By Gerry Barker
April 3, 2017
The Strategic Options Committee has lost two members, Pankaj Sardana, CEO of Guelph Hydro and Richard Puccini a retired engineer. Mr. Sardana is replaced by Guelph Hydro Chair, Jane Armstrong, who said she felt that Guelph Hydro Electric Services needed a str0nger presence on the committee. She admitted she and the Hydro board favoured the recommendation of the SOC selling Guelph Hydro if the opportunity arises. The city has yet to announce a replacement for Mr. Puccini.
This is a combination feel good and feel bad story.
It’s based on a first-rate analysis of Ontario’s high cost electricity generation and distribution system reported by retired bank executive, Parker Gallant, published recently in the Financial Post. Gallant looked at his power bill and didn’t like what he saw. We thank FP for providing this important analysis that affects every person in the province.
The good part of this story illustrates the incompetence of the Wynne government in managing the province’s electric power systems coming out of the darkness. The details are a stunning indictment of a ship of fools that we elected to run our provincial government. Their decisions over12 years, affects the entire population, industry and future of our province. It reveals why Ontario has the highest electricity costs in Canada.
How incompetent are they? Well, according to Mr. Gallant, the Minister of Energy, Glenn Thibault, says the province spent $35 billion fixing the broken electricity system since attaining power in 2003. His boss, Premier Wynne, says it cost $50 billion.
If they can’t get their act together, what can the citizens who pay for it, conclude?
Mr. Gallant states: “Thibeault’s $35 billion would represent spending $8,000 per residential ratepayer; Wynne’s $50 billion, $11,000 per ratepayer. Bear that in mind as you travel through my computations. Some of these are estimates from reasonable and reliable sources. The spending, initiated via more than 100 directives issued by a succession of Liberal energy ministers over the past 12 years, often had no connection to fixing anything, or generating electricity.”
Before breaking down where the money went, in Guelph we have a Strategic Options Committee (SOC) composeed of non-elected citizens, working to sell off or merge our Guelph Hydro with another power distributor with the highest bid. Presumably, either option will result in losing any semblance of municipal control of vital electricity distribution. More on this later.
Here is Mr. Gallant’s breakdown of where the billions went.
Total spending on frills, fluff and baubles: $7.4 billion
“First, there are the “frills and shiny baubles” spending category, essentially money spent that neither created new generation nor improved transmission nor reduced blackouts or brownouts.
- Spending on “smart meters,” which Ontario’s Auditor General in her December, 2014 report, concluded funds were basically wasted since “many of the anticipated benefits of Smart Metering have not been achieved and its implementation has been much more costly than projected:” Cost, $2 billion.
- The smart grid was supposed to work in conjunction with smart meters. Consumers are billed for the costs of developing the smart grid but the benefits accrue to a few select individuals and companies: Cost, $1.2 billion
- Closing the coalfired generating plants required Ontario Power Generation to write off the remaining value of the plants when the last one closed in 2014:
- Cost, $600 million.
- Costs of conservation programs, in which some consumers are paid to not consume, while the costs between $300 million and $400 million annually are passed on to all Ontario ratepayers: Cost, $2.5 billion.
- Gas plant moves, from Mississauga and Oakville to Lambton and Bath, Ontario: Cost, $1.1 billio
Total spending on “unreliable and intermittenr” power providers: $21.4 million
Second, considering our “intermittent and unreliable” category, in which the province added wind and solar capacity that is unable to deliver generation when the wind isn’t blowing and the sun’s not shining.
- Ontario’s independent system operator shows the province will have installed wind and solar capacity of more than 7,000 MegaWatts (MW) as of March 31, 2017, including 4,650 MW of wind at a capital cost of $2.2 million per MW. Cost, $10.2 billion.
- Solar generation as of March 31, 2017 will total approximately 2,400 MW at a capital cost of $2.6 million per MW: Cost, $6.2 billion
- Transmission spending by Hydro One to connect wind and solar to the grid and for embedded connection expenditures. Cost, $5 billion.
