Management of Power Supply Contracts
OEFC continued to monitor and implement a contingent support agreement between OEFC and OPG to provide for the continued reliability and availability of the Lambton and Nanticoke coal-fired stations. Any OEFC net costs under the contract are to be recovered from electricity consumers. The contingent support agreement is effective as of January 1, 2009, when OPG implemented a strategy to reduce greenhouse gas emissions from its coal plants, as directed by the Province.
OEFC manages the power purchase agreements (PPA) with the NUGs to achieve efficiencies and reduce the costs to ratepayers through the negotiation of curtailments, incremental power agreements and other transactions that shift the time of electricity generation under the contracts.
Efficiencies were achieved in managing the existing power purchase agreements (PPA) with the NUGs in 2010–11. Purchase costs dropped by $3.0 million, compared to a $7.6 million drop in 2009–10, through auxiliary services revenue, curtailments, incremental power agreements and other transactions that shift the time of electricity generation under the contracts.
Previously, the Corporation purchased power from the NUGs under contractual terms, and sold the power at market prices lower than cost. However, as at January 1, 2005, the Corporation began to receive actual contract prices for power from ratepayers, eliminating losses on PPAs. At that time, the Ministry of Finance estimated most of the liability would be eliminated over 12 years as existing contracts expire. The liability for power purchase contracts was valued at $1.5 billion as at March 31, 2011, compared to $1.9 billion as at March 31, 2010.
Ontario Hydro Direct Customer Rate
Many of the PPAs employed the Ontario Hydro Direct Customer Rate ("DCR") as the price index.
Separate DCRs were established by the former Ontario Hydro for customers connected at 230 kV, 115 kV and under 115 kV. The Ontario Hydro 230 kV and 115 kV DCRs, from 1988 to market opening on May 1, 2002, appear in the following table.
| 1988 | 1989 | 1990 | 1991 | 1992 | 1993 | 1994 | 1995 | |
|---|---|---|---|---|---|---|---|---|
| 115 kV DCR | 3.4108 | 3.6341 | 3.8489 | 4.2042 | 4.6864 | 5.0761 | 5.0761 | 5.0369 |
| 230 kV DCR | 3.3766 | 3.5971 | 3.8078 | 4.1659 | 4.6398 | 5.0241 | 5.0241 | 4.9848 |
| 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | |
|---|---|---|---|---|---|---|---|
| 115 kV DCR | 5.0369 | 5.0369 | 5.0369 | 5.0369 | 5.0369 | 5.4454 | 5.7369 |
| 230 kV DCR | 4.9848 | 4.9848 | 4.9848 | 4.9848 | 4.9848 | 5.3933 | 5.6848 |
Since the former Ontario Hydro's DCR ceased to exist on May 1, 2002 upon the commencement of the open market for electricity in Ontario, it was necessary to establish a replacement DCR to continue the administration of the PPAs.
The Board approved the proposed replacement for the DCR set out in the Working Paper dated June 24, 2002, for use as the price index in the revision of PPAs. The replacement index is referred to as DCRnew.
Since the Final DCRnew for any year may not be calculated until all of the electricity market data for the year required to calculate the index is available, a Provisional DCRnew is calculated at the beginning of each year, an Interim DCRnew is calculated as of June 30 each year and the Final DCRnew is calculated after the year end when all of the necessary data is available. The calculation of the Provisional DCRnew, Interim DCRnew and Final DCRnew is set out in the Working Paper.
Calculation of DCRnew
Components of TMC
As outlined in the Working Paper, DCRnew is derived from the total market cost ("TMC") of electricity delivered on a 100% load factor firm basis to a wholesale market participant load customer connected at either 230 kV, 115 kV or under 115 kV. At the commencement of the open market TMC was comprised of the following items totalled and averaged over the year:
- Hourly Ontario Energy Price (HOEP)
- Wholesale Market Service Charges, including
- Hourly Uplift Settlement Charges
- Monthly Uplift Charges
- IMO (now the IESO) Administration Charge, and
- Rural and Remote Electricity Rate Protection
- Transmission Service Charges (network , line connection and transformation depending on the voltage level)
- Debt Retirement Charge
- OPG Market Power Mitigation Rebate (MPMR)
Since the commencement of the open market, there have been updates to the components of TMC.
