Ontario's new electricity pricing program essentially taxes businesses to fund social program

The news of an electricity program leaked out Tuesday night: by Friday even the press most favourable to the government was aware that the government was gaming somebody. The news during the week noted program including the OCEB, OESP and DRC (I'll get to each), but didn't pay much attention to an equal number of customer classes, each of which is impacted differently by changes the government is making. Confusion continues to be built as new and changed programs continue to be introduced to counter the impact of other new and changed programs. In the end the sleight of hand this week disguised charges to businesses via their electricity bill to fund a government's social program.

The press release on the new program included:

Government graphic for new program - and old

Ontario is helping make electricity more affordable for families by removing the Debt Retirement Charge for all residential consumers and introducing the Ontario Electricity Support Program for low-income families.
The proposed program, administered through the Ontario Energy Board, would come into effect on January 1, 2016...
Qualifying individuals could be eligible for a $20 to $50 monthly credit based on the size of the household and income.
...
The proposed Ontario Energy Support Program would be ratepayer funded with an estimated charge of less than one dollar a month for a typical residential customer in 2016.

New program, new acronym: OESP.

New spin, old problem: honesty. While the OESP may be partially funded by "an estimated charge of less than one dollar a month for a typical residential customer," those types of ratepayers will be paying only a fraction of the full program cost

Ontario Electricity Rates – the Invisible Gorilla

this guest post is written by Bruce Sharp

Inattentional blindness has been defined as "the failure to notice a fully-visible, but unexpected object because attention was engaged on another task, event, or object." It can strike at any time. The “invisible gorilla” is a well-known example of the dynamic.

For more-than-casual observers of the Ontario electricity market, there is no end to available stimuli and so sometimes while distracted by other things we can miss the obvious. A case of such blindness on my and I suspect others’ parts came to my attention recently when I became aware of the Ontario Energy Board (OEB) case number EB-2014-0370. On December 18, 2014, Ontario Power Generation (OPG) filed an application to recover a number of deferral and variance account balances, shortly after the rates for their prescribed and newly regulated hydro output were finalized.

OPG has proposed two (nuclear and hydro) rate riders they’d like to see take effect July 1, 2015 and run through December 2016. The requested nuclear rider is an eye-popping $ 15.57/MWh while the hydro rider is $ 3.55/MWh. About half of the nuclear rider is pension related while about two thirds of the hydro rider concerns capacity refurbishment. Neither rider is trifling but -- given that the nuclear rider unit rate is 4.4 times as much and would apply to 1.5 times as much energy as the hydro rider – the nuclear rider will have more than 6 times the rate impact of the hydro rider.

Failed time-of-use electricity pricing in Ontario

Time-of-use electricity pricing is a hot topic since Ontario's Auditor General wrote of the high costs of the smart meter implementation in the province. The defence of the program from Ontario’s Minister of Energy appears to be spreading disinformation about rates, and multiple sources are calling for a greater differential between “off-peak” pricing and “on-peak” pricing. I'll review Ontario's time-of-use rate history, showing how the differential shrunk, and explaining why. The analysis of time-of-use pricing in Ontario’s electricity sector displays the absurd disconnect between pricing and supply policy in the province, made even more absurd by political interference.

Speaking following The Canadian Taxpayers Federation announcing a waste award to “Ontario’s Ministry of Energy for 'smart meters’ fiasco",  Minister Bob Chiarelli reportedly said:

“We did have a higher price for peak when we first introduced (time-of-use pricing) and there were a lot of consumer complaints about that...In response to consumers, we reduced the peak price and there was less of a differential and that created less of an opportunity to save more money on your electricity rates.
We’re reviewing that decision at the present time,”

There is some truth to the statement that the government responded to complaints about time-of-use, but they did so prior to 2011's election by regulating off-peak pricing to start at 7 pm - it was at 9 pm prior to the change.
I've seen no indication that on-peak time-of-use (TOU) prices were ever deliberately lowered, aside from altering the hours on-peak pricing was applied.

a stakeholder's world

My previous post, Ontario is the sucker of first choice for off-price electricity, demonstrated an apparent growing opportunity for profit amongst the IESO market participants purchasing power at the IESO's depressed prices and selling into much higher priced exports markets. This post will discuss the multiple benefits bestowed in recent years on one of Ontario's most active exporters.

The top 5 entities exporting Ontario's electricity into the United States have comprised about 60% of total exports over the past 4 years. The marketing arm of Hydro Quebec and another Montreal firm are two firms consistently near the top, as is Ontario Power Generation (OPG); the company that grabbed my attention as I analysed the data was Brookfield. [1] 

Brookfield looks to have had a particularly good year exporting in 2014, averaging $71/MWh while the average was $45. A couple of years ago Brookfield was beating the average by only about 10%, so this was an exceptional performance for this multi-faceted IESO stakeholder. The improved performance coincides with the introduction of renewable energy forecasts at the IESO, and market changes to structure the curtailment of wind and solar generators, which include Brookfield, when, as defined in the IESO rules, curtailment is necessary. [2]  Correlation is not necessarily causation, but it's also often not coincidence. It may be a good idea for the regulators Market Surveillance Panel to investigate whether any trading advantage might be presenting itself after the introduction of market rules allowing wind curtailmnet.