Ontario’s Auditor General lays into Ministry of Energy

A new report from Ontario’s Auditor General sharply criticizes a number of policies in the province’s electricity sector.

Ontario’s Auditor General (AG) released a scathing report on the province’s electricity sector, particularly its rollout of the smart meter program, which it says was a rash decision that has, to date, cost more than double original estimates – and counting – and failed to produce any tangible benefits to ratepayers. The report also criticizes the growing the cost of offering guaranteed rates to generators – particularly with the rise of renewable generation –and then passing those costs off to ratepayers.

Here are the top ten takeaways from the report.

  1. The cost of paying guaranteed rates to generators is soaring. How much? The AG estimates that between 2006 and 2015 Ontario ratepayers will have paid $50 billion to cover the cost of paying generators a premium for their output compared to what it would sell for on the province’s wholesale electricity market. The fee is charged to ratepayers through the Global Adjustment. Read Energy Probe’s recent report “Corporate Welfare Goes Green in Ontario” and its background study for a closer look at who is benefiting from this charge.
  2. The province’s rush into smart meters was rash and has been wildly more expensive than first thought. The government originally promised ratepayers that the rollout of smart meters would cost $1 billion, but the AG says that figure now stands at $2 billion and counting. The province didn’t complete a cost-benefit analysis before rolling out the smart meter program. The cost-benefit analysis that was finally completed – after the smart meter program had begun – was “flawed”, according to the AG.
  3. The Ministry of Energy kneecapped the province’s electricity regulator, the Ontario Energy Board (OEB), to implement its smart meter policy. The AG says that a directive issued by the Minister of Energy to the OEB in regards to smart meters “set aside the regulatory role of the OEB” and bypassed the regulator’s role in protecting the interests of ratepayers.
  4. The goal of the smart meters – to push down peak demand in order to avoid building new capacity – has failed. While average demand in the province has fallen over the past decade, peak demand remains largely unchanged. Smart meters were presented as the best way to lower peak demand and reduce the need to build new generation (which the province has done anyways).
  5. The province’s Time-of-Use (TOU) policy is ineffective. The main reason that the smart meter program has failed to lower peak demand is because the OEB – which sets electricity rates in the province – has narrowed the price gap charged to ratepayers for power consumed during peak and off-peak periods. TOU pricing is supposed to send a signal to ratepayers that during periods of high demand – hot summer afternoons, for example – the cost of generation is higher and so consumers pay more for any electricity use. When TOU was first introduced in 2006, the on-peak-to-off-peak ratio was three-to-one, meaning ratepayers paid three times as much for peak power compared to off peak. That ratio is now 1.8-to-one and, according to the AG, doesn’t provide “an incentive” to change electricity use behaviour.
  6. Hydro One has been particularly wasteful in its smart meter spending. Hydro One – the government owned distribution – accounted for around 50% of the costs of the smart meter program, yet only installed 25% of all new meters. Hydro One has spent more than the other 72 distribution companies in Ontario combined.
  7. The province is losing money on its electricity exports, which have risen dramatically in recent years. The province’s exports of electricity have increased 158% from 2006 to 2013 – largely a result of a decline in overall demand matched by an increase in new generation. Other jurisdictions pay just a fraction of the cost of producing that electricity. The AG estimates that between 2006 and 2013 the revenue from selling surplus power was $2.6 billion lower than what it cost Ontario ratepayers to produce it.
  8. The province is wasting money by duplicating smart meter data centres. A central data centre run by Independent Electricity System Operator (IESO) is performing the same tasks as those run by local distribution companies.
  9. Some of the data being produced by smart meters isn’t being used or is worthless. The AG estimates that one-in-six smart meters aren’t sending any data to the province’s main smart meter data centre. The AG also said that not all smart meters were capable of notifying companies of power outages – one of the big selling points of the program.
  10. Smart meters may be a fire hazard, but the province hasn’t done any work to understand how severe the problem may be. A number of ratepayers, according to the AG, reported fires arising from smart meters, yet the province has provided “no accurate or complete” information on smart meter-related fires. Insufficient information has made it impossible to determine the scope and extent of the problem.

Brady Yauch is an economist and Executive Director of the Consumer Policy Institute (CPI). You can reach Brady by email at: bradyyauch (at) consumerpolicyinstitute.org or at (416) 964-9223 ext 236.


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