Losing time: everybody can't win Ontario's Electricity game

November's main electricity commodity rate in Ontario averaged $123.54/MWh, a full 10% higher than the previous record price. This post examines why.

Demand in November was very low, but almost identical to demand the previous month. The main electricity rate in Ontario is the Class B commodity rate comprised of the weighted Hourly Ontario Energy Price (HOEP) and the Class B global adjustment rate. It rose 23% from October to November. This makes a comparison of October and November very compelling.

The rate was the highest because data shows Ontario spent more on generation, and whatever else the system's operators felt related to generation, than any previous month.

There's been a lot of words about Ontario's electricity costs following the latest annual report from the Auditor General of Ontario, most from men in Ontario's electricity establishment claiming the female Auditor was unfair in noting the growth of the global adjustment. Today I am looking at the global adjustment only to estimate the total spend on electricity generation - and whatever else the system's mandarins feel is related to electricity generation - each month.


The graph's message is clear: total supply cost is rising. In November, Ontario spent more on electricity supply than ever before, despite demand levels near lows. Note the chart runs 49 months: November 2015 total supply cost is 53% higher than November 2011, while "Ontario Demand", as defined by the IESO, is down.[1] I don't want to dismiss the fact the price increase is seen entirely as a rise in the global adjustment, as that has very important cost implications in distributing system costs disproportionately across consumer segments. One result of growth entirely being in the global adjustment is the rise in the main, Class B, commodity rate is 77% over the 49 months - 24% higher than the increase in total systemic supply costs.

Why did the system's costs rise $240 million from October to November?

Don't believe happy presentations of Ontario's renewables pain

In January Ontario's government is introducing a new price support program to help poorer households with electricity costs. The planning for the program reveals an expectation that 1 in 10 Ontario households can not longer bear rising electricity rates.

I am inspired to write by two events of November 30th:

1. Ontario's electricity system mandarins released an astronomical estimate indicating November rates will be 20% higher than ever before.
2. CBC's flagship news program broadcast a poorly researched segment, "Canada's clean energy race."

Examining the Samsung numbers for high-priced November might provide a simple explanation of what the global adjustment is, but some background is necessary to judge the value Samsung has delivered.

Chris Brown's CBC report included segments interviewing Tim Smitheman, once a public servant, now an employee of Korea's Samsung further aiding that company in siphoning money out of Ontario. Brown celebrated Samsung, but any investigation would have revealed he could not have picked a better subject to display the failure of Ontario's green energy foibles.

A brief history lesson is necessary to communicate how poorly Samsung has performed for Ontario. In 2008-09, Minister of Energy George Smitherman and his boss Dalton McGuinty wanted to make a big splash to kick off the glorious renewables future German politicians and David Suzuki had convinced them was imminent. In January 2010 the government inked a deal with a Korean Consortium that included Korea's electricity experts, KEPCO (since departed the Consortium), and Samsung. The deal, "would see the consortium receive preferential treatment from the province, in the form of priority access to the energy grid and higher-than-market rates for the renewable energy it creates as part of Ontario’s new feed-in-tariff (FIT) program." 

“It’s now a race to see which clean technologies will dominate, and wind and solar are off to a strong start” - Chris Brown, CBC, November 30, 2015

The Samsung deal has been a disaster. Hopes that expertise in LCD displays would lead to breakthroughs in solar panel manufacturing tech Samsung would base in Toronto disappeared, as did hopes expertise in shipbuilding would translate to breakthroughs in wind turbine design to be based in Ontario.
All those things were sub-contracted out.

New report numbers the IESO days, shows wind impacting Ontario rates

A new report on Ontario's daily electricity sector demonstrates the shortcoming of reporting of the sector's costs that contributes to the poverty of intellect in much too common communication on the sector.

The new report is from me, and it is to provide consumers, and other critics, with a more intelligent summary than the little noticed "Daily Market Summary" produced by the province's system operator (IESO). I hope some readers will work through the additional numbers as they can demonstrate the broad themes driving pricing in Ontario - and if some that do the work join a chorus calling for some transparency and meaningful reporting from the IESO,  my work in creating the reporting will be somewhat justified.

If one were to have no other information than the IESO Daily Market Summary reports for November 10th, and 12th, they'd think a little less demand - 187 megawatt-hours (MWh) - resulted in the price dropping $27.59/MWh to essentially free.

