Tuesday, September 18, 2012

Regarding The Real Cost of Electricity and Who gets the BIG Money!

This is comment I made on Parker Gallant's article on the Wind Concerns Ontario site.

Parker, your recent The Real Cost of Electricity and Who gets the BIG Money! cited some numbers in the 2011 Yearbook of Distributors that surprised, and troubled, me.

$10,361 million is an interesting number for “Cost of Power and Related Costs.” It’s interesting as the Independent Electricity System Operator (IESO) reported an average Hourly Ontario Energy Price (weighted) of $31.47/MWh on a total market of 154.3 million MWh, plus a total Global Adjustment of $5,309.6 million, which constitutes a total market value of only $10,149 million. I am of the impression the global adjustment contains all payments for conservation and supply, so it’s a little disconcerting that the figure you note in the OEB Yearbook is over $200 million higher than the IESO figures would indicate.

You reference the yearbook total of 126.2 TWh, and that is close to what the IESO 18-month outlook shows for LDC (local distribution company) consumption for 2011 (table 3.3.3 tab of this spreadsheet).  That figure does include line losses and “generator consumption”, but not ~16TWh of ‘wholesale’ customer consumption, or the 12.8TWh of exports. The OEB Yearbook and IESO statistics don’t totally agree (due to billing cycles), but they are close and the total market (all generation plus all imports, or all consumption, line losses and exports) is ~28-29TWh greater than the LDC totals.

So the LDC figures you cite collect more than the value of the entire market ($10.36 billion of  $10.15 billion), but the LDC’s are only about 82% of the total market.

I am confused.
Adding to the confusion are the export and import statistics that the Ministry of Energy uses in claiming exporting benefits Ontario. They show $418.9 million in revenue from exports. This would indicate that either we are paying wholesale customers (the only other group) over $600 million a year to consume electricity, or that the OEB yearbook’s “Power and Related Costs” includes significant charges that are either not for the electricity, or constitute a healthy mark-up on the commodity costs, indicating the cost of generation is not being treated as a flow-through charge.

Because I don’t think the starting point makes much sense, I won’t spend too much time investigating your methods in concluding non-OPG supply averaged 12.5 cents/kWh ($125/MWh), but I will note my calculations don’t yield drastically different figures.  I estimate Bruce Power received ~$58.65/MWh for 36.6TWh of generation, and all other non-OPG generators received about $107.07/MWh for 28.9TWh of generation, or slightly more than double OPG’s rate. The difference between this $107 and your $125 figure would, I think, come from the transfer of cost of purchased powers from export, and wholesale, customers to those serviced by LDC’s (us).

While I am confused that the figures in the 2011 Yearbook of Distributors provide a “cost of power” for the LDC’s that exceeds the entire market value, I share your conclusions that payments were extracted from ratepayers to line the pockets of selected groups, I think those groups include LDC’s, who seem to be collecting a handler’s fee on the commodity.


Reference workbook with IESO Table 3.3.3, Global Adjustment, 2011 totals and generation estimates is here


  1. Scott - While I don't have a concrete explanation for the discrepancy between the OEB cost of power figure and the IESO's, one possible explanation could relate to the definition of "cost of power and related costs" and its treatment by embedded LDCs.

    Conceptually, not all LDC supply points are connected to the IESO's wholesale market, some (we'll call it LDC A) are embedded within the system of another LDC (LDC B). If LDC A reflects a purchased power amount of 10 TWh, I believe LDC B would also reflect this amount, even though their regular customers aren't the end users. Similarly, while LDC B would show the cost of this power at or near the market price, LDC A would likely show it as market price + some form of embedded delivery charge (the "other related costs"). My guess is that from your perspective there is a certain degree of double counting going on in the form of pass through power costs.

  2. Thank you AJ,
    I did continue on with the data search for a short while, and received some e-mails on it. The yearbook's "Cost of Power and Related Costs" certainly appears to include distribution (my recollection is $1.3 billion last year - but that would need to be verified.).
    That still left a gap, and I suspect your explanation covers a lot of that gap in the "embedded delivery charge"
    If I had the motivation I might filter out Hydro One's transmission revenues and see if the remaining discrepancy is growing along with embedded generation.