Those photo-op costs are $2.6 million
Our third category is “photo-op generation,” money spent on large hydro infrastructure projects producing little power but presenting politicians with great photo-ops.
- Big Becky hydro power expansion. The original Adam Beck Niagara hydro generation plant,, which went $600 million over budget to squeeze an additional 150 MWs of capacity from Niagara Falls. Cost, $1.5 billion.
- Mattagami Hydro Power project, originally estimated at $1.6 billion to increase the rated capacity by 438 MW, went over budget by $1 billion. Before these two hydro projects were completed, Ontario Power Generations produced 30.6 TWh (terawatt hours) of hydro generation. Despite the addition of 588 MW of capacity, hydro generation in 2016 fell to 29.5 TWh. Generation data from March 21 indicates Mattagami generated power at about eight per cent of rated capacity, while all other hydro was operating at an average of about 50 per cent of rated capacity: Cost, $2.6 billion.
Nuclear power’s value for money
The fourth category is “value for money.” Some of the claimed investments in generation actually provided some value.
- The Bruce Nuclear refurbishment of two reactors came at a cost of $4.8 billion but, according to Ben Chin, former VP of the Ontario Power Authority, the cost to ratepayers was limited since shareholders were forced to accept a portion of the over-budget costs. Cost, $3.4 billion.
Grand total to the end of 2016: $36.3 billion
This estimate comes reasonably close to the $35 billion claimed by Energy Minister. Glenn Thibault. But more spending is in the pipeline over the next 18 months, including another 500 MW of wind capacity with an estimated capital cost of $1.1 billion, 100 MW of solar for $300 million and 1,300 MW of gas at a rough cost of $900 million.
Total for what’s still to come: $2.3 billion
Even if one includes the money still to be spent, the total investments (most of them wasted) are over $11 billion shy of the $50 billion that Wynne claims has been spent.
We need to see Thibeault’s accounting, and Wynne’s too, to allow Ontario’s taxpayers and ratepayers to determine whether the spending has provided the claimed value for tax dollars.
So what does this mean for Guelph power consumers?
Predictably, Ontario’s power strategies have been a dismal failure that will cost citizens well into the future.
An immediate problem is the operation of the Strategic Options Committee that had pledged to report later this year on their investigations and bargaining with potential purchasers of Guelph Hydro as to whether to sell it or merge with another distribution operator.
This is the second time in nine years that the administration of the city has attempted to recover its equity in the city-owned utility that is profitable. In 2008, former Mayor Karen Farbridge, a member of the Guelph Hydro board of directors, attempted to convince her council to sell the utility to a consortium of Hamilton and St. Catharines power distributors.
The reasons then are the same as the reasons today.
The former mayor desperately needed the money to participate in a $66 million infrastructure plan funded on a one-third contribution by the city, provincial and federal governments. Guelph’s share was $22 million. The attempt failed when the people protested and the majority of council, many of them Farbridge supporters, voted no to the sale.
The mayor still got her money by calling a note of $30 million owed to the city by Guelph Hydro. The result was the city added a few frills such as a new time clock in the Sleeman Centre and bicycle lanes on Stone Road among others.
One of the arguments put forth at the time was that the province wanted the “smaller” electricity distribution systems to sell or merge with larger units. It was not mandated by the province but recommended for lowering costs and increasing efficiency.
Today, that same reason has been given to city council. SOC Co-Chair Pankaj Sardana, Chief Executive Officer of Guelph Hydro, has cautioned members of council that not all mergers are successful partly due to the clash of cultures between the two organizations coupled with a loss of jobs.
The reason for selling is obvious. The city has drained most of its reserves to pay for the mistakes, failed ventures and refusal to reduce its overhead. High debt levels and betting on increased revenues through reassessment of properties, user fees and subsidies from province and Ottawa, is pie in the sky.
All those financial mismanagement episodes for the past 14 years have hobbled the city’s ability to carry out its short and long-term strategies. The quick solution: Sell Guelph Hydro and recover an estimate $125 milllion.
The city is on the brink of failing to have the financial resources to continue its short and long-term strategies. Selling Guelph Hydro is not the solution.