Ontario's demand for electricity did not change. The IESO's "demand" is not Ontario's consumption, but the demand for supply from generators in the IESO's market.

There are qualitative issues with the IESO report.
The HOEP price is the Hourly Ontario Energy Price. The weighted average is arrived at using hourly "Ontario Demand" and hourly HOEP - if one wanted to competently establish the "Value of Market Demand" they would not do it as the IESO does in this report. The weighted average price of exports has always been different, but since the IESO prohibited negative-priced exports the difference can be enormous.

Beyond the qualitative issues with the IESO's report is the absence of any attempt at costing the procured supply (their "demand"). With the global adjustment mechanism driving prices, this renders the report essentially worthless

A line and the race for expensive Electricity

"Powerline to nowhere: $100M powerline costing taxpayers millions" was a provocative title for a CTV news story last week. The network reported their investigation indicated a transmission line without transmission wires wasn't transmissioning electricity, which didn't surprise me - what did surprise me is the video segment on the report implied "it had never been needed at all." The reality is far different than CTV's viewers would understand: the inability to "Install two new 230 kV circuits between Allanburg TS and Middleport TS" to "Increase import capability on Queenston Flow West," has cost many, many times more than the $50 million reported by CTV.[1]

The line was built to improve transmission to the Niagara area partly designed to complete in time to support increased capacity at the Beck generating stations of Ontario Power Generation (OPG). The completion of a $1.5 billion tunnel project  was to get more water to turbines, with an estimated increase in power generation of 1.6 terawatt-hours (TWh). The primary reason given by Hydro One, in 2005, for the "Niagara Reinforcement - Transmission Line Project was, "Facilitate new generation development in the Niagara Falls area." [2]

The need for that was apparent to all who read the Buffalo New in 2011, as it reported on the international agreement regulating the water usage from the Niagara river. Prior to the completion of the tunnel OPG was unable to utilize their full allotment of water for power generation and an agreement allowed the U.S. side to generate power with the unused quota.

October revealed flaws in Ontario's rate and electricity market designs

October 2015 provided a unique opportunity for analysis of Ontario's electricity supply system as the Darlington nuclear power station was unproductive due to a planned vacuum building outage. During the previous October Darlington generated 2.5 million megawatt-hours (MWh) of electricity, which was 23% of what the province consumed during the month. 2015's October therefore provides a glimpse of what Ontario's sector will be like in a few years, as the Clarington Transformer Station is completed and Pickering Nuclear Generating Station is closed.

Vacuum building outages are scheduled for the lowest demand periods of the year, and October is one of those month. October 2014 saw a glut of power and concluded with a $1+ billion estimate of the global adjustment (the difference between what the system pays suppliers and what is recovered through the sale of power at market prices). With the rise of solar (largely unreported in the province) Ontario regularly exceeded $900 million during the sunnier months of this year's second quarter, but 12 months ago $1 billion was a stunning, unprecedented number. Parker Gallant and I published an analysis of 2014's October noting:

• the record high global adjustment total
• the record global adjustment rate for the 90% of consumption that can be considered "Class B"
• the record low Hourly Ontario Energy Price (HOEP) the market determined
• the record low price for exports
• the high level of curtailed generation (contracted supply the system could not take)
• record supply from wind and solar generators.

Figure from IESO June 2015 18-Month Forecast

Ontario's system operator, the IESO, would include a graph of curtailments in June 2015 that showed Parker and I were close, if a little enthusiastic, in this claim:

During October, 2014, the IESO curtailed more than 500,000 MWh of production. While wind power accounted for 100,000 MWh directly, much curtailment at nuclear and non-utility generators (NUGs) and import cuts occurred due to bloated supply levels during periods of windy weather. If one combines the curtailed production with the exports for October, it is obvious that Ontario dumped more than 21% of the province’s procured (and paid-for) supply

October 2014 exports totaled 1.8 million MWh, dumped at an average price of about half of one cent per kilowatt-hour ($5/MWh). The 2.3 million MWh total, from exports sold at an enormous loss and supply simply curtailed, is only slightly off the 2.5 million MWh reduction in Darlington's production the following October. Ontario's demand was little changed from 2014's October to 2015's.[1]

It might surprise readers that much of Darlington's missing generation was replaced with generation from other sources, as exports dropped only 300 thousand MWh.

