Response to the Market Surveillance Report
December 23, 2019
The Market Surveillance Panel (MSP) released late last week its Monitoring Report on the IESO-Administered Electricity Markets for the period from May 2017 – October 2017.
The report identifies the impact of an error in the IESO’s calculation of the demand for electricity related to modelling the impacts of Demand Response. During the 11-month period of May 2016 to April 2017, in certain hours, the IESO’s calculation model overstated electricity demand from some distribution-connected consumers which led to an increase in the wholesale electricity price in Ontario.
The MSP estimates that the impact on wholesale electricity payments could have ranged as high as between $450-$560 million over the 11-month period, while it notes that accounting for additional potential variables could yield lower estimates. Initial analysis by the IESO found that the increase in the wholesale electricity payments resulting from this error was approximately $225 million. As noted by the MSP, within the Ontario market, increases in wholesale electricity payments result in a corresponding decrease in other costs, notably the Global Adjustment, which significantly reduces the net market impact. While the impacts will vary between different customer groups, the IESO analysis shows a net market impact across all customer groups of less than $10 million.
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. This error was corrected in April 2017, shortly after it was discovered.
The IESO regrets making this error and accepts the MSP’s recommendations. When implementing market and related model changes in the future, the IESO will audit the pre-deployment testing process to ensure that market changes are properly designed and implemented. In the event any errors or related issues that significantly affect the wholesale market are discovered post deployment going forward, the IESO will publicly disclose the details and all related impacts to market participants.