Understanding Electricity Pricing in Ontario

As a hybrid between a competitive market and regulated system, the Ontario electricity system is complex, and pricing electricity is complicated. Understanding how it works and the roles of major actors will help you better understand your electricity bill and how you can save money.

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Electricity Pricing in Ontario

The price of electricity is determined in real-time and managed by the Independent Electricity System Operator (IESO). As electricity supply is offered to the market at operating cost, the IESO prioritizes them by lowest to highest cost. Where supply meets demand is the Market Clearing Price (MCP). The MCP is set every five minutes. The 12 MCP that make up one hour are averaged to make the Hourly Ontario Energy Price (HOEP).

The Hourly Ontario Energy Price (HOEP)

The rate at which you are charged for electricity is based on the HOEP. If your utility is your supplier and you pay the RPP, your rates are based in part on the monthly weighted average of the HOEP. However, Ontario has secured much of its electricity supply through long-term contracts that guarantee a fixed rate per kWh for supply, regardless of what the HOEP may be at the time.

The Global Adjustment

The Global Adjustment (GA), formerly known as the "Provincial Benefit", is the smoothing mechanism by which differences between the spot market prices and the rates paid to power generators are resolved. If the HOEP is below the fixed rate guaranteed to the supplier, the GA makes up the difference so that the energy supplier receives their guaranteed rate. This is cost is borne by the consumer. However, if the HOEP rises above the guaranteed price, the it is the supplier that has to pay back the difference, and the GA appears as a credit on the consumer's bill.

In practice, however, it has been more often that the GA has been an additional charge for consumers, and has been increasing steadily since 2007. This has in part been due to a drop in HOEP prices due to simultaneous increased supply and a drop in demand during the economic recession. In 2009 the GA exceeded the market price for electricity for the first time. While demand and the HOEP have picked up since then, the GA continues to represent a significant proportion of energy costs. This is not expected to change in the near future, with investments in Ontario's generation supply already underway and with more investments planned for the future.

If you are supplied by your local utility and paying the RPP, you will not see the GA on your bill, as it has already been blended into the rate that you pay for your electricity consumption. If you have purchased your supply from an energy marketer you will continue to pay the GA, and it will appear as a separate item on your bill. Like the rate for your electricity supply, the GA is based on consumption. Therefore, the best way to reduce its presence on your bill is to reduce your overall energy consumption.

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