Electricity in Ontario: save more, pay more

Consumption went down, costs went up!

The IESO (Independent Electricity System Operator) released their July 2017 Monthly Market Report several days ago, including Class B ratepayer consumption levels along with the cost of electricity by MWh (megawatt hour) and kWh (kilowatt hour).

Compared to the July 2016 report, it shows Ontario’s ratepayers used 910,000 MWh less (down 7.2%) in 2017 than 2016 (enough to power 100,000 average residential homes for one year) yet the cost* of the electricity generated jumped, from $106.47/MWh (10.6 cents/kWh) to $126.41/MWh (12.6 cents/kWh) or 18.7%!

To put this in context, Ontario’s Class B ratepayers reduced their consumption from 10.495 TWh (terawatt hours) in 2016 to 8.858 TWh (down 15.6%), while Class A ratepayers increased their consumption from 2.284 TWh to 3.062 TWh (up 34.1%). The cost of power consumed by both Class A and Class B ratepayers increased substantially year over year.

The impact on Class B ratepayers is being tempered by the debt being accumulated under the Fair Hydro Act that will eventually result in a new and higher debt retirement charge. Some of the additional costs can be attributed to losses on our export of surplus power increasing its cost from $88 million in 2016 to $105 million in 2017.   Wind curtailed (21.3% of potential generation in 2017) costs also increased from $13.2 million to $14.4 million in 2017.

What it means: despite a reduction in consumption of 15.6 %, total costs increased!

Looking at the IESO’s “Global Adjustment Components and Costs” for July 2017, you see that dividing the published Class B costs of the GA for July of $913.4 million by the consumption figure of 8.858 TWh results in a GA cost of $103.11/MWh (10.3 cents/kWh). That cost is $9.71/MWh less than the GA Monthly Market Report of $112.80.  The difference of $86 million** in additional costs was allocated to Class B ratepayers for the month of July.

When I saw that apparent difference, I inquired why.   What I got back was this:

“Regarding the discrepancy you’ve identified on the Global Adjustment Components and Costs web page, the reason for the difference is because of adjustments between Preliminary Settlement Statements and Final Settlement Statements for previous months. Page 28 of Market Manual 5.5 explains this. The rate as posted in the monthly market report, is not the Class B GA amount divided by TWh. Rather, it is set to cover all payments made through GA including those held in the variance account.”

The “variance account” referenced in the response from the IESO spokesperson is cleared every six months when the Ontario Energy Board (OEB) set future rates and would have been cleared when they reset the new rates under the Fair Hydro Act that applied to Class B ratepayers as of May 1, 2017. As a result of the reply, I undertook similar calculations for other months as a test and all of them wound up within pennies … not the almost $10/MWh difference for July 2017.

What I get from all this is, transparency may not be all it is claimed to be when a mistake is made, or alternately $86 million for one month being billed to ratepayers is considered a rounding error!  What is obvious is that “conservation” costs Class B ratepayers a lot of money.

Parker Gallant,

September 3, 2017


* GA (Global Adjustment) + HOEP (Hourly Ontario Energy Price).

** Calculation is 8.858 TWh X $9.71 million/TWh

Author: parkergallantenergyperspectivesblog

Retired international banker.

7 thoughts on “Electricity in Ontario: save more, pay more”

  1. Whoever sent the response from the IESO has a reading comprehension – or an honesty – problem.

    “Page 28 of Market Manual 5.5,” twice defines the [Class B] rate as:
    “Class B Global Adjustment Amount ÷ Class B Consumption”

    so… that ain’t the issue.

    I have an explanation for the discrepancy in July’s class B calculations. Perhaps I should write it up.

    Liked by 2 people

  2. I saw on the news last night the new hydro pricing structure. I was very confused by it all which is exactly what hydro none…. OEB.. IESO…. OPG… and ole katy wyndde wants…. more smoke and mirrors…. as we use less we export more and prices keeps climbing…. it makes no sense!!!!


  3. Thanks for the article.

    What about trying to figure out what percentage of the HydroOne transmission costs are green energy related? My thinking is about 40 – 55% for transmitting 10% of the provinces power.

    This huge bill needs to be added the cost of green energy, in addition to the costs you outline in this and other articles.

    In addition there are administrative costs for green energy – the cost of paper pushers in government, HydroOne and ISEO, etc. These costs are small for bulk producers like nuclear or large hydro, but when measured on a per kWh basis might add about $1/kWh to solar power costs.

    I believe that a reasonable person with accounting and simple engineering skills could come up with the actual price for green energy today in Ontario. There are two ways to calculate the answer which should agree.

    Method 1) Take the total bill to Ontario for electricity in 2016. Work out the per kWh cost. Then compare to what it should be (i.e. average Manitoba, Quebec, Michigan, etc). The excess must be for green energy. Then work out that excess on a per kWh basis. Its at least $0.80 per kWh.

    Method 2) Work the other way from costs. Harder to do.


  4. Method 1) Ontario 2016 usage – 150 TWh for a cost of 30 billion dollars (20 cents per kWh average cost including everything). We should have paid say $0.13 (all our neighbours pay less than that). So we overpaid by 10.5 billion. That 10.5 billion extra was for green energy and there was 10 TWh of energy made by renewables, so it works out to $1.05 per kWh for every kWh of green energy we obtained! (ref http://www.ieso.ca/corporate-ieso/media/year-end-data )

    Note how robust this number is. South Australia has an electric rate of about $0.60 per kWh, and they have 50% green energy penetration. Germany has less penetration and a slightly lower price to match.

    The conclusion is clear. Green energy costs $1. per kWh. Even if green energy costs drop by 50% or more it won’t help, as with increasing penetration storage and backup generation costs skyrocket, keeping the total at about the same figure.

    If you carefully run all the numbers through a spreadsheet you might get a figure 10% or so different from the above estimate. I did not include exports/imports (which make it worse for green energy), nor did I include small hydro which would make things a little better I would think.


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