Ontario Ratepayers Gored at Goreway

By Parker Gallant and Tom Adams

What’s up with the big consumer rip-off Mike Crawley has ably reported on?

The report that Crawley relies upon was issued by a secondary watchdog agency within Ontario’s power system called the Market Surveillance Panel (MSP). The MSP reports to the OEB and relies on a research department within the IESO. The MSP does not have the authority to levy fines or order financial compensation.

Here is the report: https://www.oeb.ca/sites/default/files/MSP_Report_Goreway_201709.pdf

As Crawley notes, the report explains in detail how Ontario ratepayers have been getting ripped off by a large gas-fired power generator located near Milton (correction: Bramalea not Milton) called Goreway Station Partnership (Goreway).

The current owners are the Japanese firms Toyota Tsusho Corporation and JERA Co. Inc., each with 50%.

The dollar amounts of the estimated ripoff are large. The MSP estimates that over a three year period starting when the plant went online in June 2009, Goreway was paid at least $89 million more than could be justified. Some secret amount plus a $10 million fine was paid by Goreway over the course of subsequent investigations. In addition, in a parallel investigation the MSP found that “the Panel believes that a substantial portion of the $11.2 million in Ramping CMSC (Congestion Management Settlement Credits) payments received by Goreway during shut-down over the course of the Investigation Period was the result of gaming.” In addition, in another parallel investigation the MSP found that Goreway had benefitted from approximately $5.6 million in what the panel called “anomalous top-up payments” under a payment program called the Day Ahead Commitment Process (DACP) that were “unwarranted”.

More troubling than the dollar amounts of the particular Goreway example, the investigation has pointed to vulnerabilities in the power situation that make it likely that other related ripoffs have occurred.

Goreway is not the only example. Gaming of those CMSC payments has proven to be a persistent problem for consumers, with both generators and large, dispatchable industrial loads exploiting gaps in the system to capture excess payments.

As noted by the MSP in a December 2016 report, the MSP has completed other investigations prior to Goreway that found gaming to have occurred. The first one concerned a gas-fired generating station located near Sarnia, Greenfield Energy Centre. Another investigation identified two dispatchable loads both owned by Abitibi-Bowater. Power importers and exporters have also been found to be gaming the system.

A key problem that has made the power system vulnerable to gaming like that pursued by Goreway is a flaw in Ontario’s market design arising from decisions taken in 1999 to maintain Ontario’s long-standing practice of pricing power equally for consumer irrespective of where they take power off the Ontario grid. (One of your authors, Tom, voted against the uniform price market design which requires the 2-schedule system in favour of nodal pricing.). The problem with this concept is that transmission constraints that are inherent to a grid like Ontario’s mean that increments or decrements of power injected or withdrawn from the grid do not have equivalent value at all locations. To accommodate the reality of transmission constraints, the IESO operates a two-schedule market. Under this workaround, consumers are billed on the basis of a theoretical unconstrained market plus top-up payments, whereas generators and dispatchable loads that are required to operate outside of the parameters of that unconstrained market in order to manage constraints get paid various incremental amounts, primarily Congestion Management Settlement Credits, often called CMSC payments. Other top-up payments available to generators are Generator Cost Guarantee (GCG) program and the Day-Ahead Commitment Process (DACP), both of which the MCP found Goreway gamed.

The MSP has warned for years about the market design flaws that Goreway exploited:

“The Panel has, on more than one occasion, recommended that Ramping CMSC paid during shutdown be eliminated…Proposed changes to the rules that govern Ramping CMSC during shut-down have been brought forward by the IESO from time to time, and been defeated. In May, 2013, the IESO launched a further stakeholder engagement that included the issue of eliminating Ramping CMSC during shut-down. Goreway made numerous submissions on the issue, first opposing its inclusion in the process at all, then questioning its materiality and suggesting that the Panel’s 2011 Monitoring Document had adequately dealt with any problem…After several postponements, the Market Rule amendment took effect in December 2016.”

The new rule appears vulnerable to similar abuses as the old rule.

On the topic of the RT-GCG:

“Among other things, the Panel has estimated that payments for O&M have exceeded a quarter of a billion dollars since 2010, with little or no apparent incremental reliability benefit…The Panel acknowledges that the IESO is considering a longer-term solution in the form of an enhanced intra-day unit commitment program that would replace the RT-GCG program. However, by the IESO’s own admission that solution is many years away and it remains unclear to the Panel why changes to the program that have the potential to save millions in costs should not be made immediately. Goreway stands as a clear example of how generators are able to exploit the GCG regime and of how difficult and time-consuming it is to address. The Panel is concerned that the same situation remains in place today.“

The IESO Board of Directors has some serious explaining to do to justify why these problems have gone unsolved for so long.

The basic chronology of events also indicates that something rotten is up at the OEB:

The MSP report was complete as of December 2016, but MSP chairman’s cover letter is dated Oct. 2, 2017. What? The chair of the MSP is a very well respected energy lawyer. It doesn’t seem reasonable that he would sit on his own report for 10 months. Could the OEB have ordered a revised date on the cover letter to avoid blame for sitting on the report? We also note that the OEB didn’t release the report until November 2017. What’s that about?

2 Comments

    • The game the wind operators are playing is different than Goreway’s scamming of the Congestion Management Settlement Credits. The windies have been focused on getting paid for not generating. In the case of the RES1 contract holders, they pulled off the groovy stunt of getting their contracts retroactively switched over from pay-for-delivered-energy to pay-for-delivery-of-deemed-energy where deemed energy is based on some estimate of what they could have generated but for transmission constraints. How that happened is a topic that deserves investigation.

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