Ontario power rate debate: what should the rate increase pay for?
Ontario’s regulated power generator, OPG, has asked the provincial regulator for permission to increase rates by 14 percent. OPG says it needs to raise money to build new nuclear and hydro facilities. It appears that green groups, or at least those who talked to the Toronto Star’s Ian Urquhart the other day, approve of the rate hike.
This is a bit of a switch. Have the greens accepted nuclear’s predominant role in our energy mix? Either they missed the part about the proposed rate hike paying for new nukes or they’re finally prepared to admit that conservation and renewables cannot play a significant role in our power system.
I have no problem with a utility raising rates to cover costs and maintain reasonable return on investment. I have been calling for new nuclear plants, and this is at least part of the way we’ll pay for them. I also suggested a way to make this palatable to electricity consumers, by rewording the Debt Retirement Charge portion of the bi-monthly power bill (see article).
But that’s how OPG can pay for its regulated assets (assuming Pickering 2 and 3—and the entire Pickering B station—stay regulated if and when they’re replaced with new reactors). How will the operator of OPG’s non-regulated nuclear assets, Bruce Power, raise the money to replace the reactors at Bruce B? Should government provide the same kind of financial assistance—loan guarantees, construction delay insurance, tax credits on zero-emission power production—that the U.S. EPAct does? To me that’s not a bad idea. Ontarians and Canadians have indicated they approve of money being spent to reduce emissions, and nuclear has a proven track record of doing that on a grand scale (see article).
And with the greens’ uncharacteristic mildness on OPG’s overt nuclear-related rate hike, maybe this is not as much of a political non-starter as it seems at first blush.
Ontario’s regulated power generator, OPG, has asked the provincial regulator for permission to increase rates by 14 percent. OPG says it needs to raise money to build new nuclear and hydro facilities. It appears that green groups, or at least those who talked to the Toronto Star’s Ian Urquhart the other day, approve of the rate hike.
This is a bit of a switch. Have the greens accepted nuclear’s predominant role in our energy mix? Either they missed the part about the proposed rate hike paying for new nukes or they’re finally prepared to admit that conservation and renewables cannot play a significant role in our power system.
I have no problem with a utility raising rates to cover costs and maintain reasonable return on investment. I have been calling for new nuclear plants, and this is at least part of the way we’ll pay for them. I also suggested a way to make this palatable to electricity consumers, by rewording the Debt Retirement Charge portion of the bi-monthly power bill (see article).
But that’s how OPG can pay for its regulated assets (assuming Pickering 2 and 3—and the entire Pickering B station—stay regulated if and when they’re replaced with new reactors). How will the operator of OPG’s non-regulated nuclear assets, Bruce Power, raise the money to replace the reactors at Bruce B? Should government provide the same kind of financial assistance—loan guarantees, construction delay insurance, tax credits on zero-emission power production—that the U.S. EPAct does? To me that’s not a bad idea. Ontarians and Canadians have indicated they approve of money being spent to reduce emissions, and nuclear has a proven track record of doing that on a grand scale (see article).
And with the greens’ uncharacteristic mildness on OPG’s overt nuclear-related rate hike, maybe this is not as much of a political non-starter as it seems at first blush.
posted by Steve Aplin at 7:31 AM
6 Comments:
While I can also hope for a consensus on the need for these new power facilities, I don't think that "conservation and renewables cannot play a significant role in our power system" is true either; I think they cannot play a sufficient role alone to eliminate coal, but they are still needed, and demand-management too.
I also think there should be some support to encourage the new build, and a US-style package should be sufficient, but there should be some reciprocity too; if the rates are raised, are the consumers then getting a favourable deal on the resulting power?
And importantly, are the new nukes going to be designed and required to act as grid-stabilisers, not just power merchants?
Bruce Power should have no real problem raising investment dollars the same way that its current owners raise dollars to build new pipelines and uranium mines. They will compute the return on the investment and convince investors that the returns will be high enough to pay for the risk of the investment.
Regulated utilities whose eventual power rates are regulated to keep the return within certain limits have less ability to raise the same kind of investment dollars. In effect, the ability to raise rates in advance of a new construction project allows a large number of customers to - in effect - invest in lower rates in the future.
OPG is applying for permission to partly decouple its nuclear-power compensation from the output of its nuclear reactors. They want to get 25% of their forecast nuclear income regardless of whether or not their reactors run, and only "bet" the remaining 75 cents-per-dollar on actual performance. (Who can blame them -- wouldn't you??)
Not only have your "proven performers" failed dismally to reduce coal-fired emissions in the past -- for years in a row -- their owner isn't too keen to bet on them in the future, either!
Hello!?!?!
Also, the link between OPG's current nuclear compensation and the cost of power from new reactors is unfortunately bogus: Just as in the screwy Bruce refurb contract, the Ontario government will sign whatever crazy deal it decides to sign, behind closed doors and probably in a panicky mood.
Neither precedent nor value is likely to be mentioned in these secret and off-the-record discussions.
