Opinion | Michigan outperforms Ontario. And why not? They have our cheap power.

The state of Michigan is outperforming Ontario. That’s according to a recent study by the Fraser Institute. Since the end of the “’Great Recession” Michigan has out performed Ontario, increasing their GDP in 2013 by 2.8% versus Ontario’s growth of only 1.3%.  Unemployment levels in Michigan are currently at 4.6% versus Ontario’s 6.4%. Those are two very important economic indicators.

That news plus the fact Ontario has become a “have not” province in Canada, it seems policies adopted by the Ontario Liberal government to “build Ontario up” is having the opposite effect.

One of those policies resulted in Ontario’s electricity sector focusing on acquisition of renewable energy from industrial-scale wind turbines, solar panels and biomass. The passing of the Green Energy Act (GEA) in 2009 resulted in adding intermittent and unreliable renewable energy that is unresponsive to demand (wind power is produced out-of-phase with demand in Ontario).   This had the effect of driving down the price of electricity.

The free market trading (HOEP) of electricity has resulted in Ontario exporting a rising percentage of our generation to buyers in Quebec, NY and Michigan, with the latter the biggest buyer.   In 2015 Michigan purchased 10,248 gigawatts (GWh) or enough to power1.1 million “average” Ontario residential households. We sold it at an average of 2.36 cents per kilowatt hour (kWh) and were paid $242 million, but it cost Ontario’s ratepayers just over $1 billion.

Michigan doesn’t have to pay the Global Adjustment. You do.

Michigan appears delighted to be able to purchase our cheap subsidized electricity. Now they are seeking further transmission links to Ontario with an eye on the grid out of Sault Ste Marie.  Hydro One earlier this year announced they “entered into a purchase agreement to acquire Great Lakes Power Transmission LP from Brookfield Infrastructure for $222 million in cash plus the assumption of approximately $151 million in outstanding indebtedness.” One has to wonder, did Hydro One know about this, and see it as an opportunity to increase transmission revenue? 

This new transmission line could send both cheap hydro and expensive bio-mass generation to Michigan.

Ontario Power Generation (OPG) operates 11 hydro stations with 680 MW of capacity and also two bio-mass facilities (Atikokan and Thunder Bay) converted from burning coal and now using wood pellets with a combined capacity of 358 MW in the region.   The latter two facilities were focused on by the Auditor General (AG) in her November 2015 report. In the case of Thunder Bay, the report indicated the cost of generation was “$1,600/MWh—25 times higher than the average cost at other biomass facilities in Ontario.”  For Atikokan the AG had this to say: “The plant is expected to generate 140,000 MWh for $74 million per year, putting the cost of electricity from this facility at $528/MWh—about eight times higher than the average cost of existing biomass from other facilities in Ontario.” Industrial wind turbines have also invaded the beautiful landscapes painted by the Group of Seven.

For the sake of Ontario ratepayers, one hopes Michigan will not access electricity from either of the two biomass plants as it will fall on us ratepayers to pick up the costs in excess of the HOEP price. In the case of Thunder Bay the cost to ratepayers could approach $1.60/kWh and for Atikokan it would be 55 cents/kWh.

Maybe the Ontario government staffers in communications should change their PR Slogan to “Building Michigan up”!

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The above article was originally published on September 5^th, 2016 by Parker Gallant Energy Perspectives.