imposition of a moratorium on offshore wind farms and Minister Bentley had this to say:

“Energy Minister Chris Bentley says SouthPoint did not have a contract with the province, and the government intends to defend the lawsuit.” Mr. Bentley also has to deal with an earlier law suit of $2.25 billion launched by Trillium Wind Power. So far no lawsuit has been launched by TransCanada Corporation in respect to the cancelled gas plant in Oakville, a 1000 MW capacity plant for which TransCanada had a firm contract. No details of settlement on this cancellation have been released but with the plant expected to contribute 10 cents a share to TransCanada’s annual income we should expect that an agreement is being negotiated for the lost revenue. The Liberals treatment of the Energy Ministry has clearly placed the ratepayers and taxpayers of Ontario in the position of having to pay for their mistakes.

Domestic Content:

The Green Energy Act when passed in 2009 carried provisions that require OPA contracted parties to ensure Ontario content in their projects. That provision was quickly challenged by Japan and the EU via the World Trade Organization (WTO) and their arguments were recently put forward to the WTO’s dispute panel. The principal arguments were: “The FiT programme and its related contracts confer a benefit to the FiT generators since the OPA guarantees above-market rates for the supply of electricity,” the EU argued before the panel and “That excess is best confirmed by examining the difference between the FIT rates and HOEP [Hourly Ontario Energy Price], as HOEP represents the entire rate that these generators would have received” under normal market conditions, Japan added. While a negative ruling won’t directly affect the Ministry, if Canada loses, it will impact all Canadian taxpayers via any penalties imposed by the WTO. It surely must be of concern to Minister Bentley as he will be saddled with the results and that could impact any thoughts he might have of running for the leadership of the Liberal Party when Dalton McGuinty steps down.

Integrated Power System Plan II:

When the Liberals were first elected in 2003 their war of words in respect to the Ontario electricity sector incessantly blamed the previous governments for not creating a long term energy plan. They created the Ontario Power Authority as a temporary agency to fulfil that gap. Eight years have passed and they still haven’t produced what they apparently noted both the NDP and the PC party failed to do during their time as the ruling parties. The second version (Smitherman killed the first one) of the IPSP was presented to Minister Bentley pre-Christmas and has been with him for that period but nothing has emerged from his office for review by the OEB. Bentley managed to turn the 2 year FIT review around in three days but he has been sitting on the IPSP for over three months. One can only assume that the recommendations in the IPSP II fail to dovetail with the Liberal beliefs as expounded in the Long Term Energy Plan that Minister Bentley’s predecessor, Brad Duguid, released back in November 2010.

Ontario Power Authority Annual Report:

The “sunshine list” disclosed that the CEO of the OPA did not receive any increase in 2011 and perhaps the several law suits (see above) launched against the Province have something to do with that. One telling KPMG auditors note is this one: “Negotiations related to this matter are ongoing. A

reasonable estimate of any settlement amount cannot be determined at this time.” and it applies to both the cancelled Oakville and Mississauga gas plants. OPA’s 2011 annual report makes no mention of the Trillium Wind Power law suit for some reason despite the fact that Trillium claims it holds a contract (see above “Law Suits”) with the OPA. The annual report also discloses that the OPA has signed contracts for 8,030 MW of wind, solar and biomass as of December 31, 2011 versus signed contracts as at December 31, 2010 of 4,873 MW. If one assumes the target for renewables is 10,700 MW as laid out in the LTEP then the OPA is only 1,770 MW short of what Minister Duguid had planned.

IESO Data Collection Rate Increase:

The Environment Commissioner of Ontario released his report on conservation in the energy sector in December and had this to say; “The ECO is disappointed that data collection and analysis to track the actual reduction in peak demand due to TOU pricing is just beginning now.” By next year the Environment Commissioner, Gordon Miller should be happy as the IESO has just asked the OEB for a rate increase to cover the cost of a “meter data management repository to collect, manage, store and retrieve information” and that will cost the ratepayers $252 million and add annual costs of $9.62 to the bills of 4.7 million ratepayers. In a review of the application submitted to the OEB by IESO the following stands out; “42. The total costs presented in the table above differ from the Ministry-approved budget of $89 million.” So the Ministry of Energy budgeted $89 million for what will cost ratepayers $252 million for a cost overrun of $163 million or 183%. For this expenditure the ratepayers will get no benefits, only higher delivery costs and IESO will gain no additional benefits that will enable them to manage the grid. The Environment Commissioner will presumably be able to garner information that will allow him (and the associated Liberal Ministers) to claim credit that TOU pricing is actually working and Ontario’s ratepayers are shifting their usage. With a forecast cost overrun of $163 million Mr. Bentley may have a difficult time convincing voters that this is a good thing.

Electricity Exports:

The Auditor General’s report had this to say about our exports of electricity; “we estimated that from 2005 to the end of our audit in 2011, Ontario received $1.8 billion less for its electricity exports than what it actually cost electricity ratepayers of Ontario.” Despite the scolding from the AG the Ministry of Energy under Mr. Bentley brag about the fact that they sell electricity at a loss to our neighbours. For the first two months of 2012 Ontario exported 2.1 TWh (210,000 MWh) at a price of $25/MWh (2.5 cents per kWh) generating $52.7 million but those 2.1 TWh cost Ontario ratepayers $97.8 million. How Ontario ratepayers paying almost $100 million, in just two months, so our neighbours can purchase cheap electricity provides any benefit is unexplainable yet the Minister of Energy continues to issue press releases bragging about that, while our surplus of electricity continues to grow. How Mr. Bentley explains away this disdain for proper planning is an affront to the ratepayers and the qualified people at the various public entities that must execute their blind ambition to green Ontario.

