Friday, April 4, 2014

Arbitrary pricing: The idiocy in the Ontario Power Authority's annual report

It's Figure 3, in browsing the Ontario Power Authority (OPA) 2013 annual report, that initially angered me.

You should know why, because it demonstrates why any business submitting to hourly, and/or monthly global adjustment mechanism pricing, is being charged arbitrarily, introducing unpredictable variability to their cost that cannot be justified and serves no purpose.

The problem is, appropriately enough, obscured in a bland taupe.  I have written a number of times criticizing the government's conservation/efficiency policies, which seem designed by well-paid people whose largest draw of electricity is their central air conditioning for well-paid people to benefit from programs centred on central air (as peak saver has been) - but I never imagined the allocation of "conservation" cost would exclude any allocation in July.

From June to July, the average Hourly Ontario Energy Price (HOEP) rose ~$10/MWh, but the total wholesale price was dropped $10/MWh because the OPA dropped the Global Adjustment Mechanism $20/MWh.  This is ridiculous, and it's due to two shortcomings at the OPA; the distribution of conservation charges we are just now seeing, and the distribution of capacity changes that pay Net Revenue Requirement (NRR) guaranteed to, primarily, gas-fired generators.

The distribution of NRR charges don't appear to be weighted to peak months, although those are the months the capacity is contracted to meet demand for.  It's hard to tell as the global adjustment figures are now totally unpredictable for month to month (the only known is that the 1st and 2nd estimates are usually poor indicators of the final monthly charge - which is problematic as ratepayers may be charged at each of the 3 prices).

The OPA's Figure 3 graphic caught my attention, but one of the reasons I opened the document was to pull some figures to update a spreadsheet I've created from previous OPA annual reports.  The figures in Table 3 continue a trend in which the OPA displays a lesser and lesser share of the global adjustment charge[1].

The OPA's annual report shows "Conservation" and "Generation" program expenses along with operating expenses.[2].

An uninitiated observer might think the spending would equate to the Global Adjustment Mechanism (GAM) charges, but that hasn't been true since 2012's annual report (which also revised the generation program figures downward for 2011).

This changes the breakdown of spending quite significant: there is ~$600 million of OPA attributed global adjustment charge in 2012 that isn't explained, and that grows to over $1.1 billion for 2013.

Thanks for the annual report on competency and transparency at the OPA - if nothing else.


1: The total amount of the global adjustment attributed to the OPA is shown in note 8 of the section on the actual financials (DR2 + DR3 + OPA Contracts), and essentially the same figure is shown on the IESO site).

2.  This is even more confusing as operating expenses aren't paid through global adjusmtent revenue but, the report appears to indicate, through a separate charge to ratepayers of $0.551/MWh).

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