Why Politicians Should Never Run Anything–Electricity–Part 17A

    Do not think about, write about or deal with  human behavior without determining the effects of incentives.

     Wherein we see that government can produce lots of electricity, sell it at a huge loss and then brag about increasing sales.

National Post – (Latest Edition)

Cheap power, courtesy Ontario

Exports boom, but province selling at a loss

At a time when Ontario has seen its manufacturing industry crater, the province has found that it can still do a booming business with one type of export: electricity.

Alex Urosevic for National Post Last month’s catastrophic ice storm caused massive power outages. Ontario keeps expanding its power supply, even though energy demand is expected to decline.

Unfortunately for ratepayers, the business model is a little unsound. If energy were doughnuts, Ontario would still be expanding its dough supply, while sending ever more trucks full of discounted day-olds to places like Michigan, Minnesota and Quebec.

The province’s Independent Electricity System Operator on Wednesday released its year-in-review of the province’s energy data. Most of the numbers were as expected, with wind energy an increasing part of the supply mix, coal a decreasing part of it and nuclear energy remaining the backbone of the grid.


    Increase the costly parts, decrease the inexpensive parts, must be the government.

Energy exports, meanwhile, “rose to 18.3 TWh,” which is an awful lot of electricity: enough to power 300 billion 60-watt bulbs for an hour. The province’s exports have been on a steady upward trend; the 2013 total is a notable jump from 14.6 TWh in 2012 and from 12.9 TWh in 2011, according to figures released by the IESO last year. Exports have increased by almost 50% over that two-year period.


    Heavily subsidize wind power in a hysterical reaction to two non-existent problems–Global Warming and The Coming Scarcity of Fossil Fuels, lose immense amounts of taxpayer money, then sell the product at a huge discount. Politics at its typical. Corruption can’t hold a candle to inefficiency for wasting my money.

This would be a welcome development if the province and its ratepayers — which is to say, you — received a return for our electricity that was equal to, or ideally above, the amount that was paid to produce it.

But it does not. Jurisdictions that import electricity from Ontario pay something close to the wholesale market price of electricity, a number that changes hour by hour and is dependent on factors too numerous to list here. For 2013 the average wholesale price was between 2.5¢/kWh and 3¢/kWh. The cost paid to produce that electricity, again using the IESO’s own numbers, is on average about 8.5¢/ kWh, or about four times the wholesale price.

Consumers pay, again depending on a host of factors, something much closer to the larger number, because built into the cost of our electricity is everything from capital investment to executive salaries to the payout for when gas plants are cancelled in the middle of election campaigns.

This trend, where Ontario ships excess electricity to its neighbours at steep discounts, is not new. In 2011, the province’s Auditor-General noted in a report that “the price Ontarians pay for electricity and the price it charges its export customers … have in recent years been moving in opposite directions.”

He estimated that Ontario received about $1.8-billion less for its energy exports than what it cost ratepayers between 2005-11. And as the numbers released Wednesday show, the exports are only increasing.

(Energy Minister Bob Chiarelli has in recent weeks touted exports as a source of profits for the province, but seems to have since realized that revenues do not equal profits. When I asked his office for clarification on Thursday, I was referred to the IESO, which confirmed that Ontario received the wholesale price for exports, which is a long way from a price that would allow for profits.)

It is true that Ontario might as well export its excess supply, because it allows the power system to recover a chunk of its costs, but given the lousy exchange it should hardly be a policy goal. It’s worth noting that exports tend to rise during periods of low demand — late at night and on weekends — so that the wholesale price received is usually even lower than the daily wholesale average.

But high export levels appear to be part of the plan, at least in the medium term. Over the next 18 months, the IESO expects to add another 3,300 megawatts of renewable energy capacity to the supply mix, which is about double what exists in the system. And, as has been noted time and again, it’s those renewables that often contribute to the cut-rate exported power.

On Wednesday, the day of the IESO report, the province’s wind-energy sector was running at almost full tilt, more than 1,600 megawatts — at midnight, when demand was low. By midday, it had dropped to producing about a third of that amount. (Even that number is relatively robust; on Thursday morning the sector was ticking along at less than 10% of capacity. As it does.)

These are the continued remnants of the Green Energy Act, which caused a renewables boom where none was needed. Ontario keeps expanding its supply, even as energy demand is expected to decline in the coming years. Good news for Minnesotans and Quebecers, I guess.


    This is what happens when politicians spend other people’s money on trends. In other words, this is constantly happening. The only way to stop them wasting money is to give them less of it.

Cheerio and ttfn,
Grant Coulson
Cui Bono–Cherchez les Contingencies


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