Speaking at the APPrO 2018 conference on November 13, Jason Chee-Aloy of Power Advisory LLC articulated an issue that is attracting rising levels of concern amongst market participants. “Allocation of GA could be one of the most critical issues in Market Renewal,” Mr. Chee-Aloy said. Noting that decisions pertaining to GA could enable or obstruct significant market opportunities, he stressed that this area may be one of the defining questions in energy policy facing the current provincial government.
The efficiency and effectiveness of Ontario’s electricity market depends to a large extent on how the Global Adjustment is managed. In fact, Mr. Chee-Aloy of Power Advisory described it as “the biggest single issue” impacting the course of Market Renewal. Originally designed as a secondary mechanism to capture non-market costs, the range of non-market expenses now allowed into GA has grown to the point where it makes up a larger portion of electricity bills in Ontario than direct energy costs. The viability of many Market Renewal proposals will depend to a large degree on the approach taken to GA. Because the allocation of GA is likely to affect different classes of customers differently, it is not just a matter of market design but also a matter of provincial energy policy. Viewed in this light, it is likely that the Doug Ford administration will have a significant opportunity to influence the course of events through its approach to managing this growing issue.
In principle the accuracy of price signals is directly related to the size and allocation of GA. As such, its scale and application affects the economic efficiency of the market. Most experts believe the efficiency of the market will be a function of the extent to which energy costs can be covered through market mechanisms and market prices. However, without action to preserve if not enhance the accuracy of the price signal, market designers and public policy makers will need to increasingly rely on less efficient administrative mechanisms.
Whichever way the decisions lead, assumptions on the fidelity of wholesale electricity market prices will need to be built into the design of Market Renewal mechanisms. This makes it relatively urgent for those working on market renewal to achieve clarity and resolution on the plans for allocation of GA amongst customers.