The OEB was asked to rule on the ramp rate issue because of an appeal initiated by the Association of Major Power Consumers in Ontario (AMPCO) on February 9. The IESO proposed a market rule amendment on December 27, 2006 to change the existing 12-times ramp rate to 3-times. This was the first time in Ontario that a market rule or market rule amendment appeal had ever been ruled upon by the Ontario Energy Board. The issue has been the subject of extensive consultation by the IESO for most of 2006, and part of 2007 since the rule amendment was formalized and released by the IESO in December. (See also “Ramp rate issue approaches climax,” IPPSO FACTO, October 2006, and “Ramp rate reform exposes differences,” IPPSO FACTO, February 2007.)
The 12x ramp rate multiplier is used only in Ontario as an adjustment to the market clearing price to reduce price volatility during times of increasing demand, when generators have to “ramp up” quickly and more expensive generation is often necessary for short periods of time. Under this system, the IESO dispatches generators according to their physical capability to increase their output quickly, but artificially adjusts the clearing price to the level offered by certain less responsive generators – even though those generators are physically incapable of ramping up quickly enough to meet the load. The adjustment is made through a “ramp rate multiplier” in the pricing mechanism that assumes all generators can ramp up a certain number of times faster than they actually can. Just before the market was opened in 2002, the IESO’s predecessor, the Independent Market Operator, unilaterally instituted the ramp rate multiplier and set it at 12, to dampen price volatility and reduce the chance of disruptive events during the initial phase of the market’s operation. Described as a temporary measure, the IMO expected to remove the multiplier once market operations had stabilized.
The IESO, in its evidence submitted to the OEB on March 9, specified its reasons for making the change from a 12-times ramp rate to a 3-times ramp rate. It said the change would:
a) more closely align the dispatch and pricing algorithms
b) result in more accurate price signals for consumers and producers
c) reduce uneconomic exports out of Ontario
d) achieve a significant improvement in efficiency for the Ontario market
e) achieve these benefits with a minimal impact on prices for consumers
f) be simple to implement, with virtually no implementation costs for either the IESO or market participants, and
g) be a superior solution to the available alternatives.
In its submission the IESO stated that the 3-times amendment would meet several requirements of the Act because it would enhance overall reliability, better protecting the interests of consumers in that regard; encourage conservation and demand management; promote economic efficiency; and cultivate a financially viable electricity industry.
In summary the IESO said the change to 3-times would produce “net system benefits without imposing significant price consequences on consumers” and “represents an appropriate incremental improvement in the electricity market in Ontario.” The IESO tabled evidence from consultant Jonathan Falk, of NERA Economic Consulting, who supported the change to 3-times. He reviewed some of the work that had been done on alternatives like Multi-Interval Optimization and said that “Given the judgement that must be applied with partial changes towards a better alignment of pricing to actual dispatch, a decision to lower the multiplier while keeping other parts of the system intact is perfectly sensible, and entirely in keeping with the tenor of NERA’s prior work.” He noted that “there are efficiency gains from more precisely representing the real cost of meeting ramping requirements in the calculation of HOEP,” and confirmed that in his view the IESO’s analysis of the issue was sound.
APPrO retained the legal firm of Macleod Dixon, led by Lisa DeMarco and Heather Landymore, to represent its generator-members during the OEB proceeding on the issue. APPrO put forward Cliff Hamal, of LECG as its expert witness. The formal hearing took place on March 29 and 30. Parties who were active in the proceedings included AMPCO (as applicant), the IESO, APPrO, Coral Energy, OPG, TransCanada Energy and VECC (the Vulnerable Energy Consumers Coalition).
The Board noted that “the IESO argues that discrimination, in the context of a market for electricity, refers to economic discrimination. As such, more must be involved than an economic advantage accruing to one party rather than the other. The IESO further states that, by lessening subsidies and better aligning prices and dispatch costs, the Amendment plainly lessens appropriate economic treatment of market participants.”
In its findings, the Board said the following: “[T]he evidence in this proceeding is that the 12x ramp rate multiplier distorts wholesale market prices downwards and engenders adverse consequences for the marketplace in the form of generation and demand side inefficiencies. For example, dampened wholesale prices diminish incentives for conservation, load management and demand side management. The evidence in this proceeding is also that the 12x ramp rate multiplier contributes to inefficient exports. Inefficient exports, in turn, can increase the need for coal-fired generation to meet Ontario demand and thereby contribute to increased emissions. ... While the Board acknowledges that the Amendment may result in an increase in average consumer bills, that increase is anticipated to be modest. ... The Board is also of the view that, in the context of its mandate under section 33 of the Act, unjust discrimination means unjust economic discrimination. Based on the record of this proceeding, the Board finds that the Amendment is consistent with the purposes of the Act. The Board also finds that the Amendment does not unjustly discriminate for or against a market participant or a class of market participants.”
In addition, as part of the Board’s ruling on an evidentiary matter, the Board ruled that “its mandate under section 33 of the Act is limited to an examination of the market rule amendment against the criteria set out in section 33(9) the Act.”
To see the market rule amendment, stakeholder comments on it, and a variety of related information, please visit the IESO’s page on market rule amendments:
www.ieso.ca/imoweb/amendments/mr_Amendments.asp.
(Look for “MR-00331 – Specify the Facility Capability in the Market Schedule.”)
APPrO’s submission is at the following location:
www.ieso.ca/imoweb/pubs/mr2007/MR-00331-R00-WS-APPrO.pdf.
The full OEB decision is available at www.oeb.gov.on.ca/documents/cases/EB-2007-0040/dec_order_ampco_20070410.pdf.
See the Financial/Technical supplement to this issue of IPPSO FACTO, or the APPrO website, for the following:
• APPrO’s evidence
• APPrO’ final argument