Here is a high-level glance at some changes happening with the major players that have oversight in the industry.
New Government
The government has changed, repealed existing legislation and dismantled many of the previous government’s initiatives. It is presently lacking any cohesive policy or long-term plan, however it is still early in their term.
The high cost of electricity in Ontario is a direct result of bad decisions from our governments. In the mid-nineties it was the NDP that gutted the industry and deferred sustainment of infrastructure. Next it was the Harris PC government that ushered in the power-for-profit era with the electricity market and restructuring of the industry in preparation for privatization. Then the Liberal government made things worse by selling assets and entering into lucrative long-term energy contracts with investor-owned generators.
The Ontario governments have led us to where we are now. It’s frightening to think that we must rely on them to clean up their own mess.
Now we find ourselves back to a PC government that is committed to ‘cleaning up the mess’ and lowering rates. They have yet to take steps to lower costs but having dismantled the green energy initiatives they have avoided some future costs. It is a certainty that there is plenty of background chatter and lobbying within the industry to mitigate the impact of cost reduction on businesses that are friends of the current government.
Regulatory Modernization
The Ontario Energy Board is in the midst of a ‘modernization’ review to ensure they align with changing technology and electricity markets. The consultation phase was in the spring of 2018 and the report is due before year-end.
Beginning in 2019 the delivery charges for residential customers will become a fixed monthly cost. Based on a rate design policy from 2015 (EB-2012-0410), the delivery charges are moving from a blend of fixed and variable to fixed-only in 2019. The changes are designed to be revenue neutral. Customers on either extreme of consumption (low or high) will see a modest change in their monthly bill.
Reviews of the Low-income Energy Assistance Program (LEAP) and Regulating Unit Sub-meter Providers and are pending.
The OEB had developed the regulatory framework to support Ontario’s cap and trade program. Since the PC government has scrapped this program a cleanup will be required.
IESO’s Electricity Market
The IESO is in the midst of a Market renewal exercise intended to improve the way electricity is priced, scheduled and procured. In April 2017, the IESO published an independent report on the benefits case here.
It is a significant undertaking and far too complex to delve into in a blog, however there is a key item with potential impact on rate payers that deserves mention.
Make the generator market offer pricing financially binding
This would have a significant impact on the market and eliminate the gaming by generators that move more expensive generation to the front of the queue. With the current market implementation the generator is paid in accordance with regulatory or contractual terms – not the price they offer in the market. The Global Adjustment is what makes up the difference – and it’s a substantial difference.
In summary the IESO must:
- Legitimize market offer energy pricing by electricity generators
- move the industry toward true economic dispatch by ensuring that the lowest cost generation is supplying the grid. The Global Adjustment would no longer be required.
- Change power export pricing process to make the generator assume the risk of profit or loss instead of Ontario ratepayers
It will be easy to measure the success of any reform by looking at the Global Adjustment and the trending average energy cost. The global adjustment only exists because of the disconnect between markets and actual energy prices. Average costs will decline with a move toward dispatching the lowest cost generation instead of the lowest offer generation.
I am more than happy to leave this topic to the army of people who earn their living administering the wholesale market.
It makes me wonder how the industry survived for 96 years without markets.
Where did we go wrong?
Derek
Next article… Infrastructure migration
