Provincial Benefit
What is the Provincial Benefit?
The Provincial Benefit, also known as the Global Adjustment, is the difference between the spot market price and the rates (per kilowatt hour) that have been guaranteed to regulated and contracted generators for providing adequate generating capacity to the province. It also accounts for the cost of Ontario Power Authority (OPA) conservation programs. Generators who receive guaranteed rates include:
- The Ontario Power Generation’s (OPG’s) prescribed assets
- The Ontario Power Authority (OPA)-contracted generation
The Provincial Benefit may be a credit or a charge—depending on whether the market price of electricity is higher or lower than the fixed rates paid to these generators. As a result, the Hourly Ontario Energy Price (HOEP) and the Provincial Benefit have an inverse relationship in such a way that higher HOEP prices will likely result in the Provincial Benefit being a credit whereas lower HOEP prices will likely result in the Provincial Benefit being a charge to customers.
The generators who receive guaranteed pricing through this adjustment mechanism generate a substantial amount of the province’s power supply therefore the Provincial Benefit—whether it is a credit or a charge—can have a significant impact on energy supply costs for Ontario businesses.
Who has the Provincial Benefit Factored into their Electricity Supply Costs?
The Provincial Benefit is paid by or credited to retail consumers and anyone who consumes over 250,000kWh per year however it may be invoiced differently depending on who provides your supply. For customers on regulated rates, the Provincial Benefit is included in the RPP calculation and is not identified separately. For customers paying the spot market price as well as those receiving their supply from a retail supplier, the Provincial Benefit is passed through as a separate line item on their bill, separate from their supply price.
How is the Provincial Benefit Calculated?
As a very basic example, if the average hourly price (spot market price) of electricity in a given month was 6¢/kWh and the average of the regulated prices for above contracted generating facilities was 5¢/kWh, these generating facilities would reimburse 1¢/kWh, on average, to Ontario consumers for the electricity they supplied to the market during that period. In effect, this is like reducing these generators’ average revenues from 6¢/kWh to 5¢/kWh.1
Conversely, if the average hourly price was 4¢/kWh, the above contracted generating facilities would be paid an additional 1¢/kWh by consumers through the Provincial Benefit to bring their average revenues up to 5¢/kWh.
Implications to Consumers and the Markets
The Provincial Benefit has a number of implications for consumers and the market. As the volume of contracted generation grows and the proportion of higher-priced renewable energy increases in the market, the Provincial Benefit charge/credit will adjust to compensate. This may help smooth out the otherwise higher pricing associated with generation from renewable sources. Conversely, guaranteeing generators a fixed price for their output does not incent operating efficiencies nor does it always ensure that the least-cost generation is utilized before the higher-cost generation is brought online. In addition, consumers don’t have an effective price signal to respond to nor are they incentivized to implement conservation efforts.
A more competitive market structure absent of capped pricing would allow consumer demand to more effectively influence prices and the allocation of resources so that suppliers compete for consumers’ business. This empowers consumers with the choice to select the product/supplier that best meets their requirements.
Although retail contracts are subject to the Provincial Benefit, retailers like Direct Energy Business have options to fix and control your market-based supply costs. Consumers who are not under contract with a retail supplier may continue to experience price volatility and uncertainty in the market, in addition to price changes related to the Provincial Benefit.
Click here for a printable PDF on the Provincial Benefit.
Click here for more information on the Provincial Benefit from the Ontario Independent Electricity System Operator (IESO).
Click here for more information from the Ontario Energy Board (OEB) on understanding your electricity bill and the Provincial Benefit.
Footnote:
1 http://www.oeb.gov.on.ca/OEB/_Documents/EB-2004-0205/rpp_variance_explanation_20090529.pdf
Additional sources:
http://www.oeb.gov.on.ca/OEB/...
http://www.ieso.ca/imoweb/siteShared/electricity_bill.asp?sid=bi
