Billion dollar ‘mistake’: Ontario Liberals ‘hijacked’ plans for sustainable green economy
Speaking about the effects of rising electricity costs on everyday Ontarians, Premier Kathleen Wynne said in November 2016, “Our government made a mistake. It was my mistake. And I’m going to do my best to fix it.”
But 4,000 pages of internal emails and documents, which Global News obtained from the now defunct Ontario Power Authority (OPA) suggest billions of dollars in unnecessary spending could have been avoided had the government followed the early advice of the OPA, which was tasked with designing many of Ontario’s energy policies.
In fact, when it comes to the FIT and Micro-FIT programs, key components of the province’s Green Energy Act, documents suggest decisions made by the Liberal government in 2009 and 2010 – as well as design flaws with the programs themselves – may have put Ontario on a collision-course with rising electricity costs.
“Anger over the hydro file is very real,” said Brady Yauch, an economist and executive director at the Consumer Policy Institute.
Yauch has independently reviewed all 4,000 pages of documents and agreed to share his views with Global News.
“The province hijacked the [FIT and Micro-FIT] programs from the very expert agencies it established to handle these types of technical, complicated energy policies,” he said. “Worse still, [the government] appears to have overridden concerns of those experts [about] overpaying [electricity] generators.”
“That’s very concerning, because now you have a political electricity system, as opposed to one that’s based on economics or cost-effectiveness,” he said.
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Meanwhile, in an exclusive interview with Global News, the man responsible for designing the FIT and Micro-FIT programs, Jim MacDougall, also said the government “ignored” expert advice that could have saved Ontarians billions of dollars in green energy spending.
The government has refused to answer specific questions about the FIT and Micro-FIT programs in relation to this story. Energy Minister Glenn Thibeault also declined to be interviewed. And while both Wynne and Thibeault have publicly discussed problems with the programs in the past, the ministry said it could not comment beyond a generic statement describing the programs’ attributes because it is in “caretaker” mode during the election.
“FIT prices were [set] based on project size and type of renewable energy technology and intended to cover capital, operating, and maintenance costs,” the statement said.
The government also noted the many benefits to renewable energy, such as ridding the province of coal, helping reduce brownouts and blackouts and creating thousands of clean-energy jobs in the province.
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The Independent Electricity System Operator (IESO), which merged with the OPA in 2015, also refused to answer specific questions about design and implementation of the FIT and Micro-FIT programs. Instead, it provided a written statement saying the OPA “worked closely” with the Ministry of Energy to make sure the programs met the government’s “broader economic and environmental policy objectives.”
Micro-FIT: An example of how government and OPA got ‘snowed’
On Oct. 1, 2009, the OPA started receiving applications through the FIT and Micro-FIT programs it was directed to create.
Unlike the FIT program, designed for large-scale, commercial projects, such as big solar farms, wind farms and hydroelectric dams, Micro-FIT was created so homeowners could put a solar panel on their roofs to “offset” electricity use and lower hydro bills.
What ended up happening, however, is the OPA was quickly overwhelmed by the number of Micro-FIT applications it received. By mid-November, about six weeks after the program was launched, emails show the OPA was worried some applicants were “gaming” the system – meaning people were submitting multiple applications for small solar projects on the same property, which, though technically not against the rules, violated the “spirit” of the program.
“Aggregators,” as they became known, submitted hundreds of Micro-FIT applications with plans to set up solar panels in “vacant lots” or on farmers’ fields. This was a problem, because Micro-FIT contracts were to pay nearly double what large solar projects received.
And because the cost of building larger projects was significantly lower than what a homeowner might pay to put a solar panel on a roof, aggregators received higher returns on their investments than the government and OPA initially intended.
People “gaming” the system could have been avoided, however. While the OPA initially wanted to reserve the highest price for rooftop solar only, after public consultations it decided to extend this price to “ground-mounted” solar as well.
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A March 2010 memo from the OPA says this decision was made because some rooftops were “unsuitable” for this type of solar project and access to the program “should not be restricted if a homeowner had a suitable piece of land” to build on.
Yauch says this was the first mistake, and that the OPA was “caught with its pants down” by failing to foresee the potential issue of “aggregators.” Once the problem was identified, however, the ministry took months to respond, MacDougall says. Meanwhile, thousands of applications — as many as 100 a day — continued to pour in, nearly all of which received the highest price available.
In total, the OPA signed close to 13,500 contracts under Micro-FIT at the highest premium. And what amounts to a miniscule fraction of Ontario’s electricity capacity – roughly 0.3 per cent – could end up costing billions over the life of the 20-year contracts, according to estimates provided by the IESO.
Global News requested an exact dollar amount Ontarians will pay for this figure, but was told it’s not possible.
“There are many variables and assumptions that factor into an estimate of how much Micro-FIT contract holders will be paid over the life of their contracts,” wrote Andrew Dow, a spokesperson for the IESO.
Dow says all Micro-FIT contracts in total cost about $200 million in 2017, with costs expected to remain steady between now and 2030. Based on these estimates, Micro-FIT could cost Ontarians more than $4 billion over the life of the program, more than half of this will go to the highest premium contracts.
Calls for ‘immediate action’ to stop aggregators go unanswered
In his 2011 annual report, then-Auditor General, Jim McCarter, said the OPA warned the government about aggregators as early as February 2010 – roughly five months before a decision was made to stop them. During this time, the OPA received nearly 10,000 solar applications under the Micro-FIT program.
