enough of experts: The End of the IESO

“I think people in this country have had enough of experts...
enough of experts from organisations with acronyms saying that they know what is best and getting it consistently wrong.”  -Michael Gove, June 3, 2016

Gove's "enough of experts" was one of 2016's most mocked phrases. Those considering themselves on the side of angels/experts ignored the nuance, but perhaps the public did not as Gove's side won the referendum to separate the United Kingdom from the European Union, and later in the year the ultimate establishment candidate failed to be elected President of the United States despite the obvious flaws of her opponent. When people stop to examine if they've had enough of experts from organizations with acronyms, like IESO, many discover they really have.

Perhaps the people have a point, and modern "so-called experts" are simply those who benefited from the current situation. As "the victors write the history", the profiteers win the title of "expert".

It has been an eventful few months for Ontario's electricity system mandarins.

On September 1st the IESO delivered an Ontario Planning Outlook (OPO) to a rookie Minister (of Energy) - a report they were directed to produce by the former, veteran, Minister of Energy. Surging electricity rates were considered the main issue in a by-election held the same day, in which the government lost a seat that had been a traditional stronghold.
Before September was over the government suspended its Large Renewable Energy procurement, justifying the decision with, "The IESO has has advised that Ontario will benefit from a robust supply of electricity over the coming decade to meet projected demand." 
Before November was over the novice Minister of Energy was sketching out themes for a long-term energy plan built upon market concepts the IESO frequently enunciates.

By the end of November the Premier had stood before her Liberal Party and referred to high electricity prices as "her mistake."

It's important to review what created the current situation in Ontario - as I've been doing on this blog - but it's also pertinent to ask "who" did this. An old saying implores commentary to "play the ball and not the player," but eventually everything is about people.

In May 1996 an Advisory Committee release a report laying out the design of an electricity system to replace the monolithic public provider: A Framework for competition (1996).

Our recommendations are based on empowering all customers - large and small - to
choose their supplier of both electricity and energy services. We are recommending a
phased process that leads to a competitive electricity system.

In this light, the first stage would be wholesale competition - where electricity
generators compete to supply power to electricity distributors and other large customers...

The core of a competitive system is an electricity marketplace in which buyers and
sellers of electricity have an opportunity to strike the best deals....

..."Market discipline will direct important decisions with respect to future investment in electricity supply".

The IESO originated as the Independent Electricity Market Operator (IMO) in the Electricity Act of 1998. The Act broke up Ontario Hydro into multiple entities, including the IMO, whose "objects" included:

• to establish and operate the IMO-administered markets to promote the purposes of the the Electricity Act, 1998. [1]

In the context of the 1996 market framework, the IMO was responsible for the first thing/stage. The written "purposes" of the Act the IMO existed to promote included:

(a) to facilitate competition in the generation and sale of electricity and to facilitate a smooth transition to competition;
...
(c) to protect the interests of consumers with respect to prices and the reliability and quality of electricity service;
...
(f) to facilitate the maintenance of a financially viable electricity industry [2]

We might evaluate the success of the IMO, and subsequent IESO, by measuring the organization against the province's distinct failure to realize desired ends. Unfortunately ends appeared and disappeared as the Act averaged numerous revisions each year over the past two decades.[3] What is known is few electricity suppliers are now exposed to market pricing, and market discipline, a prerequisite for the economic supply decisions, has been lacking since 2008.

Today's IESO market is not based on the restructuring of Ontario Hydro, and does not serve the purposes of that restructuring.

Another method of evaluating the IESO's performance is by it's performance against peers.

Ontario's current electricity structure is often portrayed as unique, and due to the privatization bias of former Premier Harris, but the reality is it was part of a broad trend. There are numerous comparable ISO's with which to measure the IESO's performance:

•  ISO New England formed in 1997, and launched a regional market in 1999
• The New York Independent System Operator (NYISO) "assumed responsibility for designing, administering, and monitoring New York’s wholesale electricity markets in 1999," following a "market transformation... which sought to make New York’s energy markets more competitive and efficient." [4]
• PJM "became a fully independent organization in 1997," and that year "opened its first bid-based energy market. Later that year the Federal Energy Regulatory Commission (FERC) approved PJM as the nation’s first fully functioning independent system operator (ISO). " [5]
• MISO, the Midcontinent ISO, had it's plan accepted by the federal regulator in 1998, and began administering its wholesale electricity markets in 2001.

Measuring the IESO by the performance of these markets isn't a unique idea: since January 2004 the IMO/IESO has displayed a graphic in its monthly reporting on the average monthly rates in all but MISO (which was added in April 2007's report).

