Coming to your Hydro Bill: An Export Subsidy and Class “A” Charge

The Independent Electricity System Operator (IESO) put out their press release January 11, 2013 that summarized the state of our electricity system for the year 2012. The release included statistics on where our kilowatt hours (kWh) came from, how much we consumed, how much we produced, what they cost us and how much we exported and imported. The release talks about kWh and also uses the term TWh (terrawatt hours) which is equivalent to 1 billion kWh.

During 2012 Ontario consumed 141.3 TWh, a slight decrease from 2011 when we consumed 141.5 TWh and our generators produced 151.8 TWh from various generation sources including nuclear, hydro, gas, coal, wind and other. As several articles have noted wind outproduced coal with production of 4.6 TWh versus 4.3 TWh from coal. Environmentalists cheered the news claiming a victory for what they perceive as somehow winning a race, or a gold medal, but they fail to acknowledge key aspects of their claimed right to ascend the podium. Wind production is treated special with wind granted “first to the grid” rights whereas coal is relegated to “last to the grid rights”. Coal is only called on to produce when we need it to protect the integrity of the system and avoid blackouts.  The victory is therefore a hollow one, boosted by those steroids given the developers.  Further, coal was there when we needed it, coming off the bench to stop the grid from being overwhelmed on those hot summer days when the giant blades on those turbines were just too weak to spin.  Those 4.3 TWh that coal produced cost Ontario’s ratepayers about $100 million or about 2.6 cents per kWh versus over $600 million or about 13 cents per kWh for the wind production. Coal also didn’t need to be backed up by gas generation which wind needs when it fails to produce.
Wind also has a penchant for producing when we need it least being very productive in the Spring and Fall when our peak demand is at its lowest levels. As an example in April wind has operated at 41% of its capacity but we didn’t need it. In July it produced at only 14%.  As a result of these bad habits wind production is often surplus to our demand and it or other generation must be either sold in the export market or clean hydro is spilled to protect the grid. We also steam off nuclear power (but still pay for what it might have produced) or pay those gas plants for simply sitting idle.

The IESO report noted that in 2012 Ontario exported 14.6 TWh of surplus power out of our total production of 151.8 TWh (2011 it was 149.8 TWh).  If one quickly looks at what cash that might have generated for the ratepayers of Ontario it is a simple process to calculate. The IESO press release discloses that the wholesale price for electricity averaged 2.41 cents per kWh in 2012 equivalent to $24.1 million per TWh so exports generated revenue of about $351 million. The cost of those exports averaged 7.37 cents a kWh hour or $73.70 million per TWh according to that press release. So the cost to ratepayers to produce those exports was $1.076 million meaning Ontario’s ratepayers provided subsidies of approximately $725 million. That subsidy was equal to approximately 0.5 cents per kWh and is included in the “electricity” line of our hydro bills.

In addition to the foregoing, the ratepayers of the province picked up additional costs meant to provide cheaper rates to our largest industrial users. Starting in January of 2011 consumers were divided into two classes with large industrial electricity consumers referred to as Class “A” and the rest of us as Class “B”. What this class definition did was shift 5% of the GA (Global Adjustment) costs from large industry to households and small/medium sized commercial users. While 5 % doesn’t sound like a lot it is both significant and growing. The GA is the pot into which billions of dollars accumulate and includes the excess cost of wind, solar, gas, nuclear and other long term contracts. The GA is primarily the accumulation of the additional amounts paid to the generators in excess of the wholesale price (2.41 cents per kWh in 2012). As an example if we pay a wind developer 13.5 cents a kWh, 11.09 cents per kWh found its way into the GA. In 2011 the GA was $5.310 billion and in 2012 it was $6.456 billion. So in 2012 the GA grew by $1.146 billion or about 0.8 cents per kWh and is now almost double (at 4.6 cents per kWh) the wholesale price.  If we look at the 5% the Class “B” customers picked up for 2012 it is about $320 million or 0.2 cents per kwh of total consumption.

If one couples the export support we provide of 0.5 cents per kWh with the 0.2 cents per kWh ratepayers pick up for the big industrial users it equals 0.7 cents per kWh which co-incidently is the same rate we pay for that other line on our hydro bills; the never ending “Debt Retirement Charge” (DRC) and in total added another $1 billion plus to our bills in 2012 under the “electricity” line!

Maybe its time for our local distribution companies to add an additional line to our electricity bills that highlights just how much we pay each and every month for those subsidies. There is hope that we may eventually see the dreaded DRC disappear however, there is little hope that the EAS (exports and class A subsidy) will. Looking ahead we will see it grow annually, much as it did during 2012.

Now that the Finance Minister and former Minister of Energy, Dwight Duncan has demonstrated how to make $3 billion disappear from our Provincial deficit he could perhaps find some more of that financial magic dust to rid our electricity bills of the GA which is accelerating as fast as he says the deficit is decelerating!

Parker Gallant, 

January 23, 2013

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It would be interesting to see how the numbers would change with the wind component taken out.

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