Ontario's Electricity Market Pricing Problems: Past and Present

There are a number of entities exploring fixes for Ontario's dysfunctional electricity market - few of which can admit it is dysfunctional.   Yesterday the Hamilton Spectator had an article on the topic, based on the "Putting the Pieces Back Together: "True Pricing" for Ontario Electricity" paper I noted in an earlier post.  Ontario's electric system operator (IESO) has multiple "stakeholder Engagement" groups working towards alleviating, or expanding, problems with coordinating supply and demand - depending on the stakeholder.  Last summer the regulator (Ontario Energy Board - OEB) tepidly explored alternative schemes for setting time-of-use rates.  Discussions are dominated by the few entities, or stakeholders, benefiting from lucrative private contracts financed through higher consumer rates and lower payments for public companies.

The discussions are not only be burdened by the lobbying of the participants on the stakeholder side; public employees are burdened by an inability to note the faults in the government's directions.      The stakeholder sessions seem interested in where we are, but in not being able to honestly address how we got here seem oblivious to the direction we are moving in lest we break the inertia of the current, poorly labeled, stakeholders.
This post will add to a number of previous posts is assessing Ontario's current situation, particularly my most recent writings on the global adjustment mechanism, capacity payments through the net revenue requirement mechanism, and the transfer of value from public assets to private ones.

Sir Adam Beck is dead: The Gifts of Nature have been taken from the public

The Adam Beck Memorial.

dona naturae pro populo sunt

-the gifts of nature are for the public-

Early in the 20th century, Adam Beck lobbied the Premier, from his position as a Conservative Member of Provincial Parliament, for a commission to investigate the electricity sector.  An advocate of public ownership in the sector, a century later Sir Adam Beck has Ontario's largest hydroelectric facility bearing his name, and his statue sits prominently in Toronto surrounded by iconic structures housing iconic organizations - including Osgood Hell, the Four Seasons Centre for the Performing Arts, and the Bank of Canada.

I hope the iconic institutions surrounding his statue endure better than Beck's legacy has.

My previous two posts have demonstrated the global adjustment mechanism measures the dysfunction of the market, and that large, and increasing, capacity payments are serving to drive down the market price (HOEP).  This post will show how the reduction of the HOEP, and the global adjustment mechanism, have combined to take the benefits of public hydroelectric facilities away from the public, and distribute them to the private entities awarded contracts by the McGuinty government.

Capacity Payments: The High Cost of Ontario's Collapsed Electricity Market Price

Price inflation of the electricity commodity in Ontario has been relatively muted, but the limited growth hides some deep structural problems.  This post will compare annual figures for 2008 to figures for the period from July 1, 2011 - June 30, 2012 (as did my previous post), by examining the purchase price of different categories of supply.  I'll be drawing from work I've done collecting production data (ie. here) and establishing estimated contract values for generators in showing which type of generation grew during this period of overall decline, which generation decreased, and the costs associated with the changes.

The changes in generator capacity are almost entirely related to Ontario's policies of eliminating coal, and growing renewables.  Nuclear and hydro capacity has changed little.  The renewables chatter disguised the rapid build-out of natural gas capacity, which has been expanding quicker than coal generation capacity is being removed.  Coupled with the increase in wind and solar capacity, the increase is significant.

Ontario's Troubled Global Adjustment Creation

Rising electricity prices in the electricity sector is the topic of a number of Ontario news stories this year;  The Guelph Mercury reported on a couple of manufacturers in the Waterloo with much the same narrative as reports out of the North Bay region earlier in the year.  Increasingly, the Global Adjustment (GA) mechanism, which ensures the money paid to suppliers is fully recovered from ratepayers regardless of market pricing, is portrayed as the reason electricity costs are moving higher in Ontario.  


Most of Ontario's supply is subject to contractual payments (or regulated rates), so the lower the market price, the higher the Global Adjustment rates (there are more than one).  As the market HOEP rate drops, customers see the GA rise.  The rising line of a bill is a convenient target for inciting anger.  Groups as disparate as the Ontario PC party, NDP, Green Party, Greenpeace, Environmental Defence have all referenced the charge as a subsidy.  And they aren't the only ones.  Google "the global adjustment subsidy" and you'll find hits to this blog!
Which is somewhat unfortunate.

Year-to-date Highs And Lows In Ontario's Electricity Sector

Posts have been sparse lately.  I've been working on the data side, including on putting reports up on my data site.  Yesterday I wrapped up what I wished to accomplish in terms of monthly reporting - which followed the creation of a cost breakdown report.  All of that work is to serve as a reference for myself, as well as readers of this blog.

I have just updated the weekly reporting, the first report I created on the data site.

Week 27, from July 4-10, is the highest Ontario demand week of the year, at 3,076,701 MWh.
Not surprisingly, it also has the highest average Hourly Ontario Energy Price of the Year - although that price is still only $37.25.

Nuclear, gas, and coal generators all had near high weekly generation levels for the year.

Hydro had it's worst production level of the year, which is a statement that has been true for the past 3 weeks.

Wind had it's worst production level of the year.

The Globe and Mail's Flawed Reporting on Alberta's Brownout

... troubles occurred at four coal plants and two natural-gas plants, Mr. Simpson [director of market operations for AESO-Alberta Electric System Operator] said. They all suffered unrelated problems, have different owners, and are located in different parts of the province. Wind power helped fill the void, and by late afternoon, three of the six troubled power units were ramping up their operations, Mr. Simpson said.

The Globe and Mail - July 9, 2012

The problem with the statement from Mr. Simpson is that it is nonsense.
The problem with the Globe and Mail is it's disinterest in that.

The facts are simple. Alberta has over 939MW of wind capacity, which didn't step in to anything but for a mild bump in a wispy moment around 6pm.

Other, suddenly more reputable outlets, got the story right.

Week 26 Reporting: Nuclear productivity highs and continued pricing woes

I've had a lull in posting as I am developing some more reporting on my data site to support future blog posts.
Here's a post to indicate how my Weekly reporting demonstrates the supply mix, pricing, and export issues frequently noted on this blog - and increasingly elsewhere.

Weeks 25 and 26 are amongst the highest demand weeks of the year.  Peaks are far higher than in January, but total weekly consumption is yet to surpass week 3.

Summer is now our peak (hourly) demand period, which should raise some supply requirement issues.  During the highest demand week in January, peak demand was ~7000MW above the minimum demand for the week.  During the heat of week 25, demand rose to ~12000MW above the minimum demand for the week (essentially doubling the week's minimum demand).