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Ontario grid operator admits to gaffe that caused 2016-17 power price spikes

Ontario's electricity grid operator said a demand-calculation error caused power costs to spike between May 2016 and April 2017 but disputed the provincial energy market watchdog's claim that the gaffe added as much as C$560 million to wholesale prices.

The error, which stemmed from the Independent Electricity System Operator's first demand response auction in May 2016, resulted in as much as 220 MW of "fictitious demand" in some hours over the period, a panel of Ontario's Market Surveillance Administrator said in a Dec. 19, 2019, report. The overstated demand sent prices soaring as high as C$1,619/MWh in one hour, the fourth-highest since the market started operating, the report said. The market watchdog estimated the increased cost of power over the 11-month period ranged from C$450 million to C$560 million, although the figure could be lower if additional variables were added.

In a Dec. 23, 2019, statement, the system operator, known as the IESO, agreed that its demand modeling was amiss but said its initial estimates showed increased wholesale payments made during the period were about C$225 million. After accounting for other variables, such as the province's Global Adjustment rider, which at the time was used to fund higher-priced renewable energy and decreased as prices went up, the IESO's analysis "shows a net market impact across all customer groups of less than [C]$10 million," according to the statement.

"An audit has been initiated to understand the sequence of events leading to and following the discovery of the demand overstatement within the IESO calculation model and to further identify any market impacts," the grid operator said in its statement. "This error was corrected in April 2017, shortly after it was discovered."

The IESO's model resulted in some participants in the demand-response auction having their expected demand counted twice, giving the appearance of increased power need, the Market Surveillance Administrator said. The biggest price impact was seen on power exports, where the Global Adjustment did not apply, and market participants who were covered by the province's Industrial Conservation Initiative. The panel recommended more-rigorous testing of modeling ahead of new market initiatives and prompt disclosure of problems when they occur. The IESO said it regretted the error and accepted the recommendations.

Ontario Power Generation Inc. and Bruce Power LP operate nuclear power plants that supply the bulk of Ontario's electricity.