Losing Supporters:

Former supporters such as Ontario Nature on February 15, 2012 and the Ontario Federation of Agriculture on January 20, 2012 have both reversed their previous full support of industrial wind turbines. The former has called on the government to protect important bird areas (IBA) and OFA President Mark Wales said; “The onus is on our provincial government to ensure the interests of rural Ontarians are protected. OFA is speaking up to clearly outline the issues that must be addressed right now.” Those “issues” included the price paid, the inefficiencies of wind power, setback and noise issues related to health and the removal of municipal input. None of those issues were dealt with in the FIT Review (see above).

Rate Increases:

The OEB is set to announce the revised time-of use (TOU) prices later this month and they will be up again as more and more renewable energy enters the grid even as demand continues to fall. IESO has put a forecast out for the April 2012 Global Adjustment (GA) anticipating it will be in excess of $74/MWh (7.4 cents a kWh) while the hourly Ontario electricity price (HOEP) continues to decline (2.1 cents per kWh) generating bigger subsidies for exports, constrained power and causing OPG to lose revenue through spilled hydro. If the overall price of electricity is forecast to remain at the April 2012 level, the 9.5 cents per kWh (GA + HOEP) may generate a rate increase approaching 20% per annum for the next 6 months. That will result in additional conservation, meaning local distribution companies will rush in with rate applications for their lost revenue along with their applications for refurbishment. On the latter, Toronto Hydro sought a huge increase that was recently rejected by the OEB so are now in the process of challenging the OEB. For more on the latter a visit to Tom Adams website is suggested. Mr. Bentley had better brace himself for a plethora of negative feedback if the cost of electricity and its associated delivery costs soar as anticipated. He presumably is already feeling the heat from farmers and small and medium sized businesses as the Ontario budget brought in by his colleague on the Liberal benches, Minister of Finance Dwight Duncan, reduced the Ontario Clean Energy Benefit (OCEB) to those consuming over 3,000 kWh per month. While hoping to catch rich electricity consumers the reduction has instead caught businesses that are already struggling to operate.

Rural Ontario has demonstrated that they are basically against Industrial Wind Turbines (IWT) by protesting actively in their communities, generating local council interest (79 municipalities have passed bylaws requesting a moratorium on IWT installations), and by turfing out 10 Liberals from their riding’s in the last election. A major protest in Toronto April 3, 2012 brought together an estimated 700/1,000 protestors from across the province to challenge the economic, health, environmental and other costs of the FIT and MicroFIT programs and to bring the message to Toronto’s residents. Minister Bentley should expect these protests to gain momentum as the negative fallout from the flawed energy policies starts to be noticed on the electricity bills of the urban communities that put the Liberals back in power.

Looking Forward:

The Minister of Energy should brace himself for another 6 months of considerable turbulence unless the NDP join forces with the Ontario PC Party and either force an election or get the Liberals to rescind the Green Energy and Economy Act.

The time for action has passed and if allowed to continue will doom Ontario to the status of a “have-not” province for decades.

Parker Gallant,
April 9, 2012

Small Hydro and Co-incidental Smells

On May 19, 2011 Northern Ontario Business announced that Xeneca Power Development Inc. was awarded 19 small (under 10 MW) hydro-electric projects under the Ontario Power Authority’s (OPA) Feed-in Tariff (FIT) program. Under the FIT program for small hydro projects Xeneca were guaranteed 13.1 cents per kWh for any power delivered to the grid. Small hydro-electric power is clean, its variable; meaning it can be used for peak needs or shut down (spilled water or damned) when not needed, so it is much more desirable and useful then wind or solar generation.

The article also indicated that Xeneca was in the running for an additional 14 small hydro-electric projects and that the 19 contracts awarded represented about half (72 MW) of all (small) hydro generation in the province. The spokesperson for Xeneca was Mark Holmes, VP, Corporate Affairs, who is also named as the lobbyist for the company in the Ontario Lobbyist Registry,

Reviewing the information Mr. Holmes submitted when registering as the lobbyist one notes under; “Section G.1. Government Funding”, the response to the question; “Is your client funded in whole or in part by any government?” that Xeneca declared that the “Northern Ontario Heritage Fund” provided $732,000.

One would presume those funds would go a long way to determine the feasibility of these projects providing Xeneca with a distinct advantage over any competing bidders who would perhaps be reluctant to spend the cash necessary to qualify. Why was Xeneca provided with that funding by another arm of the Provincial government when we would presume other potential developers would have interests in the attractive rates being offered by the OPA for these small projects? Was the playing field slanted to favour Xeneca and were there any competitive bids?

