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.

Electricity in Ontario as 2014 ends: high prices, demand destruction, and governance in decline

I ran my numbers earlier today to update my weekly shadow reporting page.  I expected the figures to be bad (they are), and this week I contributed to making them worse.

On average, each hour of the past week Ontario was exporting 2,827 megawatts more than it was importing.
That's a record for any week since the alleged market opened in 2002.

The weighted average Hourly Ontario Energy Price (HOEP) was $5.66/megawatt-hour (MWh), which is slightly over half a cent a kilowatt-hour and slightly under the charge Ontario's consumers pay to allegedly pay down an allegedly stranded debt.

The HOEP is calculated only on Ontario Demand. Weighting the hourly price to net exports indicates an average rate under $4/MWh over the just past week. The best price an Ontario electricity hostage rates is $77/MWh (7.7 cents/kWh). So the most optimistic presentation on the pricing of exports is that every hour Ontario's supply was sold outside the province for $206,000 less than captives of Ontario's regulated price plans paid for the same quantity of product.


One of the year's disappointments for me was the Ontario Energy Board's Market Surveillance Panel's rebuttal of statements from Parker Gallant. I can only assume the resolute imbecile willing to continue to numbers such as those from last week actually indicate a profit of $4/MWh on exports is first up for the next needless, yet lucrative, position.

November 2014 Sets another record—wind blows harder than ever!

By Parker Gallant and Scott Luft
[first appeared at Wind Concerns Ontario]

It was another “wow” month for the electricity sector in Ontario for November: power generation from wind set a new record of 879,000 megawatt hours (MWh). The cost for that production alone1 added over $108 million to ratepayer bills and coupled with curtailed wind production of over 70 thousand MWh cost ratepayers about $116 million dollars in a month that valued all generation at about $1.1 billion.2 

Wind made up 6.6% of total supply and represented 10.7% of what the market valued all generation at, but it also drives down the market rates which transfers costs to the smaller Ontario ratepayer. No small wonder why our electricity rates are continuing their relentless march upwards!

The Global Adjustment didn't set a new record as it did in October, but at $870.2 million it is the second highest on record, as is the $82.32/MWh class B rate. Coupled with the $16.49 HOEP (Hourly Ontario Energy Price), the “bare bones” price for the commodity will be 9.9 cents/kWh for most Ontario ratepayers. That price is before inclusion of all other nickel-and-dime charges such as regulatory, debt retirement, delivery, HST, etc.

The Market for Lemons

Breaking a long-standing rule, this is the first guest post published on my Cold Air blog

Bruce Sharp has "worked in the Ontario energy industry for twenty-seven years and have a background in power generation, energy management, industrial natural gas utilization, energy marketing and energy consulting."

I have nothing against energy retailers, but I think Sharp's work makes a compelling case they are inappropriate in today's residential electricity sector in Ontario.

_____

Introduction

The Ontario Energy Board has invited comments on the Effectivenss of Part II of the Energy Consumer Protection Act (ECPA). The problem is that optimizing this section of the Act is like perfecting a life jacket made of cement – the process may make sense in a very narrow quality sense but the product is ultimately very bad for the consumer. The prime question is “Why do we have at all an electricity retailing market for Ontario’s smaller consumers ?”

Summary

1. The Ontario retail electricity market suffers from an asymmetry of information and so is dominated by unsavoury sellers and gullible buyers. 
2. The Global Adjustment or GA – paid for by customers on regulated rates and those on retail contracts – already provides protection against varying spot prices. 
3. Ontario retail electricity contracts duplicate what is already being done by the GA, causing consumers to effectively speculate on the spot market price of electricity. These contracts are therefore very unnecessary. 
4. The extreme profit margins embedded in retail electricity contracts virtually guarantee a homeowner will incur an added cost. This cost can be $ 200 or more per year. 
5. If we must improve the cement life jacket, side-by-side bill comparisons should be proactively audited and verification scripts should be modified such that the retailer clearly identifies for the customer the option costs, the higher cost option and magnitude of the differential. 

What Goes Up is your price - as wind blows market rates down

The Fraser Institute recently released an analysis prepared by Tom Adams and Ross McKitrick that is particularly critical of wind energy as it impacts Ontario's electricity pricing, "What Goes Up: Ontario’s Soaring Electricity Prices and How to Get Them Down" (.pdf). Soon after the Canadian Wind Energy Association (CanWEA) issued a response (.pdf). Lorrie Goldstein wrote, in the Toronto Sun, that a paper Parker Gallant and I issued delivered the same message as the McKitrick/Adams study ("the study") . I suppose that's fair, and this post will show why criticisms leveled don't invalidate the study's conclusions, but do discredit the critics hired by CanWEA.[1]

McKitrick and Adams worked together to collect data and build an econometric model of the global adjustment (GA). I would consider myself as talented as almost anyone in data collection, formatting, storing, and querying, but certainly not statistical modelling, as McKitrick has done. I expect to complement the report in demonstrating some multipliers that do exist, but I won't comment on the model, Analysing at too detailed a level would reveal a myriad of problems with historical data, and cost shifting between months, and even years, incorporated into the global adjustment. None of which would be relevant to the implications and recommendations of the study.

One element of the study that I noted with pleasure was their model indicating wind acted as a capacity cost (and not an energy cost).

Many jurisdictions looking for the best way to keep the lights on are evaluating the best way to ensure reliable capacity exists to constantly meet demand. It's not uncommon to see a separation, at least theoretically, of "energy" value, or the worth of a unit generated, and capacity value - the value to be capable of generating "energy". The study claims wind shows to be a capacity purchase more than an energy purchase:

Wind capacity has massive explanatory power, effectively dwarfing every other variable except hydro capacity. This strongly suggests that ... the GA has evolved in a manner highly consistent with a system in which wind farm operators are contracted for capacity rather than merely generation.