Contributed by Robert Lyman © 2017
Lewis Carroll, the author of Alice in Wonderland, spellbound his readers by writing a story in which everything seemed topsy-turvy and counter to the ways people think things generally should be. Even Lewis Carroll, however, could not have imagined how the province of Ontario sells electrical energy to its export customers in New York and Michigan.
It is an extraordinary tale, and so I will give you the simple version. Since 2005, the Independent Electricity Systems Operator (IESO), the Ontario government agency responsible for managing the electrical energy system, has purchased an increasing amount of electricity from new generators at 20-year fixed term contracts. It also purchases power from the government-owned Ontario Power Generation (OPG). The generators receive two streams of revenue. One stream comes from the price that power sells for in the competitive wholesale market. The other stream is the revenue they receive from the Global Adjustment (GA). The Global Adjustment is a charge on Ontario electricity ratepayers (i.e. consumers) that makes up the difference between what a generator receives on the market for their output and what it was promised in its contract.
Even though electricity demand has been falling in Ontario, IESO, under government orders, has been adding more and more generation capacity, especially from wind and solar power generators. This has created a large and growing power surplus. The surplus has, in turn, driven down the market price, resulting in generators receiving higher payments through the Global Adjustment from ratepayers.
Electricity generally cannot be stored except at very high cost. Consequently, when supply exceeds demand, IESO first seeks to curtail purchases from generators (i.e. it pays them not to produce) or, when even that is not enough to balance supply and demand, it sells surplus power to export customers.
The export customers, mainly in New York and Michigan, buy at the market price – the wholesale rate. This leaves Ontario domestic customers on the hook for the Global Adjustment on electricity exports. It is added to electricity bills and acts as a subsidy from Ontario ratepayers to those in New York and Michigan.
According to a joint study by Energy Probe and the Consumer Policy Institute, the cost to Ontario electricity customers for exported power rose from $100 million per year in 2006 to $1.8 billion per year in 2016,.
The cost per kilowatt hour (kWh) exported drops furthest on days when there is low demand and high wind. During the week from May 24 to 30 2017, the market rate dropped to 0.11 cents per kWh (eleven one hundredths of a cent per kWh). During that one week, IESO exported 278,712 megawatt hours (MWh), which cost Ontario ratepayers $35.6 million in Global Adjustment costs. But wait, it gets worse. During the previous week (May 17 to 23), the market price was actually negative at -0.5 cents per kWh, so 308,616 MWh were exported. Ontario paid export customers $148,000 to take the electricity but Ontario electricity customers were charged $39.4 million. Eighty per cent of these charges are paid by residential customers.
If you were wondering who the Mad Hatter is, look no further than the Premier’s office.