Looking further into Xeneca their management list includes Arnold Chan, VP, Legal Affairs. Mr. Chan prior to joining Xeneca in 2010 was aligned with the Ontario Liberal Party and served as Chief of Staff in the Ministry of Revenue under Minister Michael Chan. During Chan’s tenure as Chief of Staff, Colin Andersen was the Deputy Minister as disclosed in the Ministry of Revenue’s March 2007 Organization Structure. Mr. Andersen was on the Ontario “Sunshine List” and showed earnings of $307,729 for 2007. In September 2008 he was appointed the CEO of the OPA and his earnings for that year when reported in the Spring of 2009 had jumped to $458,153. Mr. Andersen got a 49% increase in earnings for leaving his Deputy Minister’s post to become the CEO of the OPA. The OPA was set up by Energy Minister Dwight Duncan as a “temporary” agency of the province to develop an Integrated Power System Plan (IPSP) in 2004 which we are still waiting for.

Arnold Chan, left his Provincial employment position in 2010 to join Xeneca. His prior connections with the ruling Liberal Party, in my humble opinion, may have assisted Xeneca in gaining access to that Government Funding of $732,000 from the Northern Ontario Heritage Fund, and along with his indirect responsibility as the Revenue Minister’s Chief of Staff overseeing Colin Andersen may have provided some leverage in the awarding of the contracts. Mr. Chan appears to have contributed funds to the Liberal Party in 2011 as did Xeneca ($10,000) prior to the run-up for the election in October 2011. Needless to say I have personal suspicions but that is for others to pontificate about!

One of the concerns I had was related to an earlier article about the Town of Bancroft who were chasing a dream only to have the OPA haul out their rule book and deny them the right to obtain the 13.1 cents per kWh for their little 600 kWh run of river hydro-electric project placing their local town owned company in jeopardy. At present the Town’s, wholly owned subsidiary is forced to sell their hydro generation at the hourly Ontario energy price (HOEP) which has averaged 2.16 cents a kWh since the start of the current year. It seems bizarrely strange that a town owned generating unit is producing power for the Ontario grid but earns 11 cents a kWh less then a for profit company that has a former Ontario ministerial Chief of Staff on their payroll. At the same time the Town of Markham has installed 250 kilowatts of solar panels on the roof of their offices and will be paid 70.3 cents a kWh. The Province also kindly provided Markham with $2.4 million to finance the installation of those solar panels.

I am sure it is purely co-incidental that Michael Chan is the MPP for Markham-Unionville; that Xeneca obtained $732,000 from the Northern Ontario Heritage Fund; that Arnold Chan wound up as the VP, Legal Affairs for Xeneca and they received those 19 contracts, and that Colin Andersen became the CEO of the OPA in September 2008 and then received a 49% year over year increase in his remuneration for that year–the year of the financial crisis!

One must assume the smell emanating from the Northern Ontario Business article must come from the dead fish caught in the turbines and not the co-incidences highlighted!

Parker Gallant,
March 27, 2012

Ontario’s Power Trip: Not a FIT review

Ontario’s Power Trip: Not a FIT review | FP Comment | Financial Post:

By Parker Gallant

The long anticipated Ontario Feed-in Tariff (FIT) two-year review report was sent to the current Minister of Energy, Chris Bentley, this week. The ministry released its position on the “report” only three days later and basically endorsed the recommendations found in it.

The FIT review avoids discussion of the impact on electricity ratepayers. To the Minister`s doubtless embarrassment, a submission Wednesday to the Ontario Energy Board by Aegent Energy Advisors reveals what the review report does not. The Aegent report, produced on behalf of five parties, including diverse groups such as the Canadian Manufacturers and Exporters and the Vulnerable Energy Consumers Coalition, forecasts double-digit increases through to 2016. At the low end affecting large direct consumers, the submission estimates rate increases of a minimum of 36% and as much as 48%. Residential consumers face rate hikes up to 58%. The Aegent report is consistent with other forecasts of similar rate increases over the next few years.

In contrast to the Aegent report, which shows soaring power prices, the FIT review pretends that the province runs a tight ship that will become tighter still. It recommends, for example, reducing prices paid to wind and solar developers nominally by 15% and 20% respectively. Yet the new prices will still leave Ontario leading the way in respect to subsidizing those two unreliable and intermittent sources of electricity generation compared to most G20 countries.

The FIT review, prepared by Fareed Amin, deputy minister of agriculture, isn’t much to look at. It could have been pieced together by simply referencing past press releases issued by the former and current energy ministers. It contained no surprises. It’s a Liberal “stay the course” report.
Read Parker Gallant’s full article at the Financial Post site


March 22, 2012
It’s business as usual for huge corporate wind power developers in Ontario, in light of recommendations in the two-year review of Ontario’s Feed In Tariff subsidy program, released today by the Ontario government.
Subsidies for industrial-scale wind power projects have been reduced by only 15 per cent–that’s still too expensive and for power that’s not needed, says Wind Concerns Ontario (WCO).
The coalition of community groups had called for a complete cancellation of the FIT subsidy program.
“The extra power that was produced and exported in January and February cost Ontario millions,” says vice-president Parker Gallant, a former banker.  “Why do we need FIT when the truth is we’re wasting cheap, clean hydro power and spending millions on new transmission capacity for wind power?”
The renewed FIT program will continue to cause electricity rates to rise, which will be bad for consumers including Ontario businesses.
“In Europe, the countries that used this type of subsidy for renewable power sources saw job losses due to the high cost of power. We’re already seeing Ontario businesses say they may have to close or move away,” Gallant explains.
Gallant also noted that rural communities are being turned into electrical power factories, with falling property values and other negative effects. “People are being made ill because of the environmental noise. This government doesn’t care about the misery it’s causing.”
“FIT is a failure,” he concludes. “It is not the path to a solid financial future for Ontario.”

