Keynotes

Here are some of the important realities to consider about the electricity resource industry in Ontario

We have a robust and highly reliable electrical grid in Ontario

Lets keep it that way.
It seems that we are so obsessed with the price we pay for electricity that we overlook the achievements of the industry. We enjoy world-class energy delivery from decades of development and technological improvement. When was the last time you thought about how you get your electricity? It isn’t just a bunch of wires twisted together and strung from wooden poles.
We have tens of thousands of disturbances on the electrical grid every year from accidental tree contact, equipment failure and extreme weather and in most cases customers don’t even notice more than a momentary flicker of their lights. In the majority of cases restoration and recovery is automatic and requires less than half a second. In more serious situations, workers are dispatched within minutes to begin restoration activities under the most dangerous and harsh conditions imaginable.
It isn’t just the infrastructure that is essential for production and delivery of energy. It’s the people who work every day to ensure that we have what we need, when we need it. We shouldn’t take things for granted when we don’t understand them.

Energy is the most expensive component for residential ratepayers

It isn’t Delivery that is costing the average ratepayer the most. It’s the cost of energy.
When you look at the breakout of the average residential ratepayers bill you will see the greatest amount going to pay for energy and that’s the component which is rising fastest.
There are outliers that will not fall into this pattern. Those would be low density and seasonal customers that are impacted by the cost of the infrastructure required to service rural areas.
See Electricity Service Costs

Ratepayers have short memories

Our electricity infrastructure has been around for over a hundred years. It will be here long after we are gone.
Who remembers that residential electricity rates doubled from 1982 to 1992 and the flap that it created?
Why would anyone be surprised that rates rise when we enter an infrastructure renewal phase in Ontario? Didn’t see it coming? Who did we think was going to pay for it? The Mexicans?
It does provide us with something to complain about.

Infrastructure for the generation, transmission and distribution of electricity has a very long life cycle

Did you know that we have generating facilities that have been in service for more than 100 years?
Utility poles and distribution transformers are expected to last for 60 years.
The situation we find ourselves in today has been decades in the making. What we do today will have consequences far into the future.
Decisions that push us into self-serving short-term solutions are bad for our long-term well-being. We need long-term sustainable solutions in Ontario. That means tough policy choices, capacity planning, conservation and steady, cost-effective, sustainable infrastructure renewal.

The electricity costs are constantly changing

The price of electricity is determined – in part – by the wholesale market. The price is updated every 5 minutes and is based on the previous hours average trades. The IESO administers the market. There is an element of supply and demand that drives prices up during peak daily energy use and down during other times.

Residential ratepayers do not get the wholesale electricity rate. The residential rates are set by the OEB based on actual electricity costs. The Global Adjustment is used to account for the difference between wholesale and residential rates.
Electricity prices in Ontario have risen dramatically over the last decade. The long-term forecast is showing rising costs. Let’s see some articles on the key factors contributing to where and why.

The price is going to continue to rise because…

We haven’t been paying the actual cost for it and sooner or later – we will have to.
We have always had some form of intervention from our government to give us the illusion that costs are under control. We have deferred paying the cost, sold public assets, fired workers, privatized, stopped performing planned maintenance, postponed equipment replacement, increased debt and subsidized rates through taxes. Yes, we have done it all at one time or another and continue to do so.
We are ushering in a new wave of private generation that costs more than previous sources of power.
We have more generation capacity than we need.
Our base load generation is old and is in the process of very expensive refurbishment.
Our delivery infrastructure has had little sustainment investment for decades and is now being replaced at a higher rate than in the past. This is a part of the long life cycle of distribution equipment. We can tinker with the process however there is no way to avoid reinvestment without serious consequences.
We are carrying very high debit for the electricity infrastructure. When interest rates rise the debit charges will become an even bigger problem than they are now.
The wrong intervention for rate management negatively impacts the sustainability of electricity supply in Ontario. Rate freezes and deferred maintenance do not work in the long-term.
See Rising Costs

We need good long-term planning

In order to manage energy costs we need good long-term planning, contingency plans for short-term anomalies, operational improvements in dispatching of generation and energy conservation.
As far back as the 1970’s the government created a Royal Commission on Electric Power Planning. It is impressive to see that much of what they examined remains relevant today.
We currently have a Long Term Energy Plan however it is a very politically sensitive approach that will likely change with each government. The plan should be nonpartisan so that we have a clear path forward. Politicians are not particularly insightful about such complex issues and should bow out of the process.