Wynne deserves no credit for dumbly selling Hydro One

Most of Ontario realizes they are losing a valued asset in the government's sale of a majority stake of the publicly owned Hydro One. The topic is so complicated most just don't realize exactly how they are losing, making it equally difficult to determine who is winning

Ontario's Premier outsourced evaluating the optimal use of public assets to an unelected council led by former retail banker and Bay Street titan Ed Clark. Clark's council reported, in April:

...the integrated Hydro One transmission and distribution business would likely command a fully distributed equity valuation of between $13.5 billion and $15 billion in a public offering, excluding Hydro One Brampton. We believe this valuation is a conservative range in the context of today’s market.

In the spring Clark envisioned $9 billion of cash from a share sale (60% of $15 billion), "with $5 billion going to pay the utility's debt and $4 billion being channelled into infrastructure projects."

The revised prospectus came out last week anticipating a share offer at $19 and $21- making the value of Hydro One's 595 million common shares $11.3 -$12.5 billion - but this valuation comes only after the government gives $2.6 billion to Hydro One, and Hydro One gives the government $800 million. [1] Adjusted for cash exchanges prior to the closing of the deal:

• the valuation of Hydro One is more realistically $9.5-$10.7 billion
• the valuation of the 60% of the company to be sold is therefore $5.7 to $6.4 billion

The revenue from the sale of Hydro One is anticipated to be positive for the provincial balance sheet, but not significantly. The government's 2014-15 Financial Statement carried Hydro One as an $8.072 billion asset, so selling off 60% requires writing down the asset $4.84 billion dollars. On the balance sheet the share sale is anticipated to have a benefit of $800 million to $1.6 billion.

“We are going to be able to track the projects that we are building. People are going to be able to look at how much money is coming in and where that money is being spent.”   Premier Kathleen Wynne

The Wynne government remains committed to spending $4 billion of the ~$6 billion share issue on transit, while using $5 billion (of the remaining $2 billion) to pay down debt. All from a transaction having a $1 billion impact on the government's $285 billion net debt - only enough for 34 days of payments on the province's existing debt.

There's a con here.

IESO reporting raising doubts about its ability to administer Global Adjustment charges

There are 5 hours every 12 months that determine the distribution of global adjustment charges in Ontario - charges of nearly $10 billion over the past 12 months. The 5 hours are particularly important for Ontario's largest consumers of electricity as cutting one megawatt of use during one of these hours has been estimated to save from $50,000 to $100,000 and more. In this post I'll explain why the hours for the adjustment period ending next April have likely already occurred, with some implications of peak hours for intelligent energy policy.

Background: "Stakeholders" destroying the viability of Ontario's electricity market

While the top 5 hours have already occurred the IESO is not communicating what they are. To understand why the IESO's communication of peak hours is inadequate, it's important to know the definitions of "Ontario Demand", "Allocated Quantity of Energy Withdrawn," and what I'll call "consumption."

• The IESO's "Ontario Demand" is really demand from IESO transmission (Tx) connected suppliers, including imports. The figure does include generator consumption and transmission losses.
• The supply withdrawn from that grid by local distribution companies (LDCs) and wholesale consumers, essentially comprises the "Allocated Quantity of Energy Withdrawn" (AQEW). The AQEW and "Ontario Demand" figures do not include generation from suppliers embedded in LDC grids (Dx): 
• "Consumption" will be AQEW plus "the total volume of electricity, adjusted for losses as required by the Retail Settlement Code, that was supplied by embedded generators to licensed distributors." (Ontario Regulation 398/10)

High 5 hours are determined by AQEW, but the proportionate share of the global adjustment is determined by a Class A user's AQEW (their metered use) as a numerator with total provincial consumption as a denominator.

During an adjustment period the IESO lists only the 10 top daily "Ontario Demand" hours:

The fact that they show AQEW for those hours shouldn't be confused with showing the 10 highest daily AQEW peaks - because after the last adjustment period class A users were surprised to find 2 of the High 5 hours were never shown on IESO's "Top Ten" list as the year progressed.

Wasting legacy asset value in Ontario: supply income redistribution due to the global adjustment

I regularly update data the drives pages on my data site. Pages on the site are meaningful to me because I recognize the changes over time - as well as seeing changes I anticipate become reality. Today I created a graphic from data that drives the Supply_Costs page, and will use this blog post to attempt to make the graphic meaningful for you.