 Contact Wind Concerns Ontario at

Ontario’s Power Trip: Wind wastes water — and your dollars

Ontario’s Power Trip: Wind wastes water — and your dollars | FP Comment | Financial Post:

Hydro generation gives way to costly wind
By Parker Gallant and Scott Luft

Ontario Power Generation (OPG) is the province’s premier electricity power generating firm, a government-owned utility whose future has long been hooked to government policy. Today, in the green hands of the Dalton McGuinty’s Liberal government, OPG appears to be in decline. That decline was confirmed a few days ago when the company issued its 2011 annual financial results. It’s a decline that is likely to continue even if, as expected, the government changes its green-energy regime next week.

First, the company reported declining revenue, down 5.7% to $5-billion. Profits fell 35.9% to $416-million. The company produced less electricity: 84.7 terawatt hours (Twh), down 3.9 Twh or 4.4%. OPG’s share of the province’s electricity market is now less than 60%, off from 72% in 2003.

The decline in the company’s output and share of market since 2003, when it produced 109.1 Twh of electricity, tells the story.  Under government directive, the company has been forced to shut down its coal plants. Fossil fuel production was 3.7 TWh versus the 39 TWh produced in 2003 for a 95% reduction. The reduction in coal was offset by increased nuclear and natural gas-fired generation and a drop in overall demand.

Annual Wind and Unregulated Hydro (graphic added on WCO)

If OPG is producing less electricity, somebody else is producing more. That would be wind power, produced by scores of wind operators that have popped up around the province under the McGuinty government’s green-energy plan. In fact, OPG’s production decline of 3.9 Twh for 2011 was offset by 3.9 Twh of wind production.

If OPG had lost that market share in a competitive market, so much the better. It would have been a sign that it did not deserve to be producing electricity if it could not match the prices and supply levels of alternative sources of power. But that is not the case.

  Read the full article at the Financial Post site

Wind’s cost to ratepayers is $135-million per Twh, or about $526-million for the 3.9 Twh wind delivered to Ontario in 2011. According to OPG’s annual statement, it sells nuclear power into the market at $55-million per Twh and unregulated hydro power from places like Niagara Falls for $32-million per Twh. The math is simple: Had OPG used its hydro facilities to deliver the same amount of power supplied by wind, the cost savings to Ontario’s ratepayers would have been the difference between the $32-million per TWh hydro price and the $135-million paid for wind. The 3.9 Twh of wind power that cost Ontario ratepayers $526-million last year could have been bought from OPG for $125-million — a potential saving of $400-million and delivered $125 million in additional revenue for OPG.

What’s going on here should be obvious. Under government regulation, expensive wind power is being forced down the system, displacing inexpensive hydro power. As a result, unregulated hydro power is operating at ever lower levels below capacity. Since the advent of wind power, hydro’s operating rate has declined from about 45% of capacity to 36% in 2010.

Graphic added on WCO

Since wind first presented itself in Ontario it has generated in excess of $1.3-billion dollars for wind developers (principally out-of-province corporations) while costing ratepayers approximately $900-million more than they would have paid for unregulated hydro. At the same time it has had the undesired effect of reducing OPG’s revenues by $400-million. That money could have either reduced the stranded debt or gone to reduce taxpayers’ liabilities.

As wind’s capacity levels increase (beyond the current 1,800 megawatts) to the 8,400 MW contemplated in the Long Term Energy Plan, the cost to ratepayers will climb and revenue and profit at the taxpayer-owned OPG will fall further, reducing its value and extending repayment of the stranded debt. All this will be happening while OPG absorbs the costs of its $1.6-billion Big Becky expansion at Niagara Falls, its $2.6-billion Mattagami hydro project and the yet unknown costs of the Darlington refurbishment. Those costs will find their way to ratepayers’ bills.

Wind has other costs. Wind power is now being exported out of Ontario at below-cost prices, which means that Ontario ratepayers are paying U.S. states to take surplus wind — which blows when no power is needed — out of Ontario.

Some costs are non-financial. Many people claim significant health effects of these industrial wind behemoths. Some people have been forced to abandon their homes and farms. The effects have been felt throughout rural Ontario, causing a myriad of other problems. Wildlife impacts certainly exist, as 40- to 50-storey turbines have been placed in the path of migratory birds.

The McGuinty government is expected to alter some elements of its green energy program, primarily by reducing the high price it forces consumers to pay for wind and solar power. But how much of the program will be grandfathered to become a permanent feature of a power system that is undermining the government-owned OPG at the cost of billions of dollars to taxpayers and ratepayers?

  View the article, and related comments, at the Financial Post site

Wind Turbines Displace Hydro

Wind Turbines Displace Hydro: how OPG is spending $4.2 billion to avoid Blackouts

OPG was directed by the Liberal Ministry of Energy to spend billions on hydro projects as evidenced by both Big Becky ($1.6 billion) and the Lower Mattagami projects ($2.6 billion). Big Becky adds no new capacity it will simply make existing production at Niagara more efficient whereas the Lower Mattagami project will supposedly add 440 megawatts (MW) of new capacity to OPG’s hydro fleet. These projects are still some way from completion so it is likely those budgeted estimates will be exceeded. Only a few years ago the estimate for Big Becky was $1 billion and for Mattagami $1.5 billion. The other issue surrounding those two engineering miracles is that they are being built at a time when Ontario has a huge surplus of power. With Bruce Power expected to hook up refurbished nuclear plants this year our surplus will increase further.

