Three years of cheap gas spells NO RELIEF for Ontario electricity consumers

The price of North American natural gas has been ridiculously low since before the recession of 2008. In that time, the fossil component of the Ontario electricity supply essentially shifted from coal-fired power generation to gas-fired. The provincial grid still supplied mostly with nuclear, but the fossil supply is now mostly gas. As I write this, the provincial fleet of gas-fired generators is putting 2,455 megawatts into the grid. So far today it has generated 43.2 million kilowatt-hours, just under 14 percent. Has this three-year period of low, low gas prices translated into any relief on provincial electricity prices? No.

In fact, gas-fired generators are on track to receive yet another top-up from Ontarians, in the form of the “Global Adjustment,” a mechanism that ensures power generators get the per-kWh price they were guaranteed by the government. If the “market price” of power is less than that rate (it’s different for almost all generators, and in most cases it is secret), then the generator gets a periodic top-up from the rate payers.

I put “market price” in quotes because no Ontarian pays the market price. We have a market price because we like to pretend we have an electricity market. In fact, the price is still regulated. Only now that price varies from generator to generator; rate payers, mostly, pay the same (high) rate.

If you go to the official Global Adjustment site, you’ll see that the actual GA amounts indicated for so far in 2012 are negative. The IESO, which publishes GA figures, says that a “negative value denotes a charge to IESO customers.” That’s a polite way of saying that you, the electricity consumer, are on the hook for that top-up.

Working your way through these (probably deliberately) cryptic figures, you’ll notice that the OPA category accounts for most of the absolute amount of the top-up. That category includes Bruce Power as well as the new gas generating stations, plus all the expensive and inefficient wind, solar, and conservation initiatives the current government has gotten us into. In terms of actual kWhs put into the grid, Bruce Power is the biggest chunk of the OPA. But the gas fleet is the next biggest.

On that basis, you’d expect that if the price of fuel—which is the biggest cost of operating a gas-fired generating plant—was low, then the price of gas-fired power would be low, and that maybe the OPA Global Adjustment category would not be getting the biggest top-up of the three categories. But it is. Why?

Is it because gas generators dump enormous amounts of carbon dioxide, the principal greenhouse gas, into the atmosphere? After all, the provincial gas-fired fleet has dumped 23,727 tons of CO2 into the air so far today. Sadly, no. There is no charge for dumping carbon.

The price of gas-fired power remains high enough to keep our electricity rates up because the generators who use gas cannot shake the pre-2008 era from their minds. From around 2003 to 2008 the continental gas price were extremely erratic, and high. In some cases, the price spiked to $15 per million Btu—more than seven times what it is today.

That was precisely the time that these outfits were being wooed by the provincial government to do what the Big Environment lobby demands: shift Ontario electric power generation to natural gas. Somehow gas, which dumps 550 grams of CO2 into the air for every kWh it generates, is preferable to nuclear energy, which dumps zero grams.

So the gas generators naturally told the government they would need guarantee of far-above-market prices if they were to play along. And the government, to please Big Environment, gave them those high prices.

And now, after three years of ultra-depressed gas prices, Ontarians are not seeing any relief.

We should have stuck with nuclear. It is far cleaner and safer than natural gas. And cheaper.

2 comments for “Three years of cheap gas spells NO RELIEF for Ontario electricity consumers

  1. EL
    April 18, 2012 at 16:26

    The rise of electricity prices in Ontario has NOTHING to do with the cost of producing energy in the Province (unfortunately). It has far more to do with high debt, poor resource planning, limited import capacity, and a deregulated market that still doesn’t work properly. Fixing any of these things will take time, and consistency in a long-term approach (which has been sorely lacking in the past).

    I see a lot of confusion and misleading information on this site stemming from a lack of understanding of this fundamental and well documented fact. Even Wiki gets most of it correct:

    http://en.wikipedia.org/wiki/Ontario_electricity_policy

    Rather than harp over and over again on the inadequacy of the Green Act (a small pebble at the bottom of a giant mountain), why not provide more substantive critiques and information on the serious policy challenges ahead (that require immediate action to put Ontario’s electricity house in order). The longer we wait, the worse it’s going to get!

    • Steve Aplin
      April 18, 2012 at 17:01

      EL, you are right — the rising price has nothing to do with cost. That was my whole point. Gas, just over 13 percent of our kWhs so far today, is cheap. But the prices we have agreed to pay gas generators, plus the mamby pamby wind, solar, and conservation, are why the GA is negative.

      i.e. why senior citizens on fixed incomes will be paying rich “environmentalists” and gas companies a top up through their electricity rate.

      The purpose of the Green Energy Act was to shift to non fossil sources of generation. Those who called for the GEA don’t want nuclear because they cannot compete against it in either a fair market or a regulated system where the regulator has any independence. So they demanded, and got, a fixed market in which gas — a fossil fuel — is the preferred energy source and wind/solar are nothing but PR cover for the shift to a more politically correct fossil fuel.

      We could have reliable, cheap, and clean electricity with nuclear, hydro, and coal. That’s right — nuclear and coal would be cleaner than gas and wind.

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