A Guide to Electricity Charges – Market Participants
Although each local distribution company (LDC) in Ontario uses a slightly different bill format and terminology for its customers, two basic principles are common to all.
The wholesale market price for electricity is based on supply and demand. Suppliers submit offers to sell electricity and wholesale buyers submit bids to buy electricity. The IESO then uses these offers and bids to match electricity supply with demand. Production and consumption must always be matched in order to maintain reliability and power quality standards.
Market participants pay a combination of commodity charges, wholesale market service charges, wholesale transmission charges and other associated charges.
Hourly Ontario Energy Price (HOEP)
HOEP is the hourly price that is charged to local distribution companies (LDCs) and other non-dispatchable loads. HOEP is also paid to self-scheduling generators. HOEP becomes the basis of the commodity charges in the retail electricity market if customers receive their electricity from their LDC. Customers who have arranged contracts with licensed retailers are charged their agreed-upon contract rate for the commodity.
The IESO provides a convenient graph of HOEP prices for the current and previous day on the Wholesale Prices and Ontario Demand page. These graphs also provide an estimate of future HOEP prices for the remainder of the day, and by afternoon, estimates for the next day.
The actual supply/demand balance can vary from these projections for a number of reasons:
- The actual demand for electricity can fluctuate as factors such as weather, (temperature, amount of cloud cover, wind etc.), affect the amount of electricity required by consumers.
- At the same time, operational difficulties or delays in a generation unit returning from an outage can result in higher priced generation being required to fill the gap.
- Finally, any changes in price resulting from such variations can cause some price-sensitive loads to make alternative consumption decisions, or cause importers and exporters to revise their plans.
Customers that pay market prices, or that have signed a contract with a licensed retail for electricity also pay for the Global Adjustment. This adjustment accounts for differences between the market price and rates paid to regulated and contracted generators and demand management projects. The rate is set monthly to reflect the difference between market prices and:
- The regulated rates paid to Ontario Power Generation’s nuclear and hydroelectric baseload generating stations;
- Payments made to suppliers that have been awarded contracts through the Ontario Power Authority. These include new gas-fired facilities, renewable facilities (like wind farms) and demand response programs; and
- Contracted rates administered by Ontario Electricity Financial Corporation paid to existing generators.
The Global Adjustment may be a positive or negative number, depending on whether the market price is lower or higher than the fixed rates.
Wholesale Market Service Charges
Hourly Uplift Charges
This charge is applied to all customers in the wholesale market. The IESO uses funds collected under these charges to pay for such items as the three types of Operating Reserve, any Congestion Management Settlement Credits owed to dispatchable resources, Intertie Offer Guarantee payments and other incurred hourly costs such as energy losses on the IESO-controlled grid.
- Congestion Management Settlement Credits (CMSC)
CMSC are payments made by the IESO to all dispatchable resources, such as generators or large consumers, who responded to instructions from the IESO to take specific actions to avoid possible overloads of the transmission system, or to maintain the balance between supply and demand.
- Intertie Offer Guarantees (IOG)
IOG relates to electricity imports into Ontario that are set on an hourly schedule. If that pre-dispatch price exceeds the five-minute prices set in the market, these additional costs are contained in the uplift charge.
- Energy Losses
Energy Loss occurs when electricity flows across transmission lines. The resistance in the lines causes them to heat up, consuming power in the same way, as does the filament in a toaster. This is referred to as line losses. Since the IESO pays generators using the same price as it uses to charges customers, and since the presence of line losses requires generators to produce more than what is consumed by customers, the IESO must recoup the additional money required to pay all generators in full, and does so via the Hourly Uplift Settlement Charge.
- Operating Reserve Prices
Operating Reserve is generation capacity or load reduction capacity that the IESO can call upon on short notice. It serves as a buffer to maintain the reliability of the system by allowing for sudden unexpected surges in demand or unanticipated reductions in supply. Like energy dispatch instructions, Operating Reserve schedules are determined every five minutes, with a resultant price for each type of operating reserve for every five-minute interval.
- The IESO purchases defined amounts of Operating Reserve from market participants through three real-time markets: a 10-minute synchronized reserve market, a 10-minute non-synchronized reserve market, and a 30-minute reserve market.
Daily Uplift Charges
Through the Day-Ahead Commitment Process charges are incurred to commit generators to day-ahead schedules. These costs pay for resources to be effectively and economically scheduled to provide electricity for the following day.
Monthly Uplift Charges
The IESO incurs some monthly costs in purchasing services required to ensure the reliability of the Ontario power network, and to meet commitments to other system operators throughout North America. Specifically, there are three services that the IESO must purchase under contract from suppliers: Black Start Capability, Voltage Support, and Regulation Service.
The monthly costs incurred by the IESO under these contracts are shared among all wholesale customers on a pro rata basis. In addition, there are a few more monthly uplift charges, which occur occasionally (i.e. Emergency Energy Purchase and EDRP costs, Hour Ahead Dispatchable Load Offer Guarantee, etc.).
IESO Administration Fee
The IESO charges administrative fees to operate the wholesale electricity market and manage the electric power system in Ontario. The rate is set by the Ontario Energy Board.
OPA Administration Fee
The Ontario Power Authority (OPA) was established by The Electricity Restructuring Act, 2004 and this fee is intended to help ensure it achieves its legislated organizational objectives with respect to electricity resources in Ontario.
Rural and Remote Electricity Rate Protection
Wholesale Market Service Charges also include the Rural and Remote Electricity Rate Protection charge, which is used to partly offset the higher cost of providing electricity in rural and remote areas of the province. The Rural and Remote Electricity Rate charge of 0.12¢/kWh is in effect as of Jan. 1, 2013.
Wholesale Transmission Charges
This charge to LDCs and some large consumers covers the cost incurred by transmission companies to construct and maintain the high-voltage transmission lines needed to transport electricity from generating stations to LDCs or consumers. It encompasses the Network Charge, the Connection Charge and the Line and Transformation Charge. The rate for this service is approved by the Ontario Energy Board.
Debt Retirement Charge (if applicable)
This is a charge of 0.7 ¢/kWh, set by the Government of Ontario to pay down the debt of the former Ontario Hydro. This charge is collected on behalf of the Government of Ontario.