A new debt retirement charge for Ontario electricity customers

(April 27, 2016) The reprieve is over. Those “dead” assets still require paying off.

Using realistic figures, the real cost of the Darlington nuclear plant refurbishment could be $16.7 billion or $22.2 billion (3 per cent of the province’s entire GDP).

Wayne Cuddington/Ottawa Citizen/Postmedia News files. Using realistic figures, the real cost of the Darlington nuclear plant refurbishment could be $16.7 billion or $22.2 billion (3 per cent of the province’s entire GDP).


This article by Brady Yauch first appeared in the National Post

At the start of the year, many Ontario electricity customers were offered a reprieve from the much-maligned “Debt Retirement Charge” – a monthly reminder of the economic follies of the old Ontario Hydro that added about 8 per cent to residential bills.

That reprieve is likely to be short-lived, since customers can expect a new charge to mask the real cost of the province’s energy policies. The reasons for the original debt retirement charge – a massive overbuilding of the electricity grid that went significantly over-budget and left the province with “dead” assets that no reasonable rate increase could ever salvage – are back.

Except this time, rather than pointing the finger at Ontario Hydro engineers and executives who overstated future demand and their ability to contain costs on megaprojects, the fault lies almost completely with the province and the energy agencies now responsible for almost all power decision-making.

The severity of the province’s electricity overbuild is most evident in the province’s wholesale electricity market. Last month, for example, there were more than 200 hours where the average price of wholesale power was negative. Because Ontario often sells its power to neighbouring states and provinces at the wholesale rate, Ontarians are paying customers outside the province to import the province’s excess power.

The number of hours where the price of power could have gone negative actually exceeds 200, since generators are increasingly being told – and paid – to curtail their output.

Ontario Power Generation (OPG), a successor to Ontario Hydro and the province’s largest generator, now “spills” power – it lets water flow through its dams without producing power – in an effort to limit the power. But ratepayers are nevertheless on the hook, since OPG can recoup the “lost revenue” in its rates. The company’s “spilled” power has increased by 88 per cent between 2013 and 2015, enough to power 330,000 homes last year.

A primary reason for the surplus: Since 2007, electricity demand in Ontario has fallen nearly 10 per cent as businesses flee the province’s high rates. Yet the province keeps adding very questionable generation capacity.

A case in point is OPG’s refurbishment of the Darlington nuclear plant. OPG – its reputation still dinged from the nearly $500 million, or 50 per cent, cost overrun on its Niagara tunnel project – says it can refurbish the entire plant at a cost of $12.8 billion – or about 7.9 cents per kilowatt hour (kWh).

Unfortunately, the track record of cost overruns on nuclear projects is extensive and well-documented, with every single one in Ontario going significantly over budget (on average more than double). OPG has added a 15 per cent – or $1.7 billion – “contingency” amount in the $12.8 billion cost estimate. But a more realistic figure would be anywhere between a 50 per cent contingency fund of $5.5 billion, or even a 100 per cent contingency fund of $11.1 billion.

Using realistic figures, the real cost of the Darlington refurbishment could be $16.7 billion or $22.2 billion (3 per cent of the province’s entire GDP).

Breaking those figures down into rates means the real cost to electricity customers will be 11.85 cents to 15.8 cents per kWh for power from a refurbished Darlington – nearly triple the cost of power from the province’s fleet of natural gas plants, which currently operate below their generating capacity.

Tying it all together: Demand for power in Ontario continues to decline, high-priced generators continue to be added to the grid, the province’s surplus of power is growing larger and Queen’s Park has used the legislature, rather than an economic test, to push through the refurbishment of the Darlington nuclear plant that will – if history is an indicator – go wildly over budget. The result will be a leveraged electricity sector pumping out vast amounts of expensive electricity that isn’t needed or, conversely, the system will be paying generators to sit idle.

Ontario’s ratepayers – who have already experienced the fastest bill increases of any electricity customers in North America over the last decade – will be left picking up the tab. Whatever it’s eventually called, the result will be the same: a new charge to pay off those “dead” assets.

Brady Yauch is an economist and the executive director of Consumer Policy Institute.

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8 Responses to A new debt retirement charge for Ontario electricity customers

  1. Jim Kernaghan says:

    As a senior who has electric heat only, I’ve begun to live in hell before even dying.

  2. Ridiculous , I hope that the taxpayers of this province wake up and get rid of this McGuinty -Wynne comedy team , they were and are a joke . They are killing us here in Ontario . Debt retirement and delivery charges should be made illegal .I cannot say on here what I really think ,,thanks to the greater GTA for voting this hand waving ” B” into power! we seniors will keep wearing our jackets inside !

