(December 4, 2015) Ontario’s auditor general blasts the province’s dysfunctional electricity sector.
1). The province has no one but itself to blame for soaring hydro bills and the current state of its electricity sector. Ontario’s electricity power system planning process has “essentially broken down” over the past decade. Decisions by the Ministry of Energy (MoE) have been directly responsible for significant increases in hydro bills. Over that time, the MoE’s two main energy plans did not undergo independent review to ensure they were “fiscally prudent” and the interests of electricity consumers were protected.
2). The Ministry of Energy operates by decree and directives are the new policy planning tool. Between 2004 and 2014, the MoE issued 93 directives and directions to the OPA. Through these directives, the MoE has made decisions that “sometimes went against” advice from its own planning agency. “It is our view that the Ministry did not fully consider the state of the electricity market or the long-term effects different supply mix scenarios would have on Ontario’s power system in making some of these decisions,” the report concludes.
3). Ratepayers are paying well above market rates for their electricity. Ratepayers pay something known as the Global Adjustment, which is a fee to cover the difference between what electricity is worth on the province’s wholesale market and what has been promised to generators through generous contracts. Between 2006 to 2014, ratepayers paid $37 billion in Global Adjustment fees, with that number expected to hit $133 billion between 2015 to 2032.
4). The province’s taste for renewable energy is an expensive habit. Since the province implemented its Feed-in Tariff (FIT) program, which offers renewable energy producers well above market price for their power, ratepayers have forked over $9.2 billion more for new renewable energy generation than if the government had continued with its previous competitive procurement policy.
5). Generators are getting paid to not produce power. Between 2009 and 2014, ratepayers paid generators $339 million to shut down their operations at times of electricity surplus in the province. During that same period, Ontario’s electricity exports to neighbouring jurisdictions cost ratepayers $3.1 billion, as power is worth less than promised in the generous contracts generators signed for their output. Ratepayers are left to make up the difference.
6). Conservation programs are a waste of money. The province’s conservation programs have largely gone unreviewed for cost effectiveness. When they are reviewed, many of them fail to pass muster. Nonetheless, the province intends to spend another $2.6 billion on more conservation programs, even though Ontario is suffering from a significant, ongoing surplus of power.
7). The Ontario Energy Board is increasingly becoming irrelevant. In recent years, most new power supply contracts have not been reviewed by the OEB for cost effectiveness. The amount of overall generation that is out of reach of OEB review will continue to increase in the coming years.
8). Hydro One is charging ratepayers more money for a deteriorating service. The reliability of Hydro One’s transmission system steadily declined over the last five years, with outages lasting 30% longer and occurring 24% more frequently. Yet, during that time, spending to operate the system and repair aging assets increased by 31%. Meanwhile, Hydro One’s distribution system remains one of the least reliable among large Canadian electricity distributors – even though its operating and capital costs continue to increase.
9). Hydro One is playing games with the Ontario Energy Board in order to get more money. Hydro One isn’t replacing assets that are in poor condition, yet it highlights these aging assets to the Ontario Energy Board in an effort to convince the regulator to let it raise rates.
10). Hydro One is inefficient and has little incentive to become more productive. Hydro One spent more than a billion dollars annually in the last three years on capital projects, but didn’t benchmark its costs to other utilities. Furthermore, the company built in cost overruns, “which gave Hydro One staff little incentive to complete a project at its original project cost estimate, or develop more accurate cost estimates for projects.”
Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI), a division of Energy Probe Research Foundation. You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or by phone at (416) 964-9223 ext 236