What's Happening with the Total Commodity Price for Electricity?

September 2013

• In discerning electricity price trends, it’s instructive to look at the behaviour of the total commodity price over different periods of time.
• During the period September 2012 to August 2013, the total commodity price of electricity increased and further examination suggests the increase was attributable to costs associated with the arrangements underlying the Global Adjustment.
• In mid-October, the Ontario Energy Board will release its next Regulated Price Plan report with the November 1, 2013 prices. A significant increase is expected.

Over the last four years, much has been written about Ontario electricity price increases.  The advent of the Green Energy Act and its aggressive promotion of renewable energy has been a driver for a lot of the conversation.

In Ontario, the Global Adjustment (GA) plays an integral role in the total commodity price of electricity, which we define as the spot market price (arithmetic average or some weighted price) plus the GA.  (For more on the GA, please also see http://www.ieso.ca/imoweb/b100/b100_GA.asp.)

Electricity Price Trends

In discerning electricity price trends, it’s instructive to look at the behaviour of the total commodity price over different periods of time.  The price trends we discuss below use monthly arithmetic average spot market prices and the ‘Class B’ GA value.

During the period of September 2011 through August 2012, the total commodity price for electricity ranged from a low of $64.98/MWh to a high of $77.66/MWh and the trend line was slightly negative.  The spot market energy price also dropped over that period and so - considering the spot market energy price interaction with the GA and everything else being equal - the drop in the total commodity price was not unexpected. The graph for this period follows.

Total Commodity Price for Electricity September 2011 to August 2012

During the period of September 2012 through August 2013, the total commodity price for electricity ranged from a low of $65.47/MWh to a high of $92.99/MWh and the trend line was strongly positive, indicating an increase over the period in the order of $19/MWh.  The spot market energy price during these 12 months went pretty much sideways and so something must have been going on with the arrangements underlying the GA.  The trend line unit increase – while not necessarily a definitive number and likely skewed by a number of factors such as Bruce Power units returning to service, the addition of wind and solar generation and a payment to TransCanada Energy for moving its gas plant to Napanee  – suggests a GA-related total market cost increase of $2.5 billion. The graph for this period appears below.

Total Commodity Price for Electricity September 2012 to August 2013

Looking Forward

In its April Regulated Price Plan report at page 19, the Ontario Energy Board forecast some truly alarming RPP supply costs through November 2014. This is not entirely unexpected, given the large quantities of wind and solar capacity coming into service. In mid-October, the OEB will release its next RPP report, with rates that take effect November 1, 2013.  The increase at that time is expected to be significant.

Help With Forecasting

Aegent does proprietary forecasting of the GA and total commodity prices.  To learn more about this service, you may contact Bruce Sharp at Aegent Energy Advisors (bsharp@aegent.ca or 416.622.9449, X112).

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