Toronto: The special transmission charges applied when power is exported from Ontario actually discourage exports, reduce economic efficiency, and exacerbate the problem of Surplus Baseload Generation, according to a number of participants in the OEB’s current hearing on Hydro One’s transmission rates. The Export Transmission Service (ETS) tariff is the only major issue remaining to be resolved before the Ontario Energy Board renders its decision that will determine the level and structure of rates for bulk transmission in Ontario for 2013 and 2014.
The issue of the ETS tariff has remained largely unresolved for years. The rate was set at $1 per MWh when the Ontario power market opened in 2002 as a placeholder, pending further discussion on how to properly determine an appropriate charge. A later OEB hearing raised the rate to $2 per MWh but also saw the figure as temporary, while awaiting the development of a more rigorous method for determining rates for exporting power.
The current OEB hearing has heard from several witnesses and received evidence from a well respected consulting firm on appropriate rate setting concepts and considerations, but seems to be no closer to consensus. On one side are a number of electricity consumer groups who feel that a higher ETS rate will mean savings on their bills, at least in the short run. On the other side are the IESO, the Power Workers’ Union, and power producers like APPrO, who have argued that a lower export charge will be good for the power system, promoting trade and economic efficiency, and ultimately reducing costs for consumers.
APPrO’s submission on ETS, filed on March 22, made the following observations:
“• Ontario consumers would benefit from a reduction of the tariff from the current $2/MWh to zero.
• As a whole, the province benefits from a reduction of the tariff from the current $2/MWh to zero.
• Eliminating the ETS tariff would bring the all-in export costs payable by Ontario exporters more in line with the costs payable by exporters in neighbouring jurisdictions.
• The fixed ETS tariff options (including unilateral elimination) are easier to administer than the two-tiered tariff options.
• Eliminating the ETS tariff and bringing the all-in export costs in line with other jurisdictions is fair to Ontario domestic load.
• Eliminating the ETS tariff will best promote the efficient operation of the wholesale market, specifically, efficiency in the generation, sale and transmission of electricity, and efficiencies and cost savings in managing surplus baseload generation (SBG). ...
“In addition, the level of the ETS tariff can have broader impacts on the electricity markets in Ontario, specifically:
• Increasing the ETS tariff will reduce the volume of exports, and vice versa.
• Increasing the ETS tariff can adversely impact SBG, making it more costly for the IESO to manage SBG, and vice versa.
• Changing the ETS tariff can impact the Ontario commodity price for power, and transmission rates payable by other customers. ...”
APPrO noted in its submission that increasing the ETS rate may not increase the total amount collected. If exports decline because of the increased tariff, the net effect could be little or no increase in the revenue generated by the tariff. APPrO noted that even if revenues stay the same, there is no net gain to customers as a whole, because the ETS is really a transfer from one class of customers (exporters) to other classes of customers (specifically, Class A and B customers).
APPrO’s submission noted that amongst utilities in the region, “Ontario imposes the highest Uplift/Administrative Costs on exporters. Taken together, the all-in non-commodity costs to export power out of Ontario is at the high end of the range. If the ETS tariff were to move to $5.80/MWh, the all-in export costs out of Ontario would be over $9/MWh – the highest of any neighbouring jurisdictions (including Quebec). Considering only the factor of consistency with export costs in neighbouring jurisdictions, the ETS tariff should be lowered. Even if eliminated in its entirety, it would still be in the middle of the range at $3.33/MWh.”
The submission went on to say that little or no capital investments were made in the Ontario grid to serve exporters:
“The interties were not built to facilitate trade by exporters. They were built for reliability and efficiency purposes for domestic load. The export service provided to exporters in Ontario is not a firm service equivalent to network service, line connection service or transformation service. Rather, the use of the intertie creates a benefit by utilizing excess transmission capacity that was built for other purposes as noted above. By utilizing this excess capacity, efficiency benefits are created for Ontario.”
APPrO noted the IESO assessment that elimination of the ETS tariff would “best encourage the efficient use of electricity and promote economic efficiency in the generation, transmission and sale of electricity.” (IESO Submissions, p. 5, para. 21)
Market benefits of ETS elimination would include:
• Increased uplift charges payable by exporters to reduce the consumers’ uplift burden (IESO Submissions, pp. 6-7, para. 23)
• Increased intertie congestion rent collected by the IESO (IESO Submission, p. 7, para. 25)
• More efficient use of the interties (IESO Submission, p. 8, paras. 27 and 28)
• Greater regional efficiency by reducing barriers to trades (resulting in North American production costs lowered by an average of $23 million annually under the unilateral tariff option) (IESO Submission, p. 8, paras. 29 and 30).
APPrO also noted that lowering the ETS tariff and enhancing trade would reduce SBG and the IESO’s requirement to manage SBG (and the costs of doing so).
The Power Workers’ Union in its March 21 submission to the Board, said “unilateral elimination of the ETS tariff … is the best option as it will generate the most benefit to Ontario by increasing exports with minimal impact on transmission rates charged to domestic consumers”.
For further information, readers may wish to consult the OEB website, and search for submissions related to ETS under proceeding number EB-2012-0031.