These two hydro projects will be available to back up wind and solar which by 2018 are expected to have a capacity of about 10,000 MW. At the same time demand in Ontario continues to drop as industries leave and high prices are having the desired effect of curtailing demand. The intermittent delivery of electricity to the grid by wind and solar generators will create problems for IESO in managing the grid and they will use hydro to balance it. Unregulated hydro from OPG will bear the brunt of their management efforts as wind and solar cycle up and down. While Ontario only has about 1800 MW of wind installed at present, IESO’s use of unregulated hydro has already presented itself and is costing ratepayers dearly.
The following chart shows the production and sale of unregulated hydro power by OPG in terawatts (TWh) since 2004 and where available shows prices received for that power. So far in 2012 the wholesale price has dropped a further 1 cent a kWh and if that holds OPG will receive even less for unregulated hydro in 2012 then they did in 2011.

Production of Unregulated Hydro by OPG 2004 – 2011
Year 2004 2005 2006 2007 2008 2009 2010 2011 (9 mths)
Unregulated Sold (TWh) 16.8 14.1 15 13.8 17.6 16.8 11.7 8.1
Price per kWh received N/A N/A N/A N/A N/A 3.2 3.7 3.3
Income before interest and income taxes ($M’s)
732 736 329 508 209 129
Total hydro capacity (MW) 6835 6982 6956 6972 6963 6944 6996 6996
Total hydro sold (TWh) 35.7 32.6 33.3 31.9 36.4 36.2 30.6 22.3
Unregulated (%) 47.1 43.2 45 40.2 48.3 46.4 39.6 36.3
NB: All information came from OPG’s “Fact Sheets” and Annual Reports!

Should OPG’s production and sale of unregulated hydro continue at the same rate for the last quarter of 2011 the TWh sold will be 10.8 TWh or 6.8 TWh lower then 2008. The value of that lost production based on the average received (9 months) for 2011 translates to $224 million in lost revenue to OPG and a further loss to the Provincial coffers for the payment of “water rental”. According to the Ministry of Natural Resources “Conditions Report”, 2011 was a relatively good year for water flow compared to 2007 which was considered a low water level year. Despite that; production and sale of unregulated hydro by OPG will likely come in at 3 TWh less for 2011 then 2007 when wind contributed 1 TWh. Co-incidentally wind reportedly contributed 3.9 TWh in 2011 which would indicate it is displacing hydro, not coal, as promised by the Ministry of Energy.

Wind and solar power has displaced cheap, clean hydroelectricity at a cost to the ratepayers of a minimum of $300 million in 2011 for the 3 plus TWh it took away from OPG’s unregulated hydro production-more if the costs of transmission lines built to hook up those wind turbines are included. That $300 million alone will add about $70.00 to each ratepayers bill for the year and also extend repayment of the “stranded debt”. The Drummond Commission highlighted the fact that the Government controls OPG and it’s direction to OPG influences the payments in lieu (PIL) of taxes which are directed to pay the “stranded debt”. The spilling of clean green hydroelectric power therefore flies in the face of his recommendation to maximize profits in that entity.
The $4.2 billion that OPG is spending represents almost $1,000 per ratepayer household and will be paid back through rate increases. The amortization period will be long (40/50 years) but it will still drive up bills significantly. The other 6/7,000 MW of wind slated to come on stream by 2018 will further exacerbate those increases causing OPG to spill clean hydro meaning the value for the billions spent will be even less. Worth noting is that Mattagami will likely produce most of its available power in the Spring and Fall when wind also tends to produce at higher levels. Those two seasons are traditionally Ontario’s lowest demand periods so we are simply doubling up production when we need it least. Ontario electricity prices will be the highest in North America by the middle of this decade making the province a very unattractive place for any type of industry.
Ontarians should accept the fact that we will remain a “have not” province for years to come even if McGuinty and the other parties agree to enact all of the Drummond Commission’s recommendations. The hidden debt burden on Ontario’s future generations created with those long term wind and solar contracts will increase our social costs by creating energy poverty and will keep employment levels lower then the rest of Canada.
Parker Gallant,
February 29, 2012

Drummond’s Flaws: Electricity the 3rd biggest Ontario Ministry treated as 2nd Class

The Drummond Commission Report is a 562 page tome with hundreds of recommendations on how the Liberals should change their spending habits. The main street media has generally endorsed the report in its entirety seemingly to avoid the prospect of Ontario becoming the Greece of Confederation.
The Report’s focus is on Health and Education spending which combined consumes 65.5% (Table 1.2, page 104) of Program Spending in the province. The pages devoted to those two sectors are respectively 59 and 55 whereas the pages outlining the electricity sector are lumped together with “Infrastructure and Real Estate and only two pages are focused exclusively on “Electricity”. With only two pages devoted to the Energy Ministry the Commission somehow managed to generate 10 of the 20 recommendations in this chapter and in my opinion those recommendations suggest a bias in favour of the McGuinty Green Energy and Economy Act (Act) instead of an objective review that would have highlighted the inefficiences of the Act
If the authors of the report had really thought about electricity they may have realized that Ontario can’t live without it, so perhaps it’s profile should have been higher. Electricity is as much a necessity of life as is health or education. Electricity has become a basic human right and according to a May 2011 research paper prepared by the Guelph & Wellington task force for Poverty Elimination, energy poverty (more then 10% of household income is spent on home energy) affects one in every five households in Ontario.