Hello again Norman,
The 25 percent guaranteed compensation – if it is approved – would serve the same purpose as a loan guarantee. If a wind generator were asking for the same thing, I’d agree with you that it’s not worth it. But you know as well as I do that the prospect of getting large scale dispatchable power is good. To me, the rate application is fair, because I’m confident that reliable emission-free electricity will spit out the other end. You can’t use the example of the mid-1990s as proof that nuclear doesn’t work, any more than I can use my piece-of-crap 1984 Ford Ranger as proof that cars don’t work (don’t worry, my Ranger is long gone). Come on man, it’s 2007 and more than half the electrons powering the province come from nuke plants.
Steve, you are irrational and old-fashioned to prefer "large scale" generators. If we've got enough, the scale of the sources is mostly irrelevant -- and where it is relevant (e.g. for reliability), having more small ones is better, not worse. If we don't have enough, it doesn't matter if we get a bunch of small ones or a few big ones. Think about it.
You are absolutely rational to prefer "dispatchable" generators, but whoever convinced you that CANDUs are dispatchable was not your friend. They aren't. Think "wind plus rad-waste" and you'll be close. (Can you say "capricious"?)
Like your old piece-of-crap 1984 Ford Ranger, CANDUs also have good times as well as bad. Chernobyl had a bunch of good times, and TMI was also a world-beater in so-called reliability. The "A" stations, too. In an electricity system that has to do a lot better than 99.9% reliability, it's not the good times we remember.
UNlike your old piece-of-crap 1984 Ford Ranger, the old piece-of-crap CANDUs that let us down in the 1990s (and in several other decades) are still with us. And repairs don't seem to help much either: two of the Pickering-A reactors that were just expensively refurbished were in the shop again all summer, when we needed them most. That wasn't the 1990s, according to my calendar. And the wind blew just fine on lots of those days, but not a spark came out of the whole Pickering-A station. (I hope your new car did better.)
You may be "confident" that the CANDUs will generate reliable power, but OPG's application shows that they want an income stream that is significantly more reliable than their nukes. I sure don't blame them.
Maybe you should buy a share, and show them how a confident investor acts -- like a REAL man!! I really wish you could, and that you would start by buying my share of these lemons, but I'm stuck with them so far.
Norman,
I may be irrational, and I may be old fashioned, but… what was that third thing you called me? I love the anti-nuke crowd’s defence-in-depth. If you can’t convince people that nuclear energy is unreliable, trot out Chernobyl and Three Mile Island. Actually, nobody ever told me that CANDUs are dispatchable. I looked at the public record and figured it out myself. Millions of Ontarians use their power every day, and have been for decades. And their power is cheap, even when you figure in the calamitous Darlington overrun and the subsequent layups and rehabs. I personally pay around five bucks every two months for these disasters. If I weren’t getting any electricity out of that bargain, then you might have a point. But I do get electricity, 24/7/365, and so do millions of other people. I just don’t get worked up when machines occasionally break down. Hell, that’s why it’s good we have 20 of them. If I had two Fords back in the 80s, I wouldn’t have lost so many girlfriends.
I have never understood this antipathy toward big centralized generators. They are obviously by far the most efficient way to provide power to the masses, especially in the Age of NIMBY. Do you honestly believe it would be better for society and the environment if we had thousands of small generators dotting the province? Ontario would look like a Robert Crumb cartoon, power lines everywhere.
Decentralization is not better, even if the aggregate capacity exists. A case in point: my neighbour at the cottage has his own propane generator, rigged up as a UPS. For less than what he paid for his system (which was roughly $15k), I could – and will – set up a battery-based load-shifting and backup system. The batteries will be recharged with power from the Big Bad Grid, whose availability factor even in my remote corner of Muskoka is well over 99 percent. His system’s power costs around 40 cents per kWh and comes with an emission intensity of about 550 grams of CO2 per kWh. Mine will be around 5 cents, with an emission intensity of less than 100 grams (I will set it up so it draws from the grid only during off-peak times). i.e., mine will come with lower capital and operating costs, and much lower emissions. Don’t forget that my capital costs include Darlington and OPG’s 14 percent hike (assuming it is approved).
Am I an idiot for basing this decision on a better-than-99-percent availability factor? Only if major outages become the norm. That’s happened only twice in the last half century (three times if you count the ice storm). If something bad happens that puts the grid out of commission for a significant period, chances are the same bad thing will also affect gas and propane supplies. That’s life on planet Earth.
The UPS example perfectly points up the fallacy underlying the arguments in favour of decentralized generation: that it would be (1) cheaper and (2) better for the environment. The example shows it would be neither. You correctly identify dispatchability as the prime criterion of any generation source in a modern power system. I’m sure you will agree that this criterion rules out wind and solar right off the bat. Well, that leaves the three usual suspects: fossil, nuclear, and big hydro. Fossil comes with emissions, which is why we’re having this conversation. You want a small generator that cranks out reliable power? Then make sure it runs on gasoline, diesel, or gas/propane. (Or syngas from gasified coal.)
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