I've shown the December 2004 report's graphic as it is the last produced for the months of the IMO. The graphic demonstrates a market usually slightly lower priced than other markets. January 1st, 2005, the organization became the IESO, and the same revision of the Electricity Act eliminated from its purposes "facilitating competition and a transition to competition." The period also saw, not by coincidence, the introduction of the Global Adjustment and the "hybrid" market terminology.
On January 1, 2005, the decay of Ontario's electricity market began. [6]

The IESO market now realizes pricing at a fraction of the neighbouring control areas - as displayed by a recent monthly report:

The prophet Gove, of 2016, explained so-called experts were those that benefit from the current situation. The current situation is that little of the total cost of supply are recovered by the IESO market. In 2016, less than 20% of supply costs were recovered through market sales.

And yet... the IESO is cited as expert in competition and markets.

Creating a competitive wholesale market, the "first stage" in a sector redesign intended to provide consumer value, is not the IESO's only failure - only its most significant.

_____

In 2007 a new IESO CEO, Paul Murphy, delivered a speech to the Ontario Energy Network - as IESO CEO's often do. The speech touched on the need for more generation, more flexibility, more wind and more transmission, and then "switched gears" into smart metres:

The IESO has taken on a new role as Program Coordinator of the Smart Meter Initiative...
We have selected IBM as our partner to develop and operate the MDM/R for the first four years.  The IESO will work with IBM and stakeholders to finalize a design and implement a turnkey solution.

Murphy became a respected expert by outsourcing knowledge-building exercises. In recent years the IESO's annual reports show smart metering funding (from ratepayers) mostly split between profits and consultants.
As politicians realize the lack of accomplishment in the program, they can only flail for help - grabbing onto more consultants to stay afloat, despite the decade of spending at the IESO.

Murphy 2007:

We all have a lot on our plates right now, and while we need to continue to move forward, we must do so at a pace that can be accommodated by stakeholders. The plan for the development of a Day Ahead Market reflects the step‐by‐ step approach that we are taking.

2016. Still a lot on plates at the IESO.
Still no day ahead market - but still chatting market renewal.

Murphy 2007:

One piece of good advice that I received was to focus on the customer
...Electricity prices are the lowest they have been since the Market opened. Jake Brooks, in his editorial in last month’s IPPSO Facto, argues that for a number of consumers, real prices are no different than they were 14 years ago

That sounded good.

IESO CEO Murphy spoke to the same group 4 years later. In 2011:

Whether they blame wind and solar, or whether they blame smart meters, another claim being perpetuated is that Ontario energy prices are now through the roof and are the highest in North America.
This claim troubles me a lot and it’s one that I decided to do some personal research on. 

...I wanted to not only find out how my electricity rates have changed but also how my taxes, my water charges, my cable and my telecommunications costs over the past 15 years have changed. The results may surprise you. I know they surprised me.

In the past 15 years, my property taxes have gone up by 240 per cent, my costs for cable TV have increased by 200 per cent and my water rate has gone up 90 per cent. While my cost for my landline has decreased over the past 15 years, when I add in cell phone costs for me and my family, it is a 380 per cent increase.
Over the same 15 year period, my hydro rate has gone up by an unremarkable 30 per cent.

Experts without acronyms were rightfully alarmed by the speech (here and here), and rates have predictably skyrocketed following the head of Ontario's impotent market abandoning independence, and the goal of providing value.

Mr. Murphy was paid well, outsourced lots, and is therefore an expert.

The Peter Principle may now be extended:

"managers rise to the level of their incompetence"... at which point they are experts

 As politicians fumble for solutions to the high rates that predictably followed the failure to implement the "first stage" of a private market, some now babble of advice from their experts.

Their experts from organisations with acronyms.

The public anger isn't subsiding, because the public, rightly, has had quite enough of those.

Endnotes:

[1] These purposes are quoted for page 2-58 of Ontario's Public Accounts, 1999-2000. The financial reporting of the IMO was signed by its then acting President, Paul Murphy.

[2] Quoted from the "Historical version for the period January 1, 2004 to June 16, 2004." this is the earliest version I could locate on the government's e-laws site of the Electricity Act, 1998 (which may only go back 50 revisions!)

[3] The posted versions of the act only go back 50 versions - to only 2004!

[4] Quoted from POWERING NEW YORK—RESPONSIBLY:  How New Yorkers have saved hundreds ofmillions in energy costs since 2000

[5] PJM History

[6] I wrote on this period in 2011's Duncan's Grow-Op Is Stealing Hydro