Tuesday, March 12, 2013

The HOEP is a market price.

Ontario's Independent Electricity System Operator (IESO) hosted a "stakeholder" summit on March 4th. After stakeholders network they head out with their stakes and renewed enthusiasm - with every ratepayer looking like a vampire
Slide 2 of IESO presentation

Presentation slides from the event are now posted.  There's some interesting information, but what caught my immediate attention was a graph showing both the Hourly Ontario Energy Price (HOEP) and the Global Adjustment (GA) rate, along with the two combined as an "All-in-Price."  A nice little trend line is likely meant to imply the all-in-price has risen nice and gently.

Graph from ECO blog
A couple of weeks earlier, the Environmental Commissioner of Ontario (ECO), Gord Miller, had been showing off a simplified version of the graph in a blog entry that is presented as an "attempt to explain the basics of electricity pricing."
In the "Confusion reigns" section ECO Millier explains:
This concept – that the HOEP is not the real market price, because you have to add in the Global Adjustment – is the basis of a lot of confusion in the media and in various public discussions.
28 months ago; from my first blog post
The reason it's the source of confusion is because the HOEP is the realest market price going in Ontario.

The HOEP acts like a market price.
When demand goes down in relation to supply, down goes the HOEP.
When demand goes up in relation to supply, up goes the HOEP.

Rerunning the numbers for today, I've generated a new chart.  I chart with 12-month moving averages to eliminated the jaggedness of seasonal demand changes.

There are other factors in the market price - lots of them.  But the basic market behaviour exhibited in the relation of Ontario demand and the Hourly Ontario Energy Price is exactly what the scarecrow, brainless or not, would assume it should be.

Therefore the global adjustment behaves in the opposite manner, serving to prevent the market from discouraging oversupply in periods of excess, and discouraging new supply in periods of inadequate capacity.

If you think about that one for not very long, it means the price has been going up steadily because the price of contracted supply and DR programs is pushing the price up.
The price is going up because the government is forcing the price up.

The government intends on continuing to procure more supply, at a rate of roughly 2 units of new capacity for every unit to be retired from service.
The government intends on paying these suppliers either to exist (net revenue requirements for natural gas generators), or for curtailed production in periods of excess  (contract arrangements with wind and solar generators).
On the delivery side of the equation, the government, via the regulator, allows utilities a healthy "return of equity" and the increased spending on hooking up increased suppliers coupled with the spending on "smart" grid things, including meters, to facilitate demand response dreams has pushed the owner's equity of public Hydro One up 38% since demand peaked in 2005 (2012's demand being 10% below 2005's).

There is no doubt collectively bills are going up.

There is only one way to reduce electricity costs on a personal level in this environment, and that is to reduce use far quicker than others.  Most demand response (DR) programs are socially reprehensible from that perspective - such as the free advanced thermostat - including installation costs - for homeowners with a operational central air conditioning units (poor folks rent - and if the have a/c at all, it's hanging out a window).
If your neighbour is being paid to reduce usage, and you can only avoid increased charges by reducing usage quicker than your neighbour, you have only one realistic hope of not spending far more on your electricity bill in the future.
An extension cord - coupled with neighbours with unprotected exterior outlets.

It would be best to use this approach only under cover of darkness; partly because the neighbour is less likely to notice, but mostly because those "off-peak" hours have a lower rate now that billions have been spent on smart metering and related billing infrastructure.

If you need to reduce your electricity bill, stealing power in off-peak hours strikes me as the neighbourly way to do it.


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