Ontario’s HOEP should become HOPE and GAM become GAS

(May 29, 2014) Those who pay attention to their electricity bills in Ontario will recognize the acronyms “HOEP” and “GAM” as two key components in the makeup of our electricity bills.

HOEP references the “hourly Ontario energy price and GAM the nonsensical testimonial to the “global adjustment mechanism when it is local and anything but global!

As it should be readily discernible, the ruling party at Queen’s Park will perhaps see the folly that exists in the electricity sector and recognize the inevitable changes that have occurred. Those changes should force a revision in the acronyms to “HOPE” and “GAS”, which better reflect the makeup of two costs that reflect themselves in the time-of-use (TOU) rates all Ontario ratepayers pick up. More on this below!

The HOEP was created in mid 2002 and reputedly reflects the definition on the IESO (Independent Electricity System Operator) website which is: “The wholesale price of electricity is dynamic changing hourly based on the availability of supply and changes in demand.” It is supposed to be a market that reflects demand or lack thereof for electricity, much as the stock market reflects the demand for the companies listed on the exchange in a bid/ask market.

GAM is much more complex and was originally called the “Provincial Benefit” but re-labeled and defined by IESO as: “The Global Adjustment (GA) covers the cost for providing both adequate generating capacity and conservation programs for Ontario. It is the difference between the hourly Ontario electricity price and the rates paid to regulated and contracted generators, and for conservation and demand management programs.

The actual makeup of GAM is far more complex than IESO’s description and includes costs that pay for contracted wind and solar generators, Bruce nuclear and others for both generating and not generating electricity. It even includes charges that pay for meteorological stations to measure what wind generators may have produced when they are constrained. It includes huge payments to gas plant generators for idling, what we lost to export surplus electricity production; and a host of programs associated with what are very loosely described as “conservation”.

Combining the HOEP and the GAM produces the prices that are levied for the “electricity” line on our monthly bills and are adjusted (normally up) every six months.

It would appear that in the not to distant future the HOEP will become meaningless as the only currently “trade-able” electricity production comes from OPG (Ontario Power Generation) via their “unregulated hydro” which in 2013 produced 13.9 terrawatts (TWh) at a cost of $28 million per TWh or 2.8 cents per kilowatt hour (kWh). To put that in perspective 13.9 TWh would be sufficient to power almost 1.5 million average Ontario households for a full year.

As it turns out OPG who produce over 55% of our electricity, decided they no longer want to be the poor boy on the block and submitted an application to the OEB (Ontario Energy Board) asking that the “unregulated” hydro become “regulated”. For the latter OPG received 4 cents per kWh in 2013 ($40 million per TWh) meaning they are seeking a rate increase of approximately $170 million related to their unregulated hydroelectric production.

Now what that would mean is that IESO would be left with NO trade-able production that could present itself on an normal “exchange market”. At that point Ontario would be producing upwards of 140 TWh; all subject to guaranteed “contract prices” making the HOEP an endeavour that had no market making capabilities and should become the Hourly Ontario Pretend Exchange or “HOPE”.

OPG’s application has received the endorsement of the Ministry of Energy via a proposed amendment to “O. Reg. 53/05 (Payments under Section 78.1 if the Act), made under the Ontario Energy Board Act, 1998”.

The referenced October 28, 2013 comments from the Director, Strategic Analysis and Performance Management Branch included the following statement: “OPG’s unregulated, non-contracted hydroelectric facilities represent the last significant generators in Ontario that receive payment for their output based entirely on HOEP.

What that statement infers is that (assuming the OEB grants the approval) there is no electricity production that can or will be traded. Any components that went to make the “market” or “HOEP” will have vanished and become a part of the “GAM”. Adding to the GAM pot will result in an additional transfer of monies from what “Class A” customer’s (about 130 industrial customers) pay to Class “B” customers (average ratepayers and small/medium sized businesses). Several of those “A” customers are government entities, such as, universities and major hospitals. That begs the question—at what price will Ontario sell it’s surplus production on the export market if there is no market price or will we be forced to constrain or curtail even more generation and drive prices even higher?

At that juncture and considering the makeup of GAM will be anything but global, I would contend that the acronym be changed slightly to recognize that it is nothing more than a reflection of the Government’s Accumulative Seizure (GAS) of money to satisfy the wealth transfer from ratepayers to the parties contracted under the Green Energy and Green Economy Act feed-in tariff (FIT) and microFIT programs.That will allow all of Ontario’s ratepayers to anticipate being GAS(sed) on a monthly basis when they receive their electricity bills!

Parker Gallant is a retired bank executive and a former director of Energy Probe Research Foundation. As with all independent bloggers on this site, Parker’s views do not necessarily reflect those of Energy Probe.

This entry was posted in Alternative Energy, Conservation, Costs, Benefits and Risks, Electricity, Nuclear Power, Power Generation in Ontario, Reforming Ontario's Electrical Generation Sector, Renewables and tagged , , , , , , , , . Bookmark the permalink.

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