Monday, March 23, 2015

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.

Should the riders be approved for those amounts and take effect July 1, 2015, the average impact for Global Adjustment Class B customers over the period July 2015 – December 2016 would be about 0.67 cents/kWh. For the so-called average residential consumer with 10,000 kWh of annual metered consumption, the impact inclusive of losses and the HST would be $ 79 per year.

The process for determining and recovering these variances seems to have been previously defined and so it seems a sure thing that something will occur. Should the OEB decide differently, it would seem a decision to kick the costs down the road.

For the period July 2015 – December 2015, such an increase would be moderated for residential consumers by the taxpayer-funded, 10% discount provided by the Ontario Clean Energy Benefit.

These rate riders are not the only dark clouds on the electricity rate horizon. The clouds portend significant increases to the general total commodity (spot prices plus Global Adjustment) outlook and related Regulated Price Plan rates, with the other clouds including:
  • Significant and continuing additions of wind generation,
  • Continuing additions of solar,
  • Expansion of the Global Adjustment Class A on July 1, 2015 – an event that will transfer additional Global Adjustment costs from Class A to Class B, 
  • Underestimation in the previous Regulated Price Plan report of the extent to which OPG’s request for increases to its prescribed and newly regulated rates would be granted, and
  • Erosion of the Regulated Price Plan favourable variance balance that previously had served to mitigate increases.
As noted, the end of the Ontario Clean Energy Benefit at the end of 2015 will make things worse, while the worsening impacts will be slightly mitigated by two factors:
  • Slight, mild weather-related shift in the Global Adjustment Class A to Class B cost shift effective July 1, 2015, and
  • Ending the Debt Retirement Charge for residential consumers at the end of 2015.
Of all factors, the end of the Ontario Clean Energy Benefit (OCEB) will by far cause residential electricity bills to increase the most, given that most average, all-in and pre-OCEB rates likely currently range from 17 to 20 cents per kWh. 

From a pure commodity standpoint, all Ontario consumers should not be blind to hefty increases between now and the end of 2016 and for these increases to come sooner rather than later. The only question left may be “What will the combined increase be more like – a gorilla or an elephant ?”


Bruce Sharp is a 27-year veteran of the Ontario energy industry with experience in power generation, energy management, industrial natural gas utilization, energy marketing and energy consulting."

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