Ontario’s power system is “exactly like Walmart”: Bob Chiarelli says

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Parker Gallant 

Anyone reading an excerpt from the November 18, 2014 Standing Committee on Estimates text of Energy Minister Bob Chiarelli might have trouble discerning what his message was.  And, specifically, what his answer had to do with MPPRandy Hillier‘s question on whether Ontario loses money exporting surplus electricity.

Chiarelli had danced around the question, claiming Ontario needed “surplus generation,” but Hillier kept hounding him and finally, Chiarelli responded.

Mr. Randy Hillier: “Listen, I understand that we want to have a margin of surplus. We all can understand that, because you don’t know specifically and exactly how much is going to be needed at any particular point in time. But let’s get back to the question. What are our estimated losses—do you have an estimate—for this year and next year, cumulatively, in our losses of trades?”

Hon. Bob Chiarelli: “Can I ask you to give me 30 seconds without interruption? Just a few seconds, okay?”

Mr. Randy Hillier: “Well, if you can answer the question—60 seconds.”

Hon. Bob Chiarelli: “Walmart buys snow blowers. They expect to sell X number of snow blowers in a winter. At the end of the winter, if they haven’t sold those snow blowers, they sell them at a discount. They’re selling them for less than their costs. That’s part of doing business.

The electricity system is exactly the same as Walmart. Why do they have sales? Why do they sell a product that is worth X number of dollars in November for less when they’re selling it in March or April? Why do they do it? They’re giving it away. They’re losing money. How much have they lost?”

Walmart. Ontario’s electricity system is “exactly the same” as Walmart.

Here’s what the Ontario Auditor General’s report for 2011 said about what Ontario lost by exporting electricity surpluses.

“Based on our analysis of net exports and pricing data from the IESO, we estimated that from 2005 to the end of our audit in 2011, Ontario received $1.8 billion less for its electricity exports than what it actually cost electricity ratepayers of Ontario.”

The losses highlighted in the AG’s report are related to the creation of the Global Adjustment or GA.  The buyers of our surplus electricity only pay the HOEP (hourly Ontario electricity price) and Ontario’s consumers pick up the difference between the contracted price for generation and the HOEP.  It was that difference, the GA, that the AG’s report highlighted.

Ontario has seen three more years of generation since that report and each one has meant increasing costs to Ontario’s electricity consumers.  For 2012, IESO reported our exports were 14.6 terawatt hours (TWh) and generated an average price of $24.1 million/TWh, but the costs to Ontario’s consumers for that generation included the GA which was an additional $49.6 million/TWh—that resulted in a cost of $724 million.  2013 was worse: Ontario exported 18.3 TWh generating $26.5 million/TWh with  the GA cost at $59.0 million/TWh for a cost of $1.007 billion. 2014 was slightly worse again, with exports of 19.1 TWh generating $36.0 million/TWh, costing ratepayers $53.5 million/TWh for the GA, creating a loss of $1.022 billion.

So, those three years cost ratepayers $2.75 billion for the 52 TWh (11.3% of total generation of 459.8 TWh) of exported power we didn’t need, bringing losses since creation of the GA to $4.550 billion.

Ontario’s ratepayers might be much better off if Walmart really was running the electricity system in Ontario. At least Walmart isn’t continually running at a loss.