A Brief History

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A Brief History
The Power Commission-Electric Power Commission
1907
Ontario Hydro Electric Power Commission 1910
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Regulated Monopoly

• OH - crown corporation with obligation to serve
• supply any and all power needs at lowest cost
• OH built infrastructure over 95 years, advocated
  use of power
• OH also built up stranded debt
• Prices rose sharply in the early 1990s

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Regulated Monopoly

• OH owned most of the value chain
• OH could do central planning
• schedule outages
• stack production to minimize average cost
• adjust location of generation to improve grid
  efficiency
• Long term planning for new generation

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Brief History
IMO
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A Brief History
Ontario Hydro
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Hydro One
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OEFC
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ESA
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OPG
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IMO
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The IMO - As Impartial Market Administrator

• We ensure accountability
• Authorize/register participants
• Run commercial activities of market
• We ensure equal, unbiased access
• Provide historical and forecast performance data
• Monitor conduct of participants
  fair competition, level playing field

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The IMO - As Operator of Reliable System

• We balance generation to meet constantly changing
  demand for electricity
• Monitor conditions on IMO-controlled grid
• Schedule production from suppliers
• Maintain reliability to industry standards

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The Markets
IMO - Administered Markets
Financial
Physical
Real-time
Operating Reserve
Capacity Reserve
Energy
Procurement
Energy Forward
Transmission Rights
Ancillary Services
Must Run Contracts
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Who Can Participate in the Markets?

• Anyone can apply to become a registered market
  participant
• Anyone who wishes to inject energy into, or
  withdraw energy from the IMO-controlled grid MUST
  become a Market Participant

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Who Can Participate?
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Becoming a Participant

• Three steps
• Become an Authorized Market Participant
• Registration of facilities
• Registration of metering installations

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Types of Market Participants

• Dispatchable
• Bid and offer for energy based on price
• Adjust operation based on dispatch
  instructions from IMO

• Non-dispatchable
• Price takers, accept market price
• Consume or produce as required, no dispatch
  instructions

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The Energy Market
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The Energy Market

• Previously electricity prices were set on a cost
  recovery basis by Ontario Hydro
• All costs associated with electricity were
  bundled into one wholesale price
• Prices now set by market forces
• Overhead, reliability and administration costs
  are broken out

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Market Clearing Price
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Market Clearing Price

• One uniform price for energy in Ontario
• All suppliers paid the same price
• All consumers pay the same price
• Wholesale price is set every five minutes
• An hourly average price is used for most
  wholesale consumers

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Electricity - A Unique Commodity

• Electricity is something like a service
• Electricity cannot be practically stored
• (energy can, but not electricity)
• Electricity must be generated to ensure supply
  exactly equals demand
• mis-match leads to customer equipment failure

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Electricity - A unique commodity

• Electricity is lost when moving long distances
  and when changing voltages
• Demand fluctuates with time of day
• Must have over capacity
• Marginal cost of production can vary by ten to 20
  times (hydraulic, nuclear, coal, gas, alternative)

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Daily Demand Fluctuations
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Daily Demand Fluctuations
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Determining Market Price
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Market Clearing Price
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Bids and Offers
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Bid and Offers

IMO - Administered Markets
Real-time Energy
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Energy Supply - Offers

• Dispatchable generators offer electricity to the
  market at a specific price.
• A simple example
• Generator A 200 MW if the price is above 20/MWh
• Generator B 100 MW if the price is above 15/MWh
• Generator C 150 MW if the price is above 25/MWh

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Energy Offers
MW
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Components of Supply and Demand
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Dispatchable Participants

• Provide bids and offers hourly
• Bids and offers come to IMO via internet
• Use PKI for security. Digital certificates are
  legally binding
• PKI service purchased from e-Scotia

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What is PKI?

• PKI uses a combination of software, encryption
  technologies, procedures, and services to ensure
  that only authorized persons from authorized
  entities access IMOs systems

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PKI

• Participant must be certain that they are
  interacting with authorized IMO systems
• The IMO must be certain that the person sending
  the information is who they claim to be
• Confident that a third party cannot intercept and
  read the information
• Confident that the information sent via the
  Internet has not been tampered with
• Everyone must be certain that once the above four
  items are satisfied, neither party can deny
  sending/receiving the data and must therefore
  honour the terms of the transaction
  (non-repudiation)

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How Does PKI Work?

• Asymmetric encryption - two matched keys
• One key is private one key is public
• An Individual Subscriber has three certificates,
  each containing a public and private key
• Verification
• Encryption
• Browser

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Non-dispatchable Components

• Non-dispatchable Demand
• Non-dispatchable loads (e.g., LDC)
• System losses
• IMO measures total demand in real-time
• IMO anticipates total demand for next five
  minutes by adjusting actual demand from five
  minutes ago
• Non-dispatchable Supply

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The Algorithm

• IMO algorithm is at the heart of the market
• IMO contracted out creation. Three vendors
  created new systems
• Algorithm calculates prices and schedules
  production

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Inputs

• IMO takes bids and offers from participants
• IMO takes measurement data from over 2100 energy
  meters throughout the province
• IMO measures weather conditions throughout the
  province
• Algorithm includes model of electricity flow
  throughout the province
• All activity monitored by operators

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Price
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Setting the Market Clearing Price - An Example
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Offers Are Selected Economically
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Demand
Quantity
250 MW
200 MW
150 MW
100 MW
50 MW
1200
1300
1400
1500
1600
1700
1800
1900
2000
Time
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Offers and Demand
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/MW
MW
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Hourly Ontario Price
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Hourly Ontario Price
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Operating Instructions
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Dispatch Instructions
IMO - Administered Markets
Registered Facility
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Interjurisdictional Trade
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Interjurisdictional Trade
Quebec (8)
Manitoba
Minnesota
New York
Michigan
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Settlement
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Who Is Settled by the IMO?
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Your Bill
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Your Bill
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IMO E-Market

• IMO is a B2B, market enabler (10 Billion)
• Transactions via the internet, low capital
  investment for participants
• Web site is B2B but receives thousands of hits by
  public

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Looking Ahead

• Open futures market
• Possible move to locational pricing
• Long term planning and signaling the market
• Green Energy
• Maintaining complex systems through contract

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Ontarios Wholesale Electricity Market
Suppliers
Purchasers
IMO - Administered Markets
Energy Market
MCP calculated
Transmitters
Transactions / Information
Electricity
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