Monday, August 4, 2014

Midway into 2014, a lull in Ontario's electricity price hikes

There are a lot of lessons that might be learned from Ontario electricity system data for the first half of 2014. This post will show what I suspect are the most surprising numbers from the period.


The Independent Electricity System Operator (IESO) June Monthly Market report that the year-to-date (YTD) weighted average Hourly Ontario Energy Price (HOEP) was $53.24/megawatt-hour (MWh).

That is up 89% from the $28.15/MWh in the June 2013 report.

The increase in the HOEP sounds expensive, but most Ontario ratepayers will see little inflation in the rate they pay for the commodity portion of their electricity bill. This is because Ontario applies another charge in addition to the HOEP, currently called the Global Adjustment (GA) charge. The GA exists to ensure the full cost of procuring supply is recovered by electricity consumers.

The GA is collected by different rates for different classes of customers and, for some classes, depending on where their billing cycle dates falls into the dates of the global adjustment process, but the most relevant rate is the "Class B" Rate: that rate averaged $32.65 for the first half of 2014, down 42.5% from the $56.86/MWh in 2013.

The Class B total "Commodity Charge" (the HOEP plus the GA) thus averaged $85.89 over the first half of 2014, up only 1% from the $85.01 for the first half of 2013.

The explanation for how an 89% rise in market pricing occurred concurrent with the lowest inflation in the actual commodity price in many years is not an easy one.

A Class A Crap Shoot

Under the summer's sun, Ontario's complicated electricity pricing mechanisms are increasingly causing functionally arbitrary pricing in the province.

A very brief review:
  • Ontario introduced a competitive market for electricity supply in May 2002
  • Ontario soon after froze prices for most consumers
  • For 2005 Ontario regulated the pricing of it's legacy generation assets and introduced the "global adjustment" charge to recover the full cost of supply from consumers (essentially the cost of purchasing supply less the revenues recovered by sale in the market)
  • For 2011 Ontario introduced a second global adjustment category, class A, intended to lower the cost of power to large users.
Prior to winning a majority in this year's election, the Liberal government initiated the expansion of the Industrial Conservation Initiative, which is the program where the "class A" global adjustment customer can lower their electricity costs by lowering their share of generation during 5 peak demand hours.

It is increasingly clear that Ontario's system operator can't determine Ontario's actual peak demand hours.