Energy Manager

Ontario has oversupply of electricity, so why are you paying more?

February 5, 2016 - Apparently, the Ontario Government had a process in the Electricity Act and regulations for drafting and approving a long-term technical plan for Ontario’s electricity system... but they didn’t bother following it. Ouch!

February 5, 2016  By  Anthony Capkun

Bonnie Lysyk

“We found that the planning process had essentially broken down over the past decade, and Ontario’s electricity power system did not have an overall technical plan in place for the last 10 years that was reviewed by the [Ontario Energy Board], as required by legislation,” says Bonnie Lysyk, the province’s auditor general, in her 2015 Annual Report.

“The process could have offered protection to consumers because the [Ontario Energy Board] would have been able to review and approve any technical plans over the last decade for cost-effectiveness. Instead of following the legislated process, the Ministry of Energy itself effectively assumed responsibility for electricity planning,” adds Lysyk.

Lysyk explains the process that was not followed looks like this: the Ontario Power Authority (OPA, now IESO) draws up a 20-year technical plan—with updates every three years—and the Ontario Energy Board (OEB) then reviews and approves the plan. But, according to the Auditor General’s office, that did not happen.

Between 2004 and 2014, the Ministry of Energy issued two policy plans and 93 ministerial directives or directions that did not fully consider the state of the electricity market, did not take long-term effects fully into account and, sometimes, went against the OPA’s advice. Neither the ministry’s plans nor its directives are subject to OEB approval.

From 2006 to 2014, the electricity portion of the hydro bills of residential and small-business consumers increased by 70%. In particular, the Global Adjustment fees, covering the excess payments to generators over the market price, cost consumers $37 billion during that period, and are projected to cost another $133 billion from 2015 to 2032.

Some of the auditor general’s other significant findings include:

• Electricity consumers will eventually pay a total of $9.2 billion more for renewables under the ministry’s guaranteed-price renewable program than they would have paid under the previous procurement program.

• The guaranteed prices for generators of wind-powered electricity were double the U.S. average price in 2014; the guaranteed prices for generators of solar power were 3.5 times higher than the U.S. average price.

• The ministry issued a direction in December 2013 to convert a Thunder Bay coal-fired generating plant to biomass, despite OPA advice that the conversion was not cost-effective. Electricity from this facility costs 25 times more than the average electricity cost at other biomass plants in Ontario.

• The lack of a co-ordinated regional planning process contributed to transmission capacity and reliability issues in several regions. The resulting constraints in the transmission system led to additional costs of $408 million in compensation payments to generators, either for increasing the power they produce, or for not producing power on demand.

• Between 2009 and 2014, Ontario’s average annual electricity surplus—the available electricity supply, less the electricity consumed—was about the equivalent of the total existing power-generation capacity of Manitoba. The Independent Electricity System Operator (IESO) forecasts that Ontario’s baseload generation from 2015 to 2020 will exceed Ontario’s demand by an amount equivalent to Nova Scotia’s power needs for about five years.

• While Ontario had an oversupply of electricity, the province spent about $2.3 billion on conservation programs to 2014, and is committed to spending another $2.6 billion over the next six years.

“Ontario electricity ratepayers have had to pay billions for these decisions,” Lysyk said.

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