Should OPG sue the IESO and/or the OPA... and other questions from the market of 2014

Energy markets in Ontario have behaved far differently during the early months of 2014 than they have for many years. Most Ontario ratepayers will experience a rare instance of the total commodity cost dropping in January.  Unfortunately, that's not going to be a trend; the first 7 weeks of 2014 are more notable for questions the behaviour of Ontario's energy markets bring up regarding Ontario's markets, the reliability of it's energy supply chain, and the competency of it's bureaucracy to manage the system in a manner that provides value to both ratepayers and the overall public.

January's final numbers for the Ontario electricity market are a monthly average (weighted) Hourly Ontario Energy Price (HOEP) of $65.43/MWh (the highest since December 2005) plus a global adjustment rate (class B) of $12.61/MWh: the total, $78.04/MWh, is down from $81.58 in January 2013.

While the total commodity rate hasn't changed much, the changed composition of the price, a lower global adjustment charge and a higher market rate (HOEP), makes a big difference to Ontario Power Generation (OPG).  Here's how Parker Gallant and I put it last May:

The big lag on OPG’s earnings has been the unregulated hydroelectric segment. It contributed more than $500-million or 46% of OPG’s pre-tax generation in 2008. Now it loses money. The reason for the loss is simple: OPG’s non-regulated hydro-electric assets are the only significant generation in Ontario exposed to the market price of electricity, which has collapsed under the McGuinty Liberal green energy manipulations. OPG’s non-regulated generation has fallen by 31% since 2008, revenue by 58%.

In 2014, coal-fired generation is removed from the market place, and suddenly the value of production from OPG's non-regulated hydroelectric assets is receiving ~$71/MWh, instead of the $33 it received for the corresponding period in 2013.  I estimate the difference is nearly $90 million in revenue to OPG, and we are only 7 weeks into the first year without coal.

January's exceptional electricity market

It's been cold.
The temperature impacts energy pricing.  Ontario's electricity system operator shows an average Hourly Ontario Energy Price (HOEP) of $65.43 per megawatt-hour (MWh) - which is the highest it has been since 2005, although well below the ~$89/MWh (8.9 cents/kWh) that regulated price plan consumers will average.
A couple of entries on the "Ontario Network for Sustainable Energy Policy" blog (parts 1 and 2), dealing with temperature and price caught my attention this week; the first of which concluded observations "stimulate further discussion about the drivers of Ontario’s electricity system, "which can then feed into conservation and demand management discussions...and about sustainable energy service provision in this province more broadly."   

I'll analyse based on two months with comparable demand data; comparing two similar demand periods migh communicate more about the impacts of supply and pricing changes.

This being Canada, it doesn't seem that surprising that January provides the majority of the highest demand months over the past decades[1]. 

This blog has covered a number of pricing/demand matters before - so let me skip through the main points that might stimulate discussions outside of schools:

Debt and indecency in Wynne's Ontario

Toronto's Premier Wynne has sent out Energy Minister Chiarelli to sing to the masses on the debt retirement charge burdening Ontario's electricity bills.
In the past we've seen Minister of Energy Chiarelli mangle the accounting related to electricity exports and the profitability at the public Generator, OPG; my rebuttal to the claims of profit levels at OPG included:

Profits that exceed those considered a fair return to the shareholder (the Province) for it's equity in OPG (all of it), were also to pay down the stranded debt.
And yet you still have a stranded debt charge applied to your hydro bill.

Now, regardless of how ridiculous the claim is following the last ridiculous claim, the Wynne government is looking at a line item charge (charges are BAD) on electricity bills, introduced by a Progressive Conservative government,(see what charges are) and telling us it should probably stay on the bill.

Compassionately, they are looking at a line item credit on the bill (credits are GOOD), the Ontario Clean Energy Benefit (OCEB) introduced by a Liberal government (see what credits are), and thinking maybe it should stay on there.

The Toronto Sun reported:

Hydro customers pay an amount toward that stranded debt with every bill.
Chiarelli said retiring that debt is taking a little longer than originally anticipated.
“The financial projections turned out not to be as precise as they were anticipated,” he said.
The ministry is now looking at options to ensure that when the OCEB comes off the bill, residential customers don’t face additional costs, he said.

At least until after another election, I'm sure it's useful to partisan Liberals to have a Conservative charge on the bill, amounting to 0.7 cents/kWh, and a Liberal credit, amounting to twice that amount (or more), but the existence of the debt retirement charge (DRC) has nothing to do with the existence of the OCEB.

Heck, the existence of the DRC has nothing to do with the debt levels either.