When understood, this chart indicates numerous issues behind rate increases in Ontario - increases which hit a staggering 26% in the second quarter of 2015.

Spilling: data mined messaging for me, to you

This Labour day I've returned to some past databases. One self-imposed task is continuing to add to the data of hourly Ontario electricity generation that begins September 1st, 2010. I've queried the data and created some graphics, many of which simply reinforced old messaging I've written on, repeatedly. However, the messages could use reinforcement and one new graphic view gobsmacked me, demanding a quick post.

Years ago it occurred to me to try to reproduce work done at Oxford with Ontario data - which provided the basis for a series of posts on the cost of of industrial wind in my province. I continued capturing the generation data and added estimates of more obscure statistics, including hourly solar generation and curtailed supply. Today I looked at hourly average figures comparing my first 12-months of data (September 1, 2010 to August 31, 2011) and the corresponding dates for the recently completed 12-months.

Here's the graph, of changes over the past 4 years, that grabbed my attention:

For those slower to get their angry geek going, Ontario's hydro looks like it's being sacrificed due to extraordinarily expensive solar power.

IESO Reporting Challenge: concerning Fig 23

Everything is political.

Working with data, the political introduces itself largely in reporting. The planning, structuring and collection of data all involve organizational power structures, but in an intelligent system all are dependent on operations and/or the current, or envisioned, demand for reporting.

I usually find reporting to be the least enjoyable aspect of working with data. Querying data can be very informative, and much of my writing takes one aspect of a data set and explores it with words. Reports are often designed for other people, to their design - particularly executive reporting, which is designed for a quick hit on the status presented in a format the executive are comfortable with.

The IESO eventually posted a report for June, weeks later than usual. That is interesting in itself, as it implies the report is designed for an audience the doesn't need it any particular time. I can't think of a benefit of variable intermittent reporting (VIR) in Ontario's electricity sector - must be part of a bigger trend to variable intermittent stuff.
Whoever the important audience is for VIR, the June report had at least one new graphic which must be for them:

This is not the format of reporting on generation I would expect the people reading through a summary report to find relevant. The IESO's long-standing Figure 18, "Monthly Energy by Fuel Type," is a graph of monthly production in the same stacked chart format, but for coherent categories; nuclear, hydro, gas/oil, solar, wind, biofuel and imports. I would think normal people looking at a monthly report might like cost information for the same categories they receive production information.
Like this:

A heat wave exposes Ontario's electricity data and policy failings

The last week of July saw the hottest days of 2015 driving electricity demand to it's highest levels in 18 months. Market data for the month, coupled with the newest estimate of the month's global adjustment costs, indicate a fourth consecutive month of  20+% increases over 2014's electricity commodity pricing. A mainstream media site, the Toronto Sun, posted an editorial titled Wynne's hydro policy is insane. The editorial picked up on some of the poor decisions causing rising pricing but contains some data errors. These errors are understandable given the inability of Ontario's system operator, the IESO, to update its methods of accounting for electricity generation, and costs, since absorbing the Ontario Power Authority at the start of 2015. Not only has reporting not advanced, the IESO displays declining competence in producing the reports it historically has.

July's steep price increases, and The Toronto Sun editorial, follow a report by the Ontario Chamber of Commerce (OCC) indicating 1 out of 20 businesses in the province anticipate closing in the next 5 years. Facts the Sun's editorial gets some serve as a nice illustration of the OCC report's first recommendation:

Increase transparency of electricity pricing and system cost drivers

I'll use the highlighted elements of the Sun's editorial to demonstrate the IESO's growing inability to report on supply and demand in Ontario's electricity sector.

Data-driven thoughts on mitigating electricity rate increases

I started writing what became this post as a quick tumblr hit on a single graph  - as I started writing I  brought in comments on the OCC piece more suited to my coldaircurrents site, and as I felt it necessary to point out the data problems are actually people/organization problems, the work ended up on my more flippant Wordpress site.

The Ontario Chamber of Commerce (OCC) released a report last week:

“ Empowering Ontario: Constraining Costs and Staying Competitive in the Electricity Market, takes a look at the driving factors behind rising electricity costs in Ontario.