If the report had looked at the amount that Ontarians paid for electricity in 2010 and added the Energy Ministry budget spending they would have found that $14.3 billion (OPG & Hydro One alone had combined revenues of $10.5 billion for 2010 ) came from the taxpayers/ratepayers pockets to allow them to turn their lights on and cook their meals. It would have represented the third largest budget item after health and education. The Energy Ministry budget for 2011 was $1.446 billion and included in that was the Ontario Clean Energy Benefit (OCEB) of $1.138 billion. If the authors had looked further they would have discerned that Ontario’s conversion to the HST added 8% to all ratepayer bills which meant the Finance Minister’s coffers received an extra $1.027 billion (based on 2010 revenues) making the net cost of the OCEB $111 million which would be considered a “rounding” error to most economists reviewing Ontario’s proliferate spending habits.
The Drummond report recommended an immediate elimination of the OCEB but ignored the cash grab of the HST implementation. The authors also failed to recognize high electricity prices have cost Ontario jobs. Ignoring the effects of high electricity prices is in contrast to the Auditor General’s report which was critical of the Act. The AG’s conclusion was that jobs allegedly created by the Act had lost Ontario 2 to 4 jobs for each one created. Ontario’s industrial and residential electricity rates are presently the 2ndhighest in Canada behind only PEI and higher then most of the US states. Elimination of the OCEB would have quickly elevated Ontario to the highest in electricity rates in Canada and most of the US. Attracting jobs would be even more difficult as energy prices play a significant role in attracting new investment. McGuinty quickly killed that recommendation but that will only delay the inevitable!
The Drummond report’s outright endorsement of the badly designed Long Term Energy Plan (LTEP) put forward by former Energy Minister Duguid, in November 2010, indicates that perhaps the author(s) are believers in climate change and that may have affected their judgement. The reports recommendation that the LTEP be used as the framework for the design of a 20 year plan would indicate that the Commission is endorsing over 10,000 MW of intermittent wind and solar as part of Ontario’s energy supply. Those 10,000 MW will conservatively cost the ratepayers and taxpayer an additional $5 billion (approximately 33% of Ontario’s current budget deficit) per annum for the next 20 years. The endorsement of the LTEP flies in the face of what other countries such as Germany, Spain, the UK and others are discovering and are rethinking their energy future away from the vagaries of wind and solar generation.
The recommendations in the Drummond Commission Report on the electricity sector, if followed, will ensure Ontario will continue to lose jobs and the tax revenue those jobs would generate. Energy poverty will affect more and more households as additional wind and solar are added to the grid and electricity prices climb to reflect their costs.
Parker Gallant,
February 28, 2012

Electricity and the Liberal Hansard History: Final Chapter

This is the final chapter in the journey we started which looked at the Liberal promises made in respect to Ontario’s electricity sector early in their first election victory. The journey started in early 2004 as the Liberals aggressively attacked our electricity production and distribution system. We start this visit to Hansard on November 18, 2004, the day after an evening debate in respect to Bill 100, the Electricity Restructuring Act. This day the NDP’s Howard Hampton brought out remarks made by OPG’s Chairman, Jake Epp, a Conservative, that the McGuinty government had appointed earlier in the year raising this question for Energy Minister, Duncan.

This is what Jake Epp says: “There are a lot of issues that need to be taken care of, whether you’re talking about supply, you’re talking about the market, whether you’re talking about OPG’s role,” in the private market. But what is he saying? No direction. No five-year plan. Not even a one-year plan.”
Premier, people don’t want to debate closure. They don’t want to debate your hatchet effort at democracy. These are real issues. Why are you so afraid of debating the issues that your own chair of Ontario Power Generation has raised?”

