Ontario’s power system is “exactly like Walmart” Bob Chiarelli says

Electricity: on sale every day, cheap, in Ontario
Electricity: on sale every day, cheap, in Ontario

Anyone reading an excerpt from the November 18, 2014 Standing Committee on Estimates text of Energy Minister Bob Chiarelli might have trouble discerning what his message was.  And, specifically, what his answer had to do with MPP Randy Hillier‘s question on whether Ontario loses money exporting surplus electricity.

Chiarelli had danced around the question, claiming Ontario needed “surplus generation,” but Hillier kept hounding him and finally, Chiarelli responded.

Mr. Randy Hillier: “Listen, I understand that we want to have a margin of surplus. We all can understand that, because you don’t know specifically and exactly how much is going to be needed at any particular point in time. But let’s get back to the question. What are our estimated losses—do you have an estimate—for this year and next year, cumulatively, in our losses of trades?”

Hon. Bob Chiarelli: “Can I ask you to give me 30 seconds without interruption? Just a few seconds, okay?”

Mr. Randy Hillier: “Well, if you can answer the question—60 seconds.”

Hon. Bob Chiarelli: “Walmart buys snow blowers. They expect to sell X number of snow blowers in a winter. At the end of the winter, if they haven’t sold those snow blowers, they sell them at a discount. They’re selling them for less than their costs. That’s part of doing business.

The electricity system is exactly the same as Walmart. Why do they have sales? Why do they sell a product that is worth X number of dollars in November for less when they’re selling it in March or April? Why do they do it? They’re giving it away. They’re losing money. How much have they lost?”

Walmart. Ontario’s electricity system is “exactly the same” as Walmart.

Here’s what the Ontario Auditor General’s report for 2011 said about what Ontario lost by exporting electricity surpluses.

 “Based on our analysis of net exports and pricing data from the IESO, 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.”

The losses highlighted in the AG’s report are related to the creation of the Global Adjustment or GA.  The buyers of our surplus electricity only pay the HOEP (hourly Ontario electricity price) and Ontario’s consumers pick up the difference between the contracted price for generation and the HOEP.  It was that difference, the GA, that the AG’s report highlighted.

Ontario has seen three more years of generation since that report and each one has meant increasing costs to Ontario’s electricity consumers.  For 2012, IESO reported our exports were 14.6 terawatt hours (TWh) and generated an average price of $24.1 million/TWh, but the costs to Ontario’s consumers for that generation included the GA which was an additional $49.6 million/TWh—that resulted in a cost of $724 million.  2013 was worse: Ontario exported 18.3 TWh generating $26.5 million/TWh with  the GA cost at $59.0 million/TWh for a cost of $1.007 billion. 2014 was slightly worse again, with exports of 19.1 TWh generating $36.0 million/TWh, costing ratepayers $53.5 million/TWh for the GA, creating a loss of $1.022 billion.

So, those three years cost ratepayers $2.75 billion for the 52 TWh (11.3% of total generation of 459.8 TWh) of exported power we didn’t need, bringing losses since creation of the GA to $4.550 billion.

Ontario’s ratepayers might be much better off if Walmart really was running the electricity system in Ontario. At least Walmart isn’t continually running at a loss.

©Parker Gallant                                                                                                                                     January 21, 2015

Comments

Richard Wakefield
Reply

Either Chiarelli is a moron, or he thinks all of the rest of us are.

Khris
Reply

Energy Minister Bob Chiarelli Is a flim flam Man. The US has never paid the same rate as the Ontario consumer for him to try and spin this is no more than a confidence trick. If we had a high price and a low price we can find the average price and try to sell our hydro above cost to the USA. This is how high volume Walmart retail works, You don’t go broke when you have a profit. We only have billion $ losses. let the green boys sell direct to the USA and take the loss.

John Vincent
Reply

Mr. Chiarelli needs an extensive instruction on the electrical power system and how it works. What he, and many others are missing, is the fact that due to contract conditions with “Green Energy” producers we can’t back off the productioon of “Green Energy” when we don’t need it. This forces us to purchase electrcity we don’t want or need an dpay others to take it oof our hands. This makes Green Energy non dispatchable. Change the contracts so we can regulate the output of Green Energy to what we need when we need it and pay the going rate per Kw/hr instead of the inflated FIT and MICRO FIT rates. the problem would be solved, and most of these green Energy producers would go the way of the DoDo bird.