It’s about time - at best; it may be too late. Near the end of 2015's first quarter I wrote  Ontario's new electricity pricing program essentially taxes businesses to fund social program, which concluded many of the OCC’s members would be walloped by coming pricing changes:

Businesses below 3 MW average monthly peak:

• get stiffed with the continuance of the debt retirement charge
• get stiffed with the OESP [Ontario Electricity Support Program]
• get stiffed with the expansion of the class A program

I’m sure that’s confusing to many, but that "Businesses below 3 MW average monthly peak" class of customer did see the commodity rate it pays for electricity rise 25% from 2014′s second quarter to 2015′s, so I’m not surprised there’s some motivation to address the issues. However, the Chamber has more work to do in getting through the confusion.

Commodity cost of Ontario electricty up 25% in 2015's second quarter

While I haven't been writing much this summer, I have been following Ontario's electricity exploits in reading reports and running the numbers. Recent reports included coverage of remarks from the province's Energy Minister which, along with the most recent figures and the end of June, inspired me to put out a quick post.

Inflation was enormous this past quarter.

• April, $112.10/MWh (weighted average class B) up from 85.28 one year earlier (up 31.4%)
• May, $112.04/MWh (weighted average class B) up from 89.88 one year earlier (up 24.7%)
• Adding the $97.68 second estimate of June's global adjustment posted yesterday to a calculated weighted HOEP average of $15.31 an estimated rate of $112.99 is up 25.5% from June 2014's $90.02/MWh.

I expect the final global adjustment rate for June will be slightly lower than the estimate, but the quarter will still be up almost 25% over last year.

25%.

A lot.

I suspect an official explanation of the surge is not pending, This from a report that Ontario's leaders look to build on ol' Premier Peckford's awesome agricultural acumen:

While hydro rates will continue to rise, Chiarelli said consumers have seen the last of sharp increases that averaged about six per cent annually over the last eight years.

Perhaps he meant the increases are going to get so much higher "sharp" will fail to be an inadequate adjective?
The article with that quote was about a push to transfer costs from "Class B" consumers to an expanded "Class A" class that might include greenhouses, and a good chunk of the 25% increase is not from the cost of all electricity rising, but the share of costs transferred to lowly "Class B" consumers rising.

"Stakeholders" destroying the viability of Ontario's electricity market

Ontario's electricity rates are rising for most, and that's not due to external factors nearly as much as the deliberate policies of the Ontario government couple with the performance of the system operator (IESO). I've written recently on traders in the Ontario market benefiting from low Ontario electricity prices, and on suppliers manipulating government policy and practices making larger entities more influential. This post will focus on the "Class A" global adjustment which, because it works to eliminate any possibility of a market in Ontario functioning as a tool to indicate the adequacy of supply levels, is the worst "stakeholder" driven policy of all.

On August 17, 2010, the Ministry of Energy news release on the planned 'Class A' scheme to reduce electricity costs for the province's largest consumers of electricity stated:

Ontario is proposing to help the province's largest industrial companies and manufacturers conserve energy in a way that will have little to no impact on electricity bills for Ontario families.

I've checked.
They were wrong.

Since the process was introduced for 2011 I estimate the direct "little to no impact" has been over $2 billion and has grown to a cost of over $750 million a year. [1] This direct cost shift has an impact of about 0.66 cents/kWh ($6.64/MWh), which makes it essentially a new charge equivalent to the retiring, for 2016, debt retirement charge.

Despite the high cost of the class shift, which will be explained further, I'll argue there are secondary impacts from the behaviour encouraged by the mechanism.

Better Reporting of Ontario's electricity consumption

How much electricity is consumed in Ontario?

It's a question related to how much electricity is generated in the province, but there are important differences that should be displayed. This post will provide better figures for consumption, at consumers' meters, than those popularly given.

The most widely cited figures for demand in Ontario come from the IESO, which ubiquitously displays "Ontario Demand" but is more discrete in defining the term. From their latest monthly reporting:

Ontario Demand represents the total energy that was supplied from the IESO Administered Market for the sake of supplying load within Ontario.

So it's supply, and not metered demand. "Ontario Demand" is something the IESO reports on in 5-minute intervals, hourly, weekly, monthly, etc. The monthly totals of "Ontario Demand" match the "Energy Demand" totals in documentation created with the IESO's 18-month outlooks.
Table 3.3.3 of the latest spreadsheet breaks down "energy demand" into:

• LDC [local distribution companies] Consumption
• Wholesale Consumption
• Generator Consumption
• Losses

Only 2 of these categories should be considered consumption: wholesale consumption presumably being the metered consumption of large wholesale consumers, and LDC consumption measuring power delivered to the LDCs, but still not at the end consumers' metered consumption.