The AG’s report concluded that if the government had taken the OPA’s advice in February to drop the highest price for ground-mounted solar to 58.8 cents per kilowatt-hour, Ontario ratepayers would have saved roughly $950 million.
But an email from April 23, 2010, clearly shows the OPA was opposed to the 58.8 cent price and wanted something significantly lower.
“OPA staff reach consensus to lower the price to 44.3 cents per kilowatt-hour,” wrote a senior manager from the OPA.
The email says this recommendation was accepted, then subsequently ignored by the government’s Renewable Energy Facilitation Office (REFO), which after asking for additional information from the OPA, “used these numbers to come up with a new price.”
The email goes on to say REFO recommended its new price to the ministry and not the OPA’s. Despite its expertise, the OPA’s advice was “not planned to be put forward” to the minister’s office, the email says.
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It’s unclear, however, how much reducing the price to 44.3 cents per kilowatt-hour from 58.8 cents, as the OPA suggested, might have saved.
Both the ministry and IESO refused to answer specific questions about why the OPA’s recommendations on this point were not accepted.
The IESO did say the FIT and Micro-FIT programs were “regularly reviewed” and several changes were made to address issues, including the price change for small solar to “better reflect the economics of this technology.”
In response to the 2011 AG report, the government said at the time, the success of the FIT program was due largely to stability in pricing. The government’s response did not specifically mention the Micro-FIT program. The OPA, meanwhile, said the report “did not find any significant issues with the administration of the FIT program.” The OPA’s response also did not mention the Micro-FIT program.
Neither the government nor the IESO responded to specific questions about delays with this decision.
Frustration with government ‘micro-management’
The April 23 email also expressed extreme frustration with the government making policy decisions about topics it had no technical expertise in.
“It’s one thing to keep REFO / government in the loop with changes and issues,” the email says. “But it’s another thing to take direction from government – especially on very detailed program elements.”
“These are technical issues that the government does not fully understand,” the email says. “Like I said, I no longer know where the lines are between OPA and government.”
This is consistent with what MacDougall described as the government’s “micro-management” of the FIT and Micro-FIT projects, saying no important decisions could be made without the ministry’s approval.
“I think the government didn’t trust the OPA to launch and roll out this program as aggressively as they wanted us to,” MacDougall said.
“When we would give advice they would consider it, but they would make their own decisions and largely ignore some of the key policy recommendations that we were trying to put into place.”
The government refused to answer specific questions about whether policy advice was being ignored.
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However, George Smitherman, energy minister when the FIT and Micro-FIT programs were designed, says these allegations are completely untrue. Yes, decisions were being made by the government, but these programs were designed in close collaboration with the OPA, he says.
“I depended heavily on the advice of the OPA. They established the prices, the parameters, and they established the quantum of electricity that we should seek,” Smitherman told Global News.
With respect to price changes for Micro-FIT, Smitherman said he left government in November 2009, roughly three months before the issue of aggregators was raised, and cannot comment on how this decision was made.
Still, he says there’s “no doubt whatsoever” that initial prices for the small solar projects were “exceedingly high.” But he thinks this issue receives a disproportionate amount of the blame when compared to the, “very small portion” of the electricity supply it makes up.
He says other factors have also led to rising hydro bills: like rebuilding the province’s nuclear plants, investing in transmission projects and constructing new hydroelectric dams in northern Ontario.
‘Debate’ over how to change Micro-FIT could have cost billions
When a decision to stop aggregators and lower prices for ground-mounted Micro-FIT projects was finally announced in July 2010, the OPA said only applications with a signed contract or “conditional offer” — meaning the OPA had made some kind of commitment to them — would receive the original high price. Everyone else – including most of the 11,000 applicants without a conditional offer or contract – would receive the new, lower price. The purpose of this was to save ratepayers money.
But a series of emails between OPA staff – including MacDougall – in the months leading up to the decision suggest the OPA wanted to award the highest price to everyone who had applied — not just those with a contract or conditional offer.
“The OPA’s preferred approach … is to allow applicants who have submitted applications to the program to proceed under the original price,” wrote an OPA analyst in April 2010.
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Not doing this would be a “HUGE problem!” wrote one analyst, while another called this option an “administrative nightmare.”
That’s because according to the emails, the way the OPA designed the Micro-FIT application form made it impossible to distinguish between solar panels built on the ground and those built on rooftops, which is how the OPA wanted to decide which projects got the highest price going forward. If they couldn’t tell one type of project from the other, they’d have no way of determining who should get the highest price.
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Ultimately, when the final decision was made in August 2010 — after a month of stakeholder and industry group meetings — it was decided anyone who applied prior to the first announcement in July 2010 would receive the highest price.
It’s impossible to say who made this decision and why, based on the emails and documents. And neither the IESO nor government would answer specific questions about this point. Despite emails suggesting otherwise, MacDougall insists this decision was not made by the OPA.
What is certain, however, is that had the July 2010 announcement not been reversed, thousands of the highest price contracts awarded under the Micro-FIT program may have been avoided.
“This is why the anger [over] this program is directed at the province,” Yauch said. “These documents actually justify it.”
“[The government’s] primary concern was that the [FIT and Micro-FIT] programs were successful, and successful meant the program was large and noticeable to the public,” he said.
“[The government] thought everyone would see solar panels and wind turbines and would think, ‘Ontario’s made the right decision.’” he said. “They didn’t think it’d turn out that every time someone sees a wind turbine or a solar panel, they’d be mad because they’d think of that bill they had to pay last month.”
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