The OPG MPMR was applied from May 1, 2002 through to April 30, 2003 and was incorporated into the calculation of TMC. Effective from May 1, 2003, to March 31, 2005 the MPMA rebate was replaced by the Business Protection Plan Rebate (“BPPR”) after the introduction of Bill 210, the Electricity Pricing, Conservation and Supply Act, 2002.
Under the Electricity Restructuring Act, 2004 (Bill 100), a new mechanism was created commencing January 1, 2005 called the global adjustment. The global adjustment reflects the difference between total payments made to contracted generators (including NUGs and Ontario Power Authority supply procurements), load reduction contracts and regulated OPG generators (prescribed assets) and any offsetting market revenues. In addition, effective April 1, 2005 the transitional OPG Non-Prescribed Assets rebate was established. This rebate required OPG to make payments to consumers for revenues in excess of specified amounts earned on its non-prescribed assets for the period beginning April 1st, 2005 and ending April 30th, 2009. More detail on these mechanisms and how they are reflected in the calculation of TMC can be found in the memo entitled TMC Calculation - The Global Adjustment and OPG Non-Prescribed Asset Rebate.
Beginning in 2011, the way that the Global Adjustment is allocated to customers has been changed. Prior to 2011, the Global Adjustment was allocated to all customers based on their energy use. Effective January 1, 2011, an amendment to Ontario Regulation 429/04 established two classes of consumers: Class A consumers, with average monthly demand greater than 5 MW, and Class B consumers. TMC is calculated to reflect the allocation of the Global Adjustment to wholesale market participants at a 100 per cent load factor under the amended regulation.
More information about the change to the allocation of the Global Adjustment can be found in the memo entitled Changes in the Global Adjustment Allocation.
Refinement of Data Source for Wholesale Market Service Charges
There has also been a refinement to the data source for the monthly uplift figure used in the calculation of TMC which has resulted in a small change to the previously published amounts of DCRnew for 2002 and 2003.
From market opening through May 2003, the monthly uplift charge was identified in Section 1.6 of the IESO monthly report only and this figure was used in the calculation of TMC. Subsequent to May 2003, the IESO monthly market summary began to publish a second monthly uplift charge in the summary table entitled “Summary of Wholesale Market Electricity Charges in Ontario’s Competitive Market Place” presently located in Section 8 of the report. IESO representatives have advised that the Section 8 monthly uplift figure includes miscellaneous charges and rebates in addition to those charges included in Section 1.6. Since these miscellaneous charges and rebates apply to directly connected customers, it was decided that the calculation of TMC should be updated to include the Section 8 monthly uplift figure to be consistent with the Working Paper. More detail on the data source change for monthly uplift and the impact on DCRnew (115 kV and 230 kV) for the years 2002 and 2003 can be found in the memo entitled Refinement to 2002 and 2003 DCRnew Calculations.
DCRnew
DCRnew for 115 kV and 230 kV in cents/kWh is as follows:
| 115 kV | 230 kV | Supporting Documentation | |
|---|---|---|---|
| Final 2002 | 5.8678 | 5.8272 | Refinement to 2002 and 2003 DCRnew Calculations memo, September 9, 2005 (PDF) |
| Final 2003 | 5.9828 | 5.9597 | |
| Final 2004 | 6.0848 | 6.0790 |
Final 2004
DCRnew Calculations memo, September 7, 2005 (PDF) |
| Final 2005 | 6.4410 | 6.4410 | Final 2005 DCRnew Calculations memo, April 20, 2006 (PDF) |
| Final 2006 | 6.6377 | 6.6377 | Final 2006 and Interim 2007 DCRnew Calculations memo, July 17, 2007 (PDF) |
| Final 2007 | 6.8616 | 6.8616 | Final 2007 DCRnew Calculations memo, July 10, 2008 (PDF) |
| Final 2008 | 6.8616 | 6.8616 | Final 2008 DCRnew Calculations memo, June 12, 2009 (PDF) |
| Final 2009 | 7.1725 | 7.1725 | Final 2009 DCRnew Calculations memo, August 3, 2010 (PDF) |
| Final 2010 | 7.6383 | 7.6383 |
Final 2010
DCRnew Calculations memo, August 11, 2011 (PDF) |
| Interim 2011 | 7.7211 | 7.7211 |
Interim 2011
DCRnew Calculations memo, August 25, 2011 (PDF) |
Further information concerning the calculation of DCRnew is available by contacting investor@OEFC.on.ca
