Wednesday, October 17, 2012

Comments on OEB Release of Winter Electricity Rates.

Some good news, of sorts, as rates for electricity in Ontario actually drop in November; from an average of 8.069 cents/kWh to an average 7.932 cents per hour.  Although this is a decline from October's Regulated Price Plan (RPP) rates, it is an increase of 0.367 cents/hour over November 2011, which is about 4.9%

The reason for the decline rests primarily in a variance account.  Without the benefit of the a positive variance  created by excess charges in the May-October RPP period, the increase would be approximately 10%: one year ago the variance clearance decreased the RPP costs by 0.006 cents/kWh (page 19 here), and this year the benefit was .41 cents/kWh (page 20 here).
One year ago the amount of the variance account surplus was $3 million, in April it was $56 million and the figure noted for the end of October is $230 million.  I must note the increase in the variance  seems matched by the overestimation of the global adjustment charge for July , with was $177.3 million.

My suspicion is the rates are held down because the anticipated expenses related to the settlement costs in transferring the gas plant from Oakville to Lennox were shifted to taxpayers from ratepayers.

I can't argue with that - the decisions were entirely political.
I can say this pause in rate increases is temporary.  The respite is only due to excessive hikes in the previous period, a hot summer, and Ontario's quirky faux market design that sees high usage rewarded with lower rates.

Related: Better Ontario Electricity Estimates For August

Additional notes.
If the forecast was perfect, over 6 months the RPP rate should average the Class B rate - clearly over the past 6 months the RPP rate far exceeded it.  Note January 1st 2011 saw both the introduction of "Class A" rates that essentially transferred costs to RPP and Class B customers, and the introduction of the Ontario Clean Energy Benefit (OCEB) to hide that impact by discounting 10% of each electricity bill.

Graphing the estimated moving 12-month average pricing for Class B customers (which should equate to RPP rates over 6-month periods), it's both clear there is an inflationary trend, and that it paused over the summer.
I suggest the pause is due to high usage during a hot summer with little wind- in Ontario the end price drops when usage is high.


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