Wow! June 2020 Demonstrates Consuming More Electricity Decreases Costs

The IESO recently released their Monthly Market Summary for June 2020 and Ontario’s electricity consumption increased from June 2019 by 3.9% (434,000 MWh) or about what 500,000 average households would consume in a month. The consumption increase was driven by Class B ratepayers who in June 2020 consumed 758,000 MWh (up 10.2%) more than June 2019.

GA for Class A and Class B  ratepayers:     

As a result of the increased consumption, the GA for “B” Class ratepayers year-over-year decreased from $142.11/MWh to $129.14/MWh and the HOEP increased from $4.84/MWh to $11.22/MWh. Class B costs (some costs are partially allocated to taxpayers) dropped from $146.94/MWh to $140.36/MWh whereas Class A consumption dropped (308,000 MWh) but their GA costs increased from $76.67/MWh to $84.89MWh.

Surplus Exports Cost  Less:

The result of increased consumption produced a higher HOEP and that meant we ratepayers and taxpayers lost less money in 2020 exporting our surplus generation than 2019. This past June we exported 181,000 MW less to our neighbours but because the HOEP (market price) was higher we increased our revenue from $8.2 million to $17 million which helped to lower costs even though the 1.5 million MWh we exported were sold, on average, for only $11.22/MWh or 1.1 cents/kWh.

Industrial Wind Turbines (IWT) Generation and costs:

IWT overall (grid and distributor accepted plus curtailed) were basically flat comparing 2019 with 2020 but the curtailed generation was higher in 2019 (138% higher) so we didn’t have to pay for as much wasted power.  Our costs for IWT in June 2020 was about $114.6 million versus a cost of $125.1 million in 2019. Accepted generation for IWT was approximately 17% of their rated capacity in 2020 versus less than 15% in 2019 but in 2020 represented 46% of our export volume ie: it was surplus to our needs!

OEB’s Market Surveillance Panel Monitoring Report  32 

Almost as a coincidence and just a couple of weeks before IESO issued their MMS, the OEB on July 16, 2020 released their 32nd Market Surveillance Report and it has some interesting observations. One that stood out was: “the Panel concludes that much of the long-term investment over the last decade has not been very competitive, imposed unnecessarily high costs on Ontario consumers and removed the transparency of price signals that lead to economic-based decision making.”   One must assume the panel was referencing the McGuinty/Wynne governments creation of the Green Energy Act and the handing out of those lucrative contracts for wind and solar generation to mainly foreign companies at rates well in excess of the market. Most Ontarians believe the GEA was conceived by the Gerald Butts/Ben Chin team as senior advisors and both wound up, coincidently, with the Justin Trudeau led Federal Liberal Party serving in senior staff roles.

Another observation in the OEB report stated: “The Demand Response (DR) Auction also continues to annually procure capacity that is not required to maintain reliability. To date, the IESO has not activated any DR resources in the real-time energy market, although consumers have paid more than $200 million for this capacity.”  Coincidently my friend, Scott Luft of the Cold Air website who monitors IESO’s activities advised me of a tweet saying:  “Last week during Ontario’s heat wave, the IESO declared an Energy Emergency Alert Level 1 on multiple days and twice activated [Demand Response (DR)] resources to meet capacity needs.” So the question becomes, did IESO declare an “Alert Level 1” for the first time ever to justify the $200 million cost paid by us ratepayers?  Scott went on in his e-mail to note: “The average cost of DR capacity for this summer was around $59,725 per megawatt, which is roughly 1/10th of the rate the ICI program costs Class B consumers. As a class B consumer, I’ll take the DR – even with the requisite level 1 “Emergency.

Following on that remark from Scott, yet another observation related to the ICI (Industrial Conservation Initiative) is where the Panel stated: “Finally, the Panel reiterates that the current design of the Industrial Conservation Initiative (ICI) program – in combination with a low-price environment and high Global Adjustment (GA) charges – creates an uneconomic and inefficient incentive to reduce demand when there is ample supply and capacity. The Panel remains of the view that only the cost of peak generation should be recovered through peak demand charges, while non-peak costs should be allocated such that all consumers who benefit from that capacity pay for it.”

The Panel’s recent report reiterates what was contained in their 2018 report in respect to the ICI program which I wrote about in a recent article.  It is surprising the current Minister of Energy, Northern Development and Mines, Greg Rickford has basically done nothing to recognize and change the ICI program and stop the spending on “conservation” initiatives related to reducing consumption by both ratepayer classes.

As June 2020 results demonstrate, consuming more electricity reduced costs for Class B ratepayers as we may not be forced to either export surplus generation caused by wind and solar or pay to curtail them which simply increases the GA and drives down the HOEP market price!

Author: parkergallantenergyperspectivesblog

Retired international banker.

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