The accuracy and effectiveness of price signals in Ontario’s electricity market can be protected if cap and trade rules specifically preclude retroactive restatements of prices. APPrO has made the case for this, and other principles of market integrity, in a June 22 paper prepared for the Ontario Energy Board, in response to its Staff Discussion Paper on a Cap & Trade Framework.
In its submission APPrO said, “It is understood that major auctions will occur quarterly and the utilities may also periodically participate in the secondary markets. Weather and economic drivers could cause large demand variances quarter to quarter and year to year. This could result in large variations in the number of allowances that need to be acquired and further it could lead to volatility of the price of allowances. These factors could drive large deferral account balances. At any rate, adjustments that occur must only occur prospectively, i.e., variances must be rolled forward to be included in future periods. There cannot be any “one-time” adjustments or true ups representing past variances and customer activity. Generators make the commercial decision to operate based on their marginal operating costs. If a cost is restated after the fact, it is no longer a marginal operating cost but a “one-time” fixed cost. Ontario’s current electricity market structure makes it difficult to recover this type of cost and therefore goes against the intent of the C&T program as it does not provide the appropriate price signal to the consumer. Any variances must be included in, or rolled forward, for computing and establishing the new rates for future periods. This is especially important for settlement of contracts between the IESO and generators which underpinned the significant investments in the electricity sector in order to reduce its carbon footprint.”
In the same submission APPrO made a number of other comments and supported efforts to enhance transparency: “There must be cost transparency by the utilities for both internal as well as external costs incurred in complying with the legislation.”
For a copy of the OEB staff paper, APPrO’s submission, and other intervenor submissions, readers may visit the OEB website and search for material related to “Consultation to Develop a Regulatory Framework for Natural Gas Distributors’ Cap and Trade Compliance Plans” or EB-2015-0363.