    • Ted Ingram says:

      It’s not only Liberals… it’s ALL governments Do you really believe any Government cares, even in the slightest, that people cannot afford to pay for electricity, let alone anything else? All they care about is taking all of our money.

  3. Michelle says:

    What the hell us wrong with Ontario? We have one of the largest producing hydro waterfalls, yet we sell that to the US and charge our own citizens way more to import hydro???? What lunatic thought this was a good idea? We should have one of the cheapest rates in Canada, yet we have the highest rates????? Our government is overrun by criminals that are getting away with it every day. We outnumber them. Let’s do something about this NOW!

  4. Bruce Milller says:

    Ontario Power Corp takes its advice from political bull crap and entirely misses the fact that Wind Turbine efficiency INCREASES as air temperature DECREASES. Yes! like in Northern Ontario where winter winds last 8 months of the year and reach lows of – 40 C or more, adding up to 30 % efficiency. Wind Turbines, ideal for distant hamlets, and posed on rocky outcrops not prime farmland, not the finest tourist areas, will provide long distance transmission loss, transmission cost free, power directly to local grids. Long distance Transmission losses, transmission costs, are entirely eliminated for this electric boost and must also be entered into the calculus of making a Wind Turbine installation decision? Ontario Power Corp rather play politics, and places Turbines in “Photo Op” positions, destroying near north tourism areas, close to CN Tower, close to Darlington and other reactors, and on fertile farmlands near residential locations in Southern Ontario and within sight of reactors? I call anal engineering, and wish Wynne could see the damage this is doing to Wind Power potential here in Ontario . . .

    Renewables in wise countries remain local and do not attach to the grid. Centralized power is giving away to many localized renewable systems.
    Power generated in power stations pass through large and complex networks like transformers, overhead lines, cables and other equipment and reaches at the end users. It is fact that the unit of electric energy generated by Power Station does not match with the units distributed to the consumers. Some percentage of the units is lost in the distribution network.

    Imagine if the GTA decided to install electric car chargers at all GO Train stations and if Justin Trudeau would allow tariff free imported Chinese Utility/Shuttle Electric cars! Or even Tesla all aluminum cars with a bonus for buying one? Imagine if the GO Train Diesels were converted to electric?
    Nobody has the nerve to test the “Cold Weather Starts” air pollution at these Go Train parking lots in Canadian Winter Weather. The amount of harmful hydrocarbons/benzene released must be astronomical: Must be tested. These carcinogens need metering and publicizing. Can we prevent the poisoning of our largest working force, the folks of the GTA, by electrifying these cars, these trains? Can Ontario’s Liberals give free electricity towards this end? Ontario now has an electricity surplus it practically gives away.(Michigan, New York, Thanks Ontarians for the free electricity and the jobs it brings them) Wouldn’t this be a more productive use? Would this reduce the load on Ontario’s health care? Reducing lung disease, heart disease deaths from cancer? Imagine.
    Please read the American Bullshit .pdf on Tier 4 engines like we have in Canadian Go Trains – they dilute the fumes with a blower, and is some cases add an additional irritant, Ammonia! To make the normal hydrocarbon and benzene readings “APPEAR” lower! We are victims here of the American Corporate “Dilution is the Solution to Pollution” theorem? Electric trains are pollution free and the electricity in Ontario is now also pollution free, so why not go electric and save on the health bills for lung diseases? Would this ‘Hydro Carbon Emissions Cleanup” Help attract “The best and the Brightest” to Toronto Ontario?

    Click to access CleanDieselTechnologyforOff-Road.pdf

  5. Eileen McRae says:

    We will probably find the new costs under “spilled power” costs or “dead wind” costs on our Hydro bill. What is wrong with all of us that we blindly accept this? (I include myself, as I have done little to negate the stupidity of this government.). Citizens of Ontario should appoint a “task force” to investigate and develop strategies to counter what is happening to our beautiful province.

  6. Larry Webb says:

    If we did the things this government is doing to us we would be in jail with a criminal record

  7. Terry Humberston says:

    While whining and complaining is the natural thing to do, Eileen McRae is right-on when she says a “task force” should be created to investigate the Wynne govt. and develop strategies to counter her polices. The question is, who is going to initiate it? A “movement” should be organized by smart and very influential people that will gather momentum and steamroll across this Province like a mudslide. Waiting for a general election to “show her” is futile, we need a peoples revolution like this country has never seen before. She should be turfed now, not two years from now.

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