The Energy Minister, Hon Mr Duncan, was pointed in his response as the following demonstrates
Now, this government has put a new board and chair in place at OPG. We have made decisions about the future of the company, and we’ll make them according to our timetable. Remember, when we came to office we inherited a company that was in complete disarray. We have to be deliberate and careful in the decisions we make. It would be impossible to turn OPG around in 10 months. The last thing we need to do is make knee-jerk decisions that result in flip-flops like we saw under the previous government, because it creates even further instability. I’m the first energy minister in almost a decade to give clear and consistent direction to the sector. Given the strong response we’ve received to our RFPs, I believe the industry recognizes this. We’re moving forward in a deliberate and positive fashion. When Bill 100 passes, we will have a new power authority and conservation bureau. We believe these are the right steps to ensure a reliable, affordable, safe supply of electricity for the people of Ontario.”
The comment from Duncan that stated; “I’m the first energy minister in almost a decade to give clear and consistent direction to the sector,” was no doubt sincere when given but consistencyhas not been the watchword of subsequent Energy Ministers. As just one example we would point to the “turn” around of OPG.  OPG’s 2003 year end annual report noted that they had rated capacity of 22,777 MW and produced 109.1 terawatts (TWh) of electricity. The 2010 year end annual report saw OPG’s rated capacity at 19,931 MW (down 12.5%) and 88.6 TWh (down 18.8%) of electricity produced. This quote taken from OPG’s 2003 annual report indicated that,
roughly three-quarters of our production is sold for a price that is considerably lower than the price other market participants receive, after taking into account market rebates.”
The foregoing aspect of OPG hasn’t changed but their drop in production has been taken up by more “market participants” consisting mainly of foreign based wind and solar producers who are paid from three (3) to fifteen (15) times the average price OPG receives. The “clear and consistent direction” that Minister Duncan spoke to that November day in 2004 has been effective. It has reduced OPG’s role in the province’s production of electricity, however, the costs of that direction has caused electricity rates to climb much faster then the inflation index and has driven many living on fixed incomes and others into energy poverty.
Just a couple of weeks later on December 9, 2004the Minister of Energy, Dwight Duncan presented Bill 100 to the Legislature for it’s third and final reading. The following are the highlights of his presentation:
The Minister of Energy would kick off the preparation of the plan by providing to the OPA a series of directives.” and
The ministerial directives would form the core around which the plan would be developed.” and
But consumption varies from year to year, and new technologies and upstart competitors can render expensive facilities obsolete before their usefulness expires.” and
Ontario would have a combination of regulated generation facilities providing continuous power and other facilities competing in the marketplace to provide electricity to consumers. This element of competition and risk sharing with private investors in the market would provide a higher level of discipline on all electricity suppliers and reduce the risks borne by Ontario’s ratepayers.” and
While the burning of fossil fuels is often the most visible sign of the environmental cost of our electricity system, it should also be noted that the construction of high-voltage transmission systems, often cutting through otherwise untouched parts of our province, represents a serious environmental issue.” and
Where possible and economically feasible, it is desirable that Ontario move to a more distributed system of electricity generation, where clean generation capacity is situated close to the consumers who require the power.”and
Consumers would have the benefit of stable and predictable prices and an electricity sector that emphasizes reliability, sustainability, diversity and affordability, all while being environmentally responsible.”
In retrospect all of the pronouncements uttered by Minister Duncan in seeking justification for Bill 100 have basically failed with the exception being the issuing of those “ministerial directives”.
The “plan” was produced and discarded, “consumption” has fallen as manufacturers, refiners and forest product companies have either left for other jurisdictions or gone bankrupt. The technology chosen, wind and solar is being discarded by the very countries that Ontario emulated in it’s choice of generation options.
The competition promised has turned out to be simply subsidies for wind and solar developers that have flocked to Ontario for the above market prices they are paid. The “risk sharing” envisaged was instead a provincially guaranteed return on investment (to be paid by ratepayers) whether you installed 100 megawatts of industrial wind turbines or 10 kilowatts of solar panels.
In order to hook up all the renewables to the grid “the construction of high-voltage transmission systems,” were ordered in those “ministerial directives” and those “untouched parts of our province” have become overrun with 400 foot industrial wind turbines, acres of solar panels both providing unreliable, expensive and intermittent electricity along with those “high-voltage transmission systems” that decimate the “untouched parts of our province”!
The concept of “a more distributed system of electricity generation” is still merely a concept with grid capacity stretched to avoid blackouts and the Independent Electricity System Operator (IESO) forced continually to export electricity at a loss or order hydro generators to spill or nuclear plants to steam off, all in an effort to balance supply and demand and all at considerable cost to Ontario’s ratepayers!
The promised “benefit of stable and predictable prices” for consumers was a pipe dream and the Liberal Party’s legacy in the electricity sector will stain the province for at least two decades.
Some plan, some legacy!

Parker Gallant,
February 12, 2012


Previous Chapters:

Electricity and the Liberal Hansard History, Chapter 9

This is chapter 9 in a series by Parker Gallant: Chapter 1;  Chapter 2:  Chapter 3Chapter 4Chapter 5, Chapter 6, Chapter 7, Chapter8
This chapter jumps forward to October 12, 2004which was the first sitting of the Ontario Legislature after a very long summer recess and Bill 100, the Electricity Restructuring Act, was raised by Liberal MPP, M. Jean-Marc Lalonde who posed this question to Dwight Duncan:
Bill 100, the Electricity Restructuring Act, 2004, provides the basis for achieving this by proposing sweeping legislative change. Minister, what will be the role of the Ontario Energy Board under the proposed legislation to restructure the electricity sector?”
Duncan’s response was;
Under Bill 100, the Ontario Energy Board would have a stronger role in protecting Ontario consumers through licensing and rate regulation, something the previous government rejected. They left small consumers at the will of the free market. The OEB would ensure economic efficiency, cost-effectiveness and financial viability of the elements of Ontario’s electricity system. Its mandate is to protect consumers and ensure that the industry operates efficiently and effectively. Bill 100 strengthens its role by mandating it to publicly review electricity plans prepared by the Ontario Power Authority and market rules prepared by the IESO. It’s a venue for stakeholder and public involvement in the energy sector.

