Power company 'gamed' $100M from Ontario's electricity system, investigation reveals

Hydro customers shelled out about $100 million in "inappropriate" payments to a natural gas plant that exploitedflaws in how Ontario manages its private electricity generators, CBC News has learned.

The company operating the GorewayPower Station in Brampton "gamed" the system for at least three years, according to an investigation by the provincial energy regulator.

The investigation also delivers stinging criticism of the provincial government's Independent Electricity System Operator (IESO), slamming it for a lack of oversight.

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The probe bythe Ontario Energy Board's market surveillance panel was completed nearly a year ago, but was only made public in November because it wasburied on its website without a news release.CBC News is the first media outlet to report on the investigation.

The excess payments to GorewayPower Station included:

• $89 million in ineligible expenses billedas the costs of firing up power production.
• $5.6 million paid in three months from a flaw in how IESOcalculated top-ups for the company committing to generate power a day in advance.
• Of $11.2million paid to compensate the company for IESOordering it to start or stop generating power, the investigation concluded "asubstantial portion ... was the result of gaming."

Most privately-owned natural gas-fired plants in the province do not generate electricity constantly, but start and stop production in responseto fluctuating market demand.IESOpays them a premium for thecosts of firing up production, through what it calls"generation cost guarantee" programs.

But the investigation found IESOdid little checking into the details of GorewayPower Station's billings.

"Conservatively, at least $89 million ofGoreway'ssubmissionswere clearly ineligible by any reasonable measure," concludesthe report.

"Gorewayroutinely submitted what were obviously inappropriate expenses to be reimbursed by theIESO, and ultimately borne by Ontarioratepayers,"

The investigation panel found an "extraordinary pattern"to these billings by GorewayPower Station, suggesting the IESOshould have caught on sooner. The company submitted more than $100 million in start-up operating and maintenance costs during the three-year period investigated more than all other gas-fired generators in the province combined.The company'scosts per start-up were more than double the next most expensive power generator.

"Gorewayrepeatedly exploited defects in the GCG(generation cost guarantee) program, and in doing so received at least $89 million in gamed GCGpayments."

Company fined $10M

The investigation covered a three-year period from whenGorewayPower Station began generating power in June 2009. Investigators saidthat delays in releasingdocuments slowed down their probe, and they only obtained all the records they needed in April 2016.

The investigating panel does not have the power to impose penalties on companies it found broke the rules.

The IESOfinedGorewayPower Station $10 million. The companyhas also repaidIESO"a substantial portion" of the excess payments it receivedduring its first six years of operating, but the exact figure is blacked out in the investigation report that was made public.

"Goreway does not agree with many of the draft report's findings and conclusions, including any suggestion thatGorewayengaged in gaming or that it deliberately misled the IESO," writes lawyer George Vegh on behalf of the company in aresponse to the investigation report, dated Aug. 1.

"Goreway has implemented initiatives designed to ensure that compliance is a chief operating principle."

The power station, located near Highway 407 in Brampton, is a joint venture between ToyotaTsushoCorp. andJERACo. Inc. During the period under scrutiny, the projectwas run by ToyotaTsushoandChubuElectric Power Inc., both headquartered in Japan.

Investigators fear 'same situation' exists today

The report blames the provincially-controlled IESOfor creatinga system with defects that allowed theover-billing.

"Gorewaywas able to and repeatedly did exploit these defects,"says the investigation report. It goes on to explainthe flaws"have created opportunities for exploitation, to the serious financial disadvantage of Ontario'sratepayers."

The investigation suggests IESO hasn't madeadequate changes to ensure itwon't happenagain.

"Gorewaystands as aclearexample of how generators are able to exploit the generation costs guarantee regime," says the report.

"The Panel is concerned that the same situation remains in place today."

After CBC News broke the story Tuesday, the provincial government was forced to respond in question period.

"Here we have yet another gas plant scandal in Peel region that's costing electricity customers over $100 million," said PC energy critic Todd Smith. He slammed "the incompetence of a government that once again failed to look out for electricity customers."

Economic Development Minister BradDuguid said: "There is no excuse for any company in this province to ever game the system."

Nine companies overbilled $200M: audit

The IESOfound out about the overbilling "some time ago," said Duguid.

"They fully investigated, they've recovered most of the cost, they delivered a $10 million fine the biggest fine on record."

The program that Gorewayexploited became the subject of an audit that the IESOlaunched in 2011.The agency uncovered $200 million in ineligible billings by nine power producers, wrote theIESOvice president for policy Terry Young in an email to CBCNews.

The IESOhas recovered up to 85 per cent of those ineligible costs, Young noted.

Reforms to the design of the the program have removedthe potential for overpayments and made it more efficient, he said. Last year, its total annual costs dropped to $23 million, down from $61 million in 2014.