Uncle B
Reply

Compares a perishable product excess to Walmart! What a moron! There is not even a microsecond of storage time for surplus power! Sounds like this poor man has been flimflammed by some real experts.
Education
Admission to Bar of Ontario
LL.B. Faculty of Common Law, University of Ottawa
Bachelor of Business Administration, Clarkson University, Potsdam, New York
His BBA is from an American business school? not applicable in Canada? after all, we are taught in economics 101 the difference between a perishable commodity and a non-perishable one? Moreover: the time line makes little sense. Walmart has ‘Purchasing Agents” with 98% effective ratings? Ontario Hydro cannot do this at all, not ever with electricity! We are the primary suppliers of a perishable, not storable spot priced commodity. The only value this power has is if it is consumed as it is produced here in Ontario, preferably for manufacturing in to items that are storable! Best advice from this end: Give all Ontario manufacturer’s even free electricity when possible and collection the sale of the tangible items they then produce! Give the proletariat a lower price through the smart meters, and collect on the surplus spending power this will give them.

chris bradley
Reply

Brilliant!

Ed
Reply

Chiarelli woudn’t qualify as a greeter at walmart.

Allan Turnbull
Reply

If Walmart, or any other rational retailer, found that they had bought more snow blowers than they could sell at a profit, then of course they would dump them. BUT, they would learn from their mistake and cut back on their order for next winter. Ontario does just the opposite in its electricity policy – they increase production in the face of over-supply and lower demand.

luca riffer
Reply

In addition to not understanding Econ 101 or the basic practicalities of optimizing Ontario’s power grid, Minister Chiarelli’s shows complete ignorance of Wal-mart’s (or any big box chain) purchasing methodology. Because Wal-mart is both BIG (like Ontario’s crown power companies) and SMART (unlike Ontario’s crown power companies), it takes NO RISK on unsold snowblowers every spring. If a supplier to Wal-mart is lucky enough to qualify a product for sale in its stores, it not only takes back all unsold inventory at no cost to Wal-mart, the supplier actually pays a make-whole penalty on those unsold snowblower as if they had been sold at the expected margin. This is smart business practice, leveraging the power of its platform. OPG/HydroOne/OPA does none of this, despite near monopoly in the Province. And don’t get me going on the LCBO, one of the biggest yet weakest purchasers of booze globally. Chiarelli is a bully, a blowhard, and woefully un-educated on the real world.

Parker Gallant
Reply

Just looked at first week of IESO summaries of 2015 compared to first week of 2014. The first week of 2014 we exported 449,000 MWh which generated about $23.5 million in sales revenue (HOEP) and cost ratepayers $35 million to produce meaning it cost us $11.5 million. The exports represented 14.6% of Ontario total demand for the week.

The first week of 2015 saw exports of 526,000 MWh and the sales revenue generated was about $13.5 million but the cost to ratepayers for those exports was about $52.7 million for a loss of $39.2 million and those exports represented 17.2% of Ontario’s total demand. The latter was basically flat against 2014’s first week.

So more exports generated a bigger loss of $27.7 million. Why doesn’t Chiarelli understand ?

Bert Zegers
Reply

Mr Chiarelli thinks that Wal-mart would sign 20 year contracts with suppliers of snow blowers that are delivered in the summer when they are not needed. If Wal-mart cannot store the snowblowers that they don’t need the supplier is payed for snow blowers that are not delivered. Then in the winter the supplier cannot deliver the snow blowers needed.
Mr Chiarelli thinks Wal-mart would continue to pay 3 times more for the snow blower then what they cost at a reliable supplier.

Mr Chiarelli should resign.

Millennium Outlaw
Reply

So the electricity system is the same as Walmart, huh? Here’s the thing Bob missed…Walmart has competition. Walmart has accountability to its employees, to its shareholders and to its customers as a result of said competition.

The Ontario government on the other hand suffers from no such issues. They do whatever they want, whenever they want, however they want, and expect the rest of us to accept it based on nothing but hot wind turbine air.

Khris
Reply

If the shareholders ( Tax Payers ) in Ontario that own this mess would see the mess that the current goverment has got us into they would demand a full accounting and make them publish every major contract or comitment related to the spending of public money. If they want to run a deficit they have no choice but to be transparent.
Joke on them this week the want to TEXT us with signs on the major highways to distract us, Will they pay our tickets. As we pay the very high cost of the high teck signs that must use green hydro.

Dave
Reply

The Mismanagement of Ontario Hydro One Is Just One of The Major Money Losing Businesses Because of Mismanagement. The People Are Supposed To Pay For The Government and Hydro Ones Major Mistakes with Endless Bottomless Pockets. I Think Not. Get A Plan That is Feasible and Cut Some Overhead and Run It Like A Business , With Expertise At The Top And Renegotiate The Employees Contracts and Pension Fund.

John Vincent
Reply

Yes, Hydro One is mismanaged. But you have to ask who is managing Hydro One and the power system….its the provincial government. They micor manage the process and ae largely responsible for our power system woes. They’ve done this for over 40 years and have successfully got the public to believe its not thier fault.
Ontario Hydro was destroyed by the goverment interference in using OH to implement government policies. Wynne has even admitted she wants control of who ever takes over Hydro One. Throwing the baby out with the bath water isn;t going to change things. You’ve got to ask who is dirtying the bath water. Look to the provincial goverment….in this case Wynne. Make them keep their hands outr of the system.

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