Infrastructure investment is critical

Without adequate investment in the industry there is a high risk to the reliability of electricity supply in Ontario. The emphasis needs to be on sustainability so that we avoid large spikes in expenditures over time.

Ontario will never have ‘cheap’ energy

With the present fuel mix of generation in Ontario we will never have the cheapest energy in Canada. We should target best value for ratepayers and have the necessary oversight to ensure success.
See High Cost

Not all of the industry has the same checks and balances

There are more than adequate checks and balances in the regulated (OEB) portion of the electricity sector to ensure that ratepayers get what they pay for. Not all of the industry is subject to the same rigorous process. You will be surprised at the proportion of the non-regulated costs and the gaming that goes on within the industry.

Privatization in Ontario

We are well down the path of electricity sector privatization in Ontario. It started two decades ago with changes to The Power Corporation Act, The Electricity Act and the Electricity Competition Act.

In 2001 the Bruce Nuclear Facility was leased to a private British-owned company.

In 2002 OPG sold hydro-electric generation on the Mississagi river to a private interest.

In 2015 the majority share of Hydro One was sold.

As of 2017, 76% of our generation capacity was contracted[1].
It’s good for the some parts of the economy but not for ratepayers. Later we can look at what happened while you were sleeping…

The failings of the wholesale market in Ontario

We are one of several jurisdictions in Canada to have a competitive market for generation. It has been a complete failure in Ontario from a ratepayer perspective. Would it surprise you to know that the model for competition in Ontario was heavily influenced by representatives of Enron? That is the company that gamed an estimated $60 Billion dollars from investors and had their executives jailed for one of the largest corporate fraud cases in US history. Even the Ontario government has undermined the market by signing independent contracts covering 76% of the generating capacity in the province. It is time for an overhaul.

It is unfair to associate rate increases to a particular political party

Each of the three major political parties have had a hand in delivering us to where we are now. It’s time to park your political ideology and learn from mistakes made. Nothing is more disappointing than to see a politician trolling for support by playing on the displeasure of Ontarians’ when their own party had a hand in creating the mess. Those individuals are opportunists and hypocrites.

Green energy?

Green energy (from ‘renewables’) may not be what you think it is. Much of it has very low utilization and is not ‘Grid Friendly’. It certainly isn’t ready for prime-time.
The growth of renewable generation in Ontario is characterized by the proliferation of many low-output facilities at the extremities of the distribution system. The grid in Ontario was optimized for a smaller number of high-output facilities connected to the transmission system.
The modification of delivery infrastructure (transmission and distribution) to accommodate the new generation demographic has a cost associated with it. Fortunately the cost recovery mechanisms put in place by the Ontario Energy Board ensure that there is no material impact to customers.

In certain cases the presence of renewable generators will increase power outage duration for customers where the LDC must block feeder reclosing. This implementation minimizes the operational cost for the privately owned generator at the expense of ratepayers’ quality of service.

Rising costs and energy poverty

Rising electricity prices are a worldwide reality – not just Ontario. Energy poverty is an overly used term intended to distract from the bigger social issue of our declining standard of living.
Welcome to the global economy.

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“We are what we repeatedly do. Excellence, then, is not an act, but a habit.”

Aristotle

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Derek Hughes

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[1] Source – IESO 2017 18 Month Outlook September 21, 2017, calculation by author

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