FAQs

1. What is the IESO?
2. How does the wholesale market operate?
3. How is the price of electricity determined?
4. What is the Hourly Ontario Energy Price?
5. What Markets does the IESO administer?
6. How do I get market price information?
7. How does a company become a market participant?
8. How do companies connect to the IESO-controlled grid?
9. How are electricity consumers protected from market abuses?
10. How do I keep up-to-date?
11. How do I get more information?

1. What is the IESO?
   The Independent Electricity System Operator (IESO) controls Ontario’s bulk electrical system, balancing the demand for and supply of electricity on a second-to-second basis to meet the electricity needs of over 11 million Ontarians. It also operates the competitive wholesale market, which involves, among other things, collecting offers from suppliers and bids from purchasers to determine the on-the-spot market price for electricity that reflects demand across the province.
   
   Formally, the IESO is a non-profit, regulated corporation without share capital established by the Electricity Act, 1998 (Ontario). It is independent of all other players in the industry and is managed in the interest of all involved.



2. How does the market operate?
   Distribution companies purchase through the IESO’s real-time markets and pass on the costs of doing so to their end-use customers. In the IESO’s market, generators and importers compete to supply the market by submitting offers for electricity. Some large customers also submit bids to buy for each hour of the day. Every five minutes, the IESO balances the supply and the demand in the province to determine the Market Clearing Price (or energy market price). The five-minute prices are averaged to create the hourly price charged to the distribution companies and many large industrial customers. If the customers of the distribution companies are not comfortable with the potential volatility or uncertainty of future market-based prices, they can investigate the benefits of arranging their purchases through one of many electricity retail organizations.
   
   The IESO's real time markets are highly automated, much like a stock exchange. The IESO only provides the rules for trading. It doesn’t set or regulate prices. By accepting first those bids that supply the lowest cost electricity, the IESO ensures that the market operates efficiently for its customers.
   
   While the generation of electricity will be subject to competition, the transmission and distribution of electricity will continue to be regulated by the Ontario Energy Board. Consumers are able to continue buying electricity through their local utility or from a licensed retailer offering special services (for example, locked-in prices over a set term).



3. How is the price of electricity determined?
   The wholesale price of electric power will no longer be at an annual fixed rate. Prices will vary season by season, day by day, and hour by hour depending on supply and demand.
   
   The price to consumers will include regulated elements for transmission and distribution, a debt retirement charge, competitive components for the electrical energy itself, and some ancillary services to ensure reliability. Currently, the regulated costs account for more than half of the total electricity price.
   
   The "commodity" or generating portion of the cost is determined by competition in the marketplace. In the real-time market, generators can submit offers for electric power in different quantities and prices for each hour of the day. As demand increases, more expensive offers from generators are accepted, which will raise the price of electricity. As demand drops, only the less expensive offers will be accepted, which will naturally reduce the price.
   
   In short, electricity prices will rise when demand rises – for example, during a prolonged heat spell when air-conditioners are being used across the province – and fall when demand drops. This would include the spring and fall, when temperatures moderate, and during the night, when offices and factories are closed.
   
   Some customers may want to lock-in at a set rate from a local retailer. Just as with a mortgage, some customers may prefer the security of a set rate over a specified period instead of a variable, or "floating market rate."
   
   For more information, see How Prices are Set in Ontario’s Wholesale Electricity Market.



4. What is the Hourly Ontario Energy Price?
   Every five minutes the following real-time market prices are determined:
   
   • A market clearing price for energy across Ontario
   • A market clearing price for energy at each of the twelve intertie zones with neighbouring markets
   • A market clearing price for each of the three operating reserve classes across Ontario
   • A market clearing price for 10 minute non-synchronized and 30 minute operating reserve at each of the twelve intertie zones with neighbouring markets
   In addition to the five-minute prices, each hour a calculation is performed to determine the Hourly Ontario Energy Price (HOEP). HOEP is determined by using the average of the five-minute Ontario energy prices. HOEP is used as the wholesale price for electricity for non-dispatchable generators and non-dispatchable load. (These are producers and users who are participants in the market, but do not submit bids and offers to the market. These participants agree to be paid for the energy they generate or pay for the energy they consume based on this hourly rate.)



5. What Markets does the IESO administer?
   Ontario's competitive electricity market consists of several markets for different electricity services, each administered by the IESO. Prices in the IESO-administered markets are unregulated, so the IESO must monitor the performance of market participants and rigorously enforce the Market Rules.
   There are three general groups of markets administered by the IESO:
   
   • Real-Time Markets
     These are the primary markets in which electricity is bought and sold. There are two real-time markets:
     • The Real-Time Energy Market in which dispatchable generators and importers submit offers for electricity and dispatchable consumers and exporters submit bids for each hour of the day. Every five minutes, the IESO determines the Market Clearing Price (or energy market price) by balancing the demand for electricity with these offers and bids. The five-minute market clearing price is uniform across Ontario for an initial period after market commencement. Dispatchable facilities will be settled at this five-minute price, non-dispatchable wholesale consumers will be settled using a weighted hourly average of these five-minute prices.
     
     
     • The Real-Time Operating Reserve Market provides a market-based way for the IESO to quickly replace the supply of electricity for a short period in response to equipment failures or emergencies. Wholesale sellers and consumers, as well as dispatchable generators and loads submit offers into the Operating Reserve Market. All accepted offers are paid, regardless of whether the reserve is actually used; the accepted offers are essentially stand-by payments. If this extra energy is required, generators/importers increase their supply and dispatchable loads/exporters reduce their demand.
   • Financial Markets
     The IESO currently administers one financial market, the Transmission Rights Market, which addresses some aspects of the financial risks when importing and exporting electricity on the interconnection lines between Ontario and its surrounding markets in Manitoba, Quebec, New York, Michigan and Minnesota. When loading on the interconnection lines reaches the capacity limit of the lines, energy prices can differ significantly between Ontario and its surrounding markets. The Transmission Rights Market allows participants who import or export power to buy financial protection ahead of time to hedge their prices for power across the interconnections.
   