Better Reporting of Ontario's Electricity Generation

How much electricity is generated in Ontario from different sources?

It’s a question that’s difficult to answer, but using both the IESO’s summary of 2014 electricity production (IESO data), and the Ontario Energy Board’s Ontario’s System-Wide Electricity Supply Mix: 2014 Data (OEB data) provides a far better estimate of actual production than is generally circulated.

The IESO data is often cited for supply and demand figures in Ontario, but it provides neither: the IESO reports on generators attached directly to the transmission grid. Generators contained within the domain of Ontario’s multiple distribution grids are called embedded generation, and escape most IESO reporting.

These are the IESO’s figures for “Grid-Connected Electricity Production” the past 2 years:

Add the numbers for each of 2013 and 2014 up and generation is essentially unchanged at 154 TWh.

To estimate “embedded” generation a look at the OEB data is necessary because it “Includes both Tx (direct) and Dx (embedded) connected generation”:

Ontario government seeks a creative lie to justify raiding Hydro One riches

The plan is to sell Hydro One for far more than its book value and use the unlocked additional value to fund a build-out of transit in the Toronto ecosystem.
That's the plan as presented for public consumption.

The plan might not do much damage to Ontario's electricity sector, but it's not likely to do anything beneficial for transit or provincial finances either. Mostly it's more deceptive spectacle from a government that's been spectacularly inept money managers. This post will primarily discuss two issues: the impact of the sale on the perceived electricity sector debt, and the role of the Ontario Energy Board (OEB) in not only consumer pricing - which it's being claimed it regulates responsibly - but the pricing of the share sale.

The plan to sell shares in Hydro One is part of the recommendations in a report from the Premier's Advisory Council on Government Assets. I'll call this the Clark Report as that body is chaired by the architect of Pierre Trudeau's National Energy Plan in the 1980's, Ed Clark - he is also known as a banker.

Hydro One's 2014 Financial reporting indicates total equity of $7.6 billion.
The Clark Report values Hydro One much higher than that:

The Council’s analysis indicates that, in today’s markets, the integrated Hydro One transmission and distribution business would likely command a fully distributed equity valuation of between $13.5 billion and $15 billion in a public offering, excluding Hydro One Brampton. We believe this valuation is a conservative range in the context of today’s market:

Call it $15 billion, which is $7.4 billion higher than the total equity reported by Hydro One.

$7.4 billion. Remember this number.

Behind the OEB's latest rate hike

Yesterday the Ontario Energy Board (OEB) announced rates for the May 1- Oct 31, 2015 period. The rates are going up, on average, around 10.3% over last summer - as is the trend. Since 2007 summer rates have averaged 9.4% a year. 10.3% is a weighted average increase as each time-of-use (TOU) period is going up differently. The difference in TOU increases exhibits an ignorance about the factors driving pricing in Ontario's market, and the consistency of the increases over the past 7 years eliminates the uncertainty about why rates are going up.

There are few more capable of breaking down cost components that I. Last summer's rate hikes were all due to renewables. This year much of the boost is due to some of the delayed costs OPG has now applied for (see Bruce Sharp's Invisible Gorilla).
I suspect that when the government contracts of unnecessary supply drive the price up more than 10%, OPG is strangled; when there might be a brief pause in those costs, OPG gets some funding for it's variance accounts. Always, however, the costs are being driven by policy. Rates are going up because the powers that be want them to. They go up 10% because that's what they figure people will tolerate.  

We are closer to paying the real cost of energy than we have been in the past. 

This isn't an educated opinion, but a statement to identify one's tribe.

Rates are going up because in this instance the quote comes from the Premier and she wants the rates to go up.

Whatever the people are paying it isn't the real cost.

This is a first principle of the tribe including Ontario's Wynne - and McGuinty.    

The unique stupidity in this latest rate hike is the distribution of the increase across time-of-use periods.

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.

