The evisceration of the Independent Electricity System Operator

Energy Probe, February 8, 2011 –

Parker Gallant writes that the Independent Electricity System Operator has lost its independence from political influence.


The President and CEO of the IESO, Paul Murphy, delivered a speech to the Ontario Energy Network January 11, 2010 in which it is obvious that the “independence” of IESO has been taken away. IESO, based on this speech, seems onside with the Minister of Energy’s Long Term Energy Plan (LTEP), adding renewable energy to the grid, and installing smart meters.

This speech was the kick-off to what is likely to be a tumultuous year in Ontario’s energy sector and one of the major issues in the fall election. As an outsider it would appear that Mr. Murphy was given marching orders by the Minister to bow to their agenda and endorse the Green Energy Act and the LTEP.

In the speech he tells the audience that there is 37,000 MW of wind and solar already installed in North America but omits reference to its intermittent delivery of power to the grid, or that installed capacity has nothing to do with what it actually produces. The speech states that “wind and solar doesn’t generally displace other non-carbon sources like nuclear or hydro” yet it was IESO’s report that recently disclosed we had exported surplus generation to the US and Quebec in December at a loss. It was reported by several parties associated with the energy sector that the cost to Ontario ratepayers was over $50 Million during that month. In the process it was self-evident the exports displaced OPG’s hydro generation, reducing their revenues and producing a lengthening repayment period of the old stranded debt.

The speech focused on the McGuinty/Duguid messages — how revewables are not driving up costs and how paying 80 cents/kwh for rooftop solar is appropriate because it is such a small amount. The speech was silent on the fact that the LTEP will bring the baseload of our electricity system to 83%, and does not address the past concerns that IESO has expressed about how intermittent electricity sources such as wind and hydro affect their ability to manage the grid. One need only look to the recent problems that Texas (with 10,000 MW of wind capacity) had with their grid forcing rolling blackouts partially induced by intermittent wind production. In the future IESO will be forced to sell more of our power at a loss to the US and Quebec as we did in December. The speech references forecasting weather and how IESO are in the process of setting up a wind forecasting unit. On this latter issue it would be interesting to learn if IESO plans peer comparison with other markets or are simply acting on directions from above.

The speech tells the reader Ontario is a leader in introducing “smart meters” along with time-of-use (TOU) pricing. Smart meters are seen as an enabler for the smart grid of tomorrow. Perhaps they are but this writer isn’t sold. Based on personal experience with Toronto Hydro and seven surges or outages from January 1st to January 20th of this year, smart meters are not saving Toronto Hydro customers from blackouts. When the problems in our neighbourhood were reported to TH, they were completely unaware our neighbourhood had any outages despite the fact that smart meters have been installed. Smart meters reputedly allow electricity distributors to spot problems rather than wait for a phone call to report an outage but it would appear this benefit eludes TH at the present time.

The speech reports how “many” people are benefiting from TOU pricing, yet actual results emanating from pilot projects run throughout the province actually point in a different direction. In Toronto over 80 % in the pilot program reported an increase in electricity costs.

Included in the speech is the observation that Ontario doesn’t have the highest prices in North America and references a study by Hydro Quebec that places “Ontario residential rates in the middle of the pack.” The increases announced by the Minister of 46% over the next four years in the LTEP will allow us to take that leap to price leadership! The speech goes on to state that electricity costs will rise not only in Ontario but across North America. The latter statement is in contrast with the US government’s Energy Information Administration that is forecasting a decline in electricity prices over the next 25 years after adjustment for inflation.

In the latter part of the speech we read about Ontario’s “hybrid market structure, combining a competitive wholesale energy market with significant amounts of contracted or regulated supply.” The speech lauds the Ontario Power Authority and how they have “done a good job with many of their contracts to make sure these facilities choose to run when it’s most cost effective.”

On the first point above the choice of the noun “hybrid” was perhaps meant to conjure up green images and is a bitter truth for ratepayers and why Ontario’s rates are heading up. Knowing that the OPA sets renewable energy prices well above market value compared with any other jurisdiction, it would not be factual to claim that Ontario’s market is “competitive.” When referring to how the OPA’s contracts will “make sure these facilities choose to run when it’s most cost effective” one can only presume Mr. Murphy wasn’t referencing wind and solar, which don’t choose to produce power when we actually need it.

It almost sounds as though Mr. Murphy had this speech handed to him by the Ministry’s office and was told to deliver it. It is unfortunate that the Minister of Energy has taken the “Independent” out of IESO’s mandate just as they took the word “balances” out of the OEB’s first objective; “To provide sound economic regulation that balances the interests of consumers with the need for a financially viable energy sector” and replaced it with the word “consider”.

Over the past few years we have witnessed the evisceration of the public energy sector by the current government to the point where they put words in the mouths of those charged with the unenviable task of executing their misguided policies.

The time has come to depoliticize the energy sector in Ontario and ask the bureaucrats to do their job!