   
   
   • Procurement Markets
     These markets ensure the reliability of Ontario's entire power system by providing the IESO additional, or ancillary, services that cannot yet be made available in the marketplace on the basis of bids and offers. Examples include frequency control and "black-start" capability. Black-start capability is a generation service that can restart the province's power system without relying upon an external supply of electricity. Also, isolated locations in Ontario may have limited access to transmission wires and therefore require non-competitive generation facilities.


6. How do I get market price information?
   The IESO Web site features detailed information about price and demand activity in the market. The Today’s Market page posts highlights of demand and price information. Public market reports will also be available on the Market Data page, where users can locate detailed information about the market such as dispatches and the transmission rights auction.



7. How does a company become a market participant?
   In the Ontario competitive wholesale electricity market, electricity is bought and sold by authorized participants in markets administered by the IESO. All generators, transmitters and distributors and direct customers with facilities forming part of, or connected to the IESO-controlled grid must be authorized and have their facilities registered with the IESO. Other companies have a choice about whether to participate in the IESO-administered markets.
   Companies should consider becoming an active market participant if they:
   
   • Generate electricity
   • Are considering importing or exporting electricity to/from the province
   • Transmit electricity
   • Are a Distributor directly connected to the IESO-controlled grid
   • Plan to aggregate wholesale electricity for resale
   • Plan to purchase Transmission Rights (TR)
   • Believe electricity is an important aspect of their business
   To become an authorized market participant, companies must follow the Market Entry process that involves three main tasks needed to demonstrate that your organization meets the necessary legal, financial and technical/operational requirements:
   
   • Authorization as a market participant
   • Registration of facilities
   • Registration of metering installations
   A number of technical requirements regarding market participants’ interaction with the IESO must be met during the authorization process. The technical details of the various interfaces between the IESO and market participants are available on the Technical Interfaces page.
   
   Market participants must meet requirements for creditworthiness, called prudential requirements, ensuring that if they encounter financial difficulty and fail to pay, other market participants will not suffer undue losses.
   
   All of the Market Entry procedures and forms are documented in the Market Entry, Maintenance and Exit Overview.



8. How do companies connect to the IESO-controlled grid?
   Any company planning to construct a new or modified connection to the IESO-controlled grid must apply to the IESO for inclusion in the Connection Assessment and Approval (CAA) process. This process allows the IESO to assess the impact of new or modified connections on the reliability of the integrated power system. In terms of physical facilities, we differentiate between three types of connections:
   • Directly Connected Market Participant are Participants whose facility is connected directly to the IESO-controlled grid. The IESO-controlled grid controls all Ontario transmission facilities equal to or greater than 50kV.
     
     
   • Embedded Market Participants are Participants whose facility is connected to a distribution system and not the IESO-controlled grid.
     
     
   • To connect to the IESO-controlled grid, an hourly interval meter is required. An interval meter accurately measures the amount of electricity used over an interval as short as five minutes and communicates this information to the IESO once each day. In the past, the electric utility owned your meter, but in the competitive market, your meter can be owned by anyone, although you will own the metering data. You can contract with any registered meter service provider to maintain the meter. The IESO sets technical requirements for wholesale metering and registers all meter service providers.


9. How are electricity consumers protected from market abuses?
   The IESO will monitor, evaluate and analyze the effectiveness of the market rules and underlying structure, as well as the conduct of market participants, to ensure the efficiency and competitiveness of the wholesale electricity market. This crucial responsibility is led by Ontario’s Market Surveillance Panel (MSP), an independent body appointed by and accountable to the Independent Directors of the IESO.
   
   The MSP’s objective is to contribute to the development of an efficient, competitive and reliable market for the wholesale sale and purchase of electricity and ancillary electricity services in Ontario. It has a critical role to play in helping the energy market evolve in a way that provides the benefits of effective competition to Ontario energy users.
   
   Should the MSP detect that a market participant has acted to take advantage of the rules or abuse its market power, the Panel will initiate investigations and make recommendations to the IESO, the Ontario Energy Board , the federal Competition Bureau or other government agencies as appropriate. These organizations, in turn, have the authority to penalize and influence conduct through penalties, rule changes, altered license conditions, divestiture orders or criminal prosecutions.
   
   The Panel will also carefully scrutinize any aspect of the market that could inhibit the normal adjustments to supply and demand that one would expect to see in a competitive marketplace. Comparing this information against market models enhances understanding of the supply and demand factors underlying price movements in the marketplace and assists in the detection of flaws in the market design and potential cases of market abuse by participants.



10. How do I keep up-to-date?
    The Newsroom section is updated regularly and offers users current and comprehensive information on issues including the IESO's role, market information, market documents, market operations, market services and IESO news.
    The IESO also offers automated e-mail distribution lists to help keep subscribers up-to-date on the latest market activities. You can subscribe to any list by visiting the IESO Web site at:
    http://www.ieso.ca/imoweb/news_dist/distributionList.asp



11. How do I get more information?
    For any further questions or inquiries, contact the IESO at:
    Independent Electricity System Operator
    655 Bay Street, Suite 410
    P.O. Box 1
    Toronto, Ontario
    M5G 2K4
    
    Customer Relations Tel: 905-403-6900
    Toll Free: 1-888-448-7777
    Fax: 905-403-6921
    E-mail: customer.relations@ieso.ca
    
    
    
    Hours of Operation: Monday to Friday 8 a.m. to 5 p.m. excluding Statutory Holidays