Parker Gallant: Why do we subsidize Michigan when its governor tries to stop it?

What does Ontario get from Michigan in exchange for its energy subsidy generosity?

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Saturday, May 7, the day before Mother’s Day, was a typical spring day in most parts of Ontario, light but windy. Ontario’s highest electricity demand occurred between 7 and 8 pm, reaching 14,439 megawatts (MW). This whole demand could be supplied by Atomic and Hydro, which in the next hour generated 14,353 MWh (MWh), clearly proving that wind production was unnecessary because Hydro could easily generate an additional 96 MW.

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On the same day, however, the province’s Independent Electricity System Operator (IESO) received 26,259 MWh of wind production and about 36,200 MWh – or refused to accept – or refused to accept. The agreement gives these industrial wind turbine (IWT) companies their “first-to-the-grid” rights and pays them 135 per MWh. If their generation is not redundant or can overload the grid, IESO has the authority to reduce it, but for every MWh it pays producers $ 120 per MWh. The agreed price occurred when the McGinty-led Ontario Liberal Party was in power and passed the GEA (Green Energy Act), which was amended in September 2011 to allow for reduction by the IESO.

The IWT generation adopted and reduced by IESO on May 7 was equal to the total MWh IESO sold in neighboring export markets, including 34,500 MW in Michigan alone. Buyers of that surplus generation got a big deal, because the average market price of the day (Hourly Ontario Energy Price) or HOEP was 0.50 cents / MWh, which means 62 31,000 peddling from 62,300 MW of export revenue!

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The difference between what Ontario bidders have paid for this export energy and what Michigan, New York and Quebec have paid (for using an electric word) is nothing short of staggering. Contract IWT owners in Ontario received about $ 7.9 million for the recognized and reduced generation, which works out to $ 299.97 / MWh for each unnecessary MWh supplied to the grid. The main buyer of surplus was Michigan, which relied on coal for 28 percent of its production and other fossil fuels for another 37 percent and so it benefited admirably from any clean energy. If the IESO surplus reveals both the hydro spillage costs caused by IWT production and the cost of idle gas plants to back up IWT, which are unreliable, the May 7 wind power costs would be significantly higher than $ 299.97 / MWh.

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The IESO’s “Annual Imports and Exports by Destination” shows that over the past 10 years, Ontario has supplied Michigan with about 10 percent of its annual electricity demand (based on Michigan’s energy profile). The electricity we supplied was at a price that would make Ontario’s greenhouses (Ahem) green with violence. On average, we exported about 1,000 megawatts of our “non-emitting” electricity per hour, thus helping our U.S. neighbors save money and reduce their emissions. We are already plagued by a carbon tax imposed by the Trudeau government in Ontario.

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Working through the 2020 issue, I estimate that Michigan paid about $ 137 million for electricity exports which cost Ontarians a little over $ 1 billion. For more than 10 years, Ontario’s total energy subsidies in Michigan have been in the 10 billion range, pushing the neighborhood to the extreme.

What does Ontario get from Michigan in return for this generosity? Its governor, Gretchen Whitmer, is committed to closing the Line 5 pipeline that carries light crude oil and natural gas liquids south of Michigan through a tunnel that joins the Mackinac Straits Lake Michigan and Huron and then east to Sarnia. If he gets his way, Michigan, Ohio, Pennsylvania, Ontario and Quebec will experience a 14.7-million-US-gallon-daily supply shortage of gas, diesel, jet fuel and propane.

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Does it remind you of the current geopolitical paradox? By buying oil and gas from Russia, Europe is financing Vladimir Putin’s war against Ukraine, and Europe is financing the same war. The parallel is not correct and Governor Whitmer is not Putin, but Ontario rate-takers who know what’s going on must be wondering why they’re paying for Michigan’s electricity subsidy while Michigan’s governor is trying to cut off a good chunk of energy. They depend on flow to keep warm in winter.

The same hardliners are wondering why the Ford and Trudeau governments, which seem to be working together on so many projects these days, did not tell Governor Whitmer that they would instruct the IESO to stop Michigan shipping if Line 5 was scrapped. Clean and cheap Ontario electricity, which will increase its emissions and electricity costs.

Parker Galant is a retired Canadian banker who blogs at Parker Galant Energy Perspectives.



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