The Auditor General of Ontario told us in his Dec. 5 report that electricity rates in Ontario have increased without sufficient control. He has placed the blame on the McGuinty government and warned that rates will get much higher and that legislation and directives by the government have overrun the previous controls allotted to the Ontario Energy Board (OEB).
The auditor’s report reviews three areas of the electrical power system operation. The main review is the Green Energy Act and its impact on hydro rates. The Act allowed government to set aside existing sections of legislation to allow them to quickly install a green energy economy that they claimed would result in 50,000 jobs. The auditor’s findings are very critical of the act, the results and the costs, and make these comments:
• Billions of dollars of new wind and solar power projects were approved without the usual planning and regulatory oversight process.
• The $7-billion deal with the South Korean company, Samsung, was done with no formal economic analysis to determine if it was prudent. Neither the OEB nor the Ontario Power Authority (OPA) was consulted.
• The OPA was told to implement a feed-in tariff (FIT) Program that provided generators of renewable energy, wind, solar and biomass at very attractive prices, much higher than other jurisdictions. The government said it would result in a rate increase of one per cent per year and it was later revised to 7.9 per cent per year. The higher prices paid add $220 million per year to the cost of electricity, for each year of the 20-year contracts.
• The government claimed 50,000 jobs would be created. To date they claim 20,000 new jobs, but the auditor points out that most of these are short-term construction jobs. The auditor notes that studies in other jurisdictions show that for each job created, two to four jobs are lost in other sectors, and that each job created would cost $179,000,
• The auditor questions the value of some renewable sources to the electricity system. Wind power fluctuates from zero per cent on summer days when electrical demand is high, to 94 per cent on winter days when demand is low, and wind power maximizes overnight when demand is low.
• The system sometimes has an oversupply, and the system operator instructs generators to reduce their output, however, the FIT Program has a unique feature. It provides renewable energy generators an additional contract payment to compensate them for revenue lost on curtailment instructions. Electricity customers pay for renewable energy generation even when the generator is not producing electricity.
The second review by the auditor is the stranded debt of the former Ontario Hydro. Electricity consumers have been paying a fixed debt retirement charge (DRC) on hydro bills since 1999. The Minister of Finance is required to determine from time to time the residual stranded debt and to make the determination public. The auditor points out that the residual stranded debt was $7.8 billon, and that, over a period of 10 years, $8 billion was collected. However, no public report has been made and the DRC is still being collected. The legislation allows the Minister of Finance to determine a date when the debt has been paid and that the determination of this date “cannot be challenged in court.” The minister has made an estimate that the debt will be paid off between 2015 and 2016 but has not made any commitment to making a public report.
The third area of the auditor’s report is the role of the OEB and the decline of its authority to control electricity rates. The auditor notes that in recent years the rates for unregulated sources of power have been higher than regulated sources, and that they account for about 65 per cent of the price paid by the average consumer, meaning that only $35 of every $100 paid for electricity can be regulated. The unregulated sources are primarily supplies under power contracts signed by the OPA under government direction.
The OEB comments that there is an expectation that the board regulates the industry. However, this is a misconception and there are changes in what has been their power. The board says we know rates have increased but government directions have taken away our authority to regulate.
The auditor general’s comments are very critical:
• The Green Energy Act was not given a proper review before enactment and has been a major factor in the large hydro rate increase and jobs promised may be temporary and the act could result in the loss of jobs.
• The government continues to collect the DRC on Hydro rates and has not made a public report on the payments as it is required to do under the legislation, despite the indication that the residual debt retirement charge has been paid off.
• The authority of the OEB to control rates has been greatly reduced because of government directives and payments to unregulated suppliers of electrical energy.
The McGuinty government should end the major flaws in the Green Energy Act that are providing big profits and impacting on the hydro bills. The high payments for wind and solar energy must be reduced, and the government must also eliminate the “additional payment” made on low power requirements days.
The government should also restore the authority of the Environmental Assessment Act to require a review of all windmill installations. The OEB needs the authority to review for approval the rates and conditions of all major windmill and solar power contracts, and all other sources of unregulated power supply.
The major increase in hydro rates requires Hydro customers to do without some necessities in order to pay their hydro bill and some industrial customers have had to cut jobs.
The auditor general has spoken. Will the McGuinty government listen?
Andy Frame, P. Eng. is a consultant in the electrical power industry and was formerly a senior adviser, electric utilities, Ontario Ministry of Energy, and a past municipal hydro chairman and chair of the Ontario Utility Association.