Ontario is the sucker of first choice for off-price electricity

A large and  growing amount of electricity is exported out of Ontario at prices far below what Ontario's common ratepayers pay. How this happens is complicated, but the reason it happens is not: influential groups of people benefit. In the parlance of Ontario's electricity scam, these influential people are called "stakeholders." This post is about one aspect of a system designed solely for stakeholders.

I've been writing on the costs of exports for over 4 years, primarily focused on analysis of data I've captured and/or queried. I've not been particularly entertained by doing it for about 4 years. January 2015 saw a record for net exports (exports less imports), and in the past it wouldn't have taken me long to run up a blog post saying so. In this post I'll use numbers, primarily on exports, to tell a story of influential people, and their suckers.

Maybe I'll get you to want a tax.

IESO is the cheapest market around (unidentified grey bar is MISO)

I've revisited data from the National Energy Board (NEB), and connecting figures uncovered there to previous work I've done, I'll explain an obscure but apparently growing profit centre designed into the IESO's operation of an electricity market.

DEFINITION OF 'ARBITRAGE' 

The simultaneous purchase and sale of an asset in order to profit from a difference in the price. It is a trade that profits by exploiting price differences of identical or similar financial instruments, on different markets...

The IESO does not attempt to recover the full cost of supply in operating their market. In January maybe 38% of the costs of providing supply were recovered by selling at market rates, and that was better than they do most months.[1]

To estimate the money involved from the arbitrage of Ontario's electricity, the value of the purchases on the Ontario market is needed, along with the value of the resale of that electricity in other markets. Fortunately, there's data to estimate both.

A tried and true method of reducing electricity consumption

Ontario's suckling society of electricity policy enablers remains heavily focused on the conservation message. I hope I won't needlessly brag, but our households electricity usage was reduced to about 1/3rd the level of a decade ago prior to our latest personal infrastructure project, which has dropped it a further 50% over the past month and a half. I'll concentrate in this post on my consumption experience as I develop a basis for future energy decisions.

What smart meters have done is they’ve allowed the cost of energy, the increases, to be mitigated. And so yes, the cost of energy has gone up. We are closer to paying the real cost of energy than we have been in the past. -Ontario Premier Kathleen Wynne

There's a couple of points I take exception to - I'll leave addressing who "We" are until later paragraphs; first, to smart metering and household energy.
I've had a smart meter since November 2010, and I pulled some figures for a recent 45-day period to compare to the same period in past years.

Corrections: on Ontario's 2014 electricity year, and the IESO reporting of it

Ontario's IESO has put out some figures for 2014, and now I'll provide an actually independent look at Ontario's electricity system operation.
Most of the IESO's 2014 Electricity Production, Consumption and Price Data has data that makes sense to the IESO - to the uninitiated the numbers are very misleading. While the IESO has published measurements as per the IESO's insular worldview, it hasn't always showed the discipline to use its own jargon to communicate the numbers honestly.

Demand
Total energy consumption of 139.8 TWh in 2014 was slightly lower than 2013 demand levels.

Demand is down 11% since 2005. Supply isn't

Well, no. "consumption" certainly was not 139.8 TWh no matter how loosely one uses the term "energy."

An exploration of the figures from the IESO is necessary as most people will leave the IESO's reporting page less knowledgeable of Ontario's electricity sector than when they arrived - and it would be nice if that weren't so. I'll try not to bore you while actually writing on things I am distinctly qualified to write about: data collection, discipline, and imperfection - which sounds pretty dry, but it it involves courage, integrity, politics, philosophy and that vision thing.

taxation and market dysfunction in Ontario's electricity system

I wrote in 2014 that a carbon tax could be introduced in Ontario's electricity sector without raising rates. that would prevent the sale, basically at the cost of fuel, from gas-fired generator which Ontarians pay the full cost of running (through the global adjustment).

Last week was the highest net export week Ontario has experienced, averaging 2,865 megawatts each fetching around $20, which is 2 cents/kWh (weeks start on Wednesdays - presumably because the market opened May 1, 2002 - a Wednesday).

The record replaced the previous week's record hourly average of 2,827 megawatts, which was essentially given away at no cost. One difference between the two weeks is that the natural gas generators Ontario contracted with Net Revenue Requirement contracts over the past decade were used much more in the recent week - which brings me back to taxing them.

I realize this is difficult to follow, but I offer this incentive to try: if you are paying electricity rates in Ontario you are paying high rates while providing Americans cheap power.