Much ado about Ontario’s new export charge on electricity

Ontario’s Ford government directed the electricity system operation (IESO) to begin levying a $10/MWh ‘surcharge’ on electricity exports to the United States. The official news release states that, “At this level, the surcharge will generate revenue of $300,000 to $400,000 per day, which will be used to support Ontario workers, families and businesses.” All other factors holding unhanged, that would be true, but the other factors involved in Ontario’s electricity pricing make it extremely unlikely that the move will generate any revenue.

Ontario’s electricity exports have relatively recently become dominated by supply from natural gas generators, unlike the exports over the previous decade which were driven by an excess of committed, trivial-emission, supply from nuclear, hydro, wind and solar. One way the switch is visible is in the increased average cost of exports. The simplest measure of costs is the Hourly Ontario Energy Price (HOEP). The average HOEP for exports to the US over the past 3 years isn’t quite $40/MWh, but it’s close enough that the government can excused for using a $10/MWh surcharge to carry out a threat of a 25% increase.