With regard to electricity rates, the OEB would approve an annual rate plan for low-volume and other smaller consumers. These consumers would pay a blended price. It would be based on regulated contract and forecasted competitive prices. This will ensure that prices are fair, stable and predictable, something this province desperately needs to generate new electricity.” (writers emphasis)
Minister Duncan`s views of his authorship of Bill 100 in such an altruistic way has failed miserably to actually develop into what he expressed in the Legislature. The OEB now sets rates for the “small consumers” semi-annually” and those rates have been rising at an alarming rate (9.6% in 2011 alone) and time-of-use (TOU) rates for off-peak use have increased by over 100% since he echoed those words. Electricity costs are top of mind with not only the millions of small ratepayers but also with thousands of small businesses operating throughout the Province. The Canadian Federation of Independent Businesses (CFIB) lobbiedGeorge Smitherman in an effort to keep a lid on energy costs when he was the Minister of Energy. Their efforts were ignored and their recent “Business Barometer” for Ontario lists “fuel, energy” as their # 2 “Cost Concern” slightly behind “taxes, regulations”. The OEB no longer “balances” the needs of generators and distributors; with the impact on consumers in approving rate applications; except on very rare occasions. The “competitive prices” envisaged by Minister Duncan have not materialized as the OPA; under directives, issued by the various Energy Ministers, has been signing up wind and solar developers at fixed, above market 20 year contracted prices. The OEB is no longer a separate “regulatory” body and instead reports directly to the Minister of Energy. The OEB is still waiting to publicly review an electricity plan prepared by the Ontario Power Authority some eight (8) years later that will actually be implemented.

Minister Duncan had more to say about Bill 100 after being fed another leading question from MPP Lalonde as the following remarks about the role of the OPA denote;
Its role will be to ensure that 20 years from now this province has adequate, affordable power that will enable us to grow and prosper economically, as we have done under the first year of change in Ontario in the McGuinty government.
These changes, coupled with the economic management of this government, mean real change that means more jobs, better jobs, protection for the people of this province and ultimately better health care and better education, change that we’re delivering every day of this mandate and change that we as a government are very proud of.”

Chart Data from CANSIM table  282-0054

No doubt Minister Duncan would still brag about the “changes” his government has created but he has and will continue to take a lot of heat from many in Ontario that view the “changes” in a negative light. With 300,000 manufacturing jobs gone, electricity rates higher then only one other province (PEI) in Canada and a health system that has shown continual strain because of wrong-headed spending. Ontario has not grown or prospered economically. Those “better jobs” have not materialized as Duncan promised and Ontario has continued to suffer higher unemployment rates then the Canadian average as recently reportedwith the unemployment rate in Ontario jumping to 8.1% in January.

The following day (October 13, 2004) in the Legislature NDP MPP, Howard Hampton confronted Minister Duncan with information that came from Ron Bartholomew, vice-president of production, retired, Ontario Hydro, via an open letter published in the Globe & Mail. Mr. Hampton had this to say in his question for Minister Duncan;
Mr Hampton: They say that Premier McGuinty’s Bill 100 follows “the same old failed and discredited electricity program” as the Conservatives’. They warn that your plan “will increase consumer electricity rates dramatically, and force electricity-reliant industries to move production out of Ontario, taking good jobs with them.” And they say the best way forward is to “give Hydro One and Ontario Power Generation the mandate to provide power at cost for the people of Ontario.”
Premier, before the election you said, “Public power.” You said, “All new generation will be publicly owned and operated on a not-for-profit basis.” Now are you breaking that promise, too?”
Minister Duncan’s retort was short and to the point:
Let me be clear. This government will not go back to the old public monopoly. It was a failure. It left this province $38 billion in debt. Your government cancelled conservation programs. Their government left a mess. They’re voting against the bill because they think we’re undoing what they did. You people just aren’t consistent. This government made a commitment to change, and we’re changing for the better. I reject the old Ontario Hydro model and I reject the old Ontario Hydro vice-presidents who want to go back to it. It didn’t work. We’re fixing it. We’re cleaning up the mess that you, and the Conservatives after you, left this province in on the hydroelectric file
Now that Mr. Duncan is the Minister of Finance his remarks about the $38 billion seem like small potatoes when measured against the $250 billion of debt the Province now has and the commitment to pay wind and solar developers in excess of $100 billion over the next 20 years for the intermittent power they will deliver that must be backed up with gas fired electricity generation and hooked up to the gird at a cost of hundreds of millions. Under the Liberal government in Ontario the evisceration of OPG has been effective as both their capacity and production values have fallen while Hydro One has grown by leaps and bounds as Ministerial directives have instructed them to build new transmission systems to hook up renewables to the grid.

The rout of OPG has been effective as their place in the public sector has diminished steadily despite the crumbs thrown at them by the Liberals. The Liberals directed them (via the OPA) to spend over $4 billion to build “Big Becky” and “Mattagami” which will eventually deliver minimal new hydroelectric power to the province but will represent “major engineering accomplishments”. It is worth noting that in 2003 Ontario Power Generation (OPG) sold 113.3 terawatts (TWh) of power but in 2010 this had dropped to 88.6 TWh. Had the drop of 24.7 TWh not occurred OPG would have produced additional revenue (at OPG’s 2010 price of 4.5 cents per kWh) of $1.1 billion in 2010 which may have gone a long way to pay off some of that “stranded debt”. All that extra cash would have been generated without spending that $4billion!

If Minister Duncan was “fixing it” what exactly did he mean. That $1.1 billion (plus what was lost to OPG in the years 2004 to 2009) would have paid for a lot of those “old Ontario Hydro vice-presidents” and probably left behind a few extra billion. Those billions that OPG might have earned was instead directed to the wind and solar developers as ratepayers were obliged to kick in money through the growing Global Adjustment (GA) pot to ensure that the Liberal friends got their money. As the recent Attorney General’s report noted the GA will exceed $8.1 billion by 2014.

Some legacy!

Parker Gallant,
February 5, 2012