The Ontario electricity market recently marked its tenth birthday. The provincial power system was officially opened for competition on May 1 2002. At that point, for the first time Ontario’s grid operator began scheduling generation based on a combination of consumer demand and prices offered by generators. It was the beginning of competition, a major change that had been a high priority and a long term objective for a large number of participants in the power sector, consumers and producers alike.
Since that historic day the competitive system has continued to operate, despite a wide range of changes and disruptions — from the blackout of 2003 to the abrupt curtailment of the retail market, and three rounds of legislative change. While the power market may not have achieved everything in its first ten years that its proponents originally hoped for, its champions point to a range of notable successes, and an enduring strength that suggests further accomplishments lie ahead.
Paul Murphy, President and CEO of the Independent Electricity System Operator, points out that the wholesale market has produced a range of objective benefits including:
• More efficient dispatch
• Improved generator availability
• Increased inter-jurisdictional trade.
A report for the ISO/RTO Council, which represents independent system operators and regional transmission organizations in Canada and the US, found that, "A variety of analyses have concluded that the implementation of competitive power markets based on centrally-coordinated economic dispatch has reduced the cost of electric power within the regions served, relative to the level of costs that would otherwise have been incurred." It attributes the savings in part to "security-constrained economic dispatch; incentives for improved generator availability; optimizing reserves over larger areas; investments in new more efficient generating units; and retirement of uneconomic facilities." (See "IRC 2009 State of the Markets Report," available online or from APPrO.)
Looking back on the first ten years of Ontario’s power market, here are some highlights and key steps in the market’s history:
Early vision and planning: The vision for the market started with the Macdonald Committee in 1996. This was followed by the Ontario government’s 1997 White Paper entitled “Direction for Change: Charting a Course for Competitive Electricity and Jobs in Ontario,” which set out the broad framework for electricity sector reform and the government’s general plan to establish a competitive electricity market in Ontario.
Market Design: During 1998 and early 1999, the Market Design Committee, composed of industry, stakeholder and consumer representatives, made recommendations to the Ontario Government on the design of the competitive electricity market for Ontario. In late January, 1999, the Market Design Committee submitted its first draft set of rules to the Minister, with subsequent revisions leading up to the opening of the wholesale electricity market on May 1, 2002.
Technical improvements to market operations: Multi-Interval Optimization (MIO) software was implemented in June 2004. With MIO, the dispatch scheduling optimizer (DSO) software considers a number of future intervals to determine optimal dispatch instructions. MIO allows the DSO to produce a more efficient dispatch with reduced congestion management settlement credits, reduced wear-and-tear on generators and a more predictable dispatch for generators with fuel restrictions.
Bill 100 sets up the OPA, a hybrid market, smoothed consumer rates, and a planning system: The Electricity Restructuring Act, 2004 created the current hybrid model in which the competitive wholesale market coexists with long-term contracts and regulated prices for some consumers. The Ontario Energy Board reviews and sets the Regulated Price Plan (RPP) rates for residential and low-volume consumers, with true-ups twice a year to better reflect the cost of producing electricity. The RPP, which took effect May 1, 2005, replaced the interim two-tier pricing of 4.7 cents per kilowatt hour (¢/kWh) and 5.5 ¢/kWh hour that had been in place since April 2004. From December 2002 to March 2004, the government had set the regulated price at 4.3¢/kWh.
Systems refined as SAC established and work begun on DACP and smart metering: In 2005, the Stakeholder Advisory Committee (SAC) was established to make recommendations on development of the market and other matters relevant to the IESO and broader electricity sector.
The Day Ahead Commitment Process (DACP) was implemented in June 2006. The DACP introduced improvements that allow for better scheduling of imports, reduce the likelihood of import failures, and better ensure sufficient internal generation resources are committed one day in advance, as well as assist in more accurately determining next day energy or capacity shortfalls.
The IESO was designated as the Smart Metering Entity (SME) by the Government of Ontario in 2007. As the SME, the IESO is responsible for the development, implementation and maintenance of the smart meter data management and repository system (MDM/R), as well as facilitating the integration of local distribution company (LDC) smart meters with the MDM/R.
The Ontario Smart Grid Forum, chaired by Paul Murphy, was established in 2008, to help shape the direction and priorities for smart grid development in Ontario. The Forum has issued two reports, in February 2009 and May 2011. In making its recommendations, the Forum considers how a smart grid in Ontario could deliver significant operational, environmental and consumer benefits, including increased consumer engagement in the market and effective integration of distributed renewable generation.
Rate structure modified to reward industrial consumers for peak avoidance: Under revised regulation, customers with peak demand over 5,000 kW (Class A), began paying Global Adjustment based on their share of total demand during the five annual hours when Ontario electricity demand is at its highest. This change was aimed at promoting efficient consumption decisions by large consumers and restoring the relevance of the market price.
Day Ahead system launched: The Enhanced Day Ahead Commitment (EDAC) Process was operational on October 12, 2011. Through the advanced scheduling and commitment of resources, EDAC offers a number of benefits to the market. EDAC schedules generation based on a unit’s availability and costs over a 24-hour period instead of an hour-to-hour basis. Generators submit three-part bids that separate out energy, ramp-up and minimum run-time costs so that the IESO can better allocate resources throughout the day providing the least cost outcome for the entire day rather than for 24 individual hours.
Market Road Map released: In 2011, the IESO created the Electricity Market Forum to address the future role and development of the IESO-administered markets. With members from across the electricity sector, the Forum examined emerging issues that impact market activity and the effectiveness of the price signal. The Forum released its report with recommendations and a market roadmap in January 2012.
Interesting facts and figures
• 1.5 million — The approximate number of preliminary and final statements that have been issued since market opening.
• 148 billion – The value of all transactions, in dollars, that have been settled through the IESO-administered market.
• One — The number of times the market has been suspended – for 9 days during the blackout of August 2003, from August 14 to August 22 inclusive.
• $1,891.14 — The highest hourly energy price (HOEP), occurring on February 18, 2009, in hour ending 12. The lowest HOEP of -$138.79 occurred on January 1, 2011, in hour ending 13.
• 200 — The approximate number of market rule amendments that have been researched and developed by the Market Rules department in collaboration with subject matter experts from across the IESO.
• 19 – The number of monitoring reports issued by the Market Surveillance Panel (MSP) to date. The MSP monitors activities and behaviour in the IESO-administered markets and recommends remedial action that would improve the efficiency of the market. The most recent report was released on Friday, April 27, 2012, and is available on the OEB website.
• 169 – The number of Technical Panel meetings held to date. The Technical Panel proposes and reviews amendments to the Market Rules. The duties and composition of the Technical Panel are set out in the IESO’s Governance and Structure By-Law.
• Two dispatchable loads (for a total of 65 MW) were registered in the market in 2002. Today there are eight (for a total of 492 MW).
• In 2005 and 2006, when the economy was doing well and the summers were hot, Ontario sets its 10 highest ever demand peaks.