The sad (and very expensive) truth. Ontario fleeced out of $37 billion

Financial Post, December 3, 2015

ONTARIO’S POWER TRIP

by Parker Gallant

Almost a year ago Bonnie Lysyk, Ontario’s Auditor General, issued a report related to the “smart meter” program, estimating it cost double its projected costs. Bob Chiarelli, the Ontario Minister of Energy, was quick off the mark to defend his ministry by stating “The electricity system is very complex, it’s very difficult to understand,” he said. “I can tell you that some of our senior managers in discussing some of these issues with some of the representatives from the Auditor General’s office got the feeling that they didn’t understand some of the elements of it.”

Here we are one year later and yesterday’s annual report out of the AG’s offices is all about the electricity sector and the condemnation of the planning and implementation processes that have emanated from the past and present energy ministers since the Liberals gained power.

Here is one of the condemnations that will prove hurtful to Minister Chiarelli and his predecessors: “over the last decade, this power system planning process has essentially broken down, and Ontario’s energy system has not had a technical plan in place for the last 10 years. Operating outside the checks and balances of the legislated planning process, the Ministry of Energy has made a number of decisions about power generation that have resulted in significant costs to electricity consumers.”

Here is another: “The Ministry has issued a total of 93 directives and directions to the OPA [Ontario Power Authority] between 2004 and 2014. Through them, it has made a number of decisions about power generation — decisions that sometimes went against the OPA’s technical advice.”

The AG has included many estimates on the costs of those “directives and directions,” estimating the FIT or feed-in tariff program alone will result in ratepayers picking up extra costs of $9.2 billion just for wind and solar contracts when the GEA [Green Energy Act] usurped the previous competitive procurement program. Other notable issues highlighted in the AG’s report include the Mattagami project, $1 billion over the original estimate, raising the cost of hydro production to $135 per megawatt hour, and the conversion of the Thunder Bay coal plant to biomass using imported wood as a fuel source and producing electricity that will cost $1,600 per megawatt hour.

The report is also critical of the “Conservation First” theme brought in by Minister Chiarelli in his most recent Long Term Energy Plan, due to our significant surplus generating capacity, past spending of $2.3 billion and future spending of $2.6 billion that simply raises the price of electricity for consumers. The effect of the surplus capacity is highlighted in noting that it is exported well below its cost and that curtailing power to ensure grid stability is paying generators for not producing.

That message alone highlights how “the Ministry of Energy has made a number of decisions about power generation that have resulted in significant costs to electricity consumers.”

As stated in the report, “Since power is exported at prices below what generators are paid, and curtailed generators are still paid even when they are not producing energy, both of these options are costly. From 2009 to 2014, Ontario had to pay generators $339 million for curtailing 11.9 million MWh of surplus electricity.”

Anyone observing Ontario’s electricity sector over the past 10 years will have no difficulty in nodding in agreement with the bulk of the report’s conclusions, having seen their electricity bills rise on a semi-annual basis for the past decade. Those who want a better understanding of why those increases have occurred will also appreciate the AG’s observation that “lack of transparency” has prevented ratepayers from being told why their bills keep going up.

While the Ministry has stated after each recommendation in the AG’s report: “The Ministry agrees with the Auditor General’s recommendations,” the concerns of ratepayers are likely to be tripped up by Premier Wynne’s promise to bring in her latest tax grab in the form of the promised “cap and trade” plan, which will surely result in additional costs that ratepayers will be forced to absorb.

The AG has demonstrated that she has far more insight into how the electricity system works in Ontario than the Minister or Ministry officials, but it remains to be seen whether the system can be fixed.

Parker Gallant is a retired banker who looked at his electricity bills and didn’t like what he saw.

(Parker Gallant is vice-president of Wind Concerns Ontario.)