Ontario Electricity Explained Ontario • Electricity
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The IESO and Ontario’s Electricity Market – How Power Is Bought and Sold

Updated 2026‑04‑22

Most Ontarians know the electricity system is large and complex, but few people see how power is actually bought, sold, scheduled, and delivered. Behind the scenes, the Independent Electricity System Operator (IESO) runs the provincial electricity market and ensures that supply and demand match every minute of the day. This article explains how the IESO works, how electricity prices are formed, and why these processes matter for your monthly hydro bill.

Understanding the IESO is not just for industry insiders. The way Ontario’s electricity market operates affects the cost of generation, the Global Adjustment, long‑term contracts, and ultimately the rates paid by households. This guide breaks the system down in plain English so you can see how the pieces fit together.

1. What the IESO does

The Independent Electricity System Operator is responsible for three major functions:

  • Operating the electricity grid in real time — ensuring supply meets demand every second.
  • Running Ontario’s wholesale electricity market — where generators are paid for the power they produce.
  • Planning for future electricity needs — forecasting demand, securing new supply, and managing long‑term reliability.

Think of the IESO as the air‑traffic controller of Ontario’s electricity system. It does not own power plants or transmission lines, but it coordinates all the parts so the system runs safely and reliably.

2. How electricity supply works in Ontario

Ontario’s electricity comes from a mix of sources:

  • Nuclear — the backbone of the system, providing steady baseload power.
  • Hydroelectric — flexible and renewable, used for both baseload and peak support.
  • Natural gas — used mainly for peak demand and reliability.
  • Wind and solar — variable renewable sources.
  • Bioenergy and other small generators

Each type of generation has different operating costs and characteristics. Nuclear plants run continuously, while gas plants can ramp up quickly when demand spikes. Wind and solar depend on weather conditions. The IESO must balance all these sources to meet demand in real time.

3. How the wholesale electricity market works

Ontario uses a competitive wholesale market where generators submit offers to supply electricity. Every five minutes, the IESO calculates the price needed to meet demand. This is called the Market Price or HOEP (Hourly Ontario Energy Price).

However, the HOEP is only part of the story. Many generators are paid through long‑term contracts or regulated rates, which means the market price alone does not cover their full costs. The difference between contracted/regulated costs and the market price is recovered through the Global Adjustment.

This is why residential customers do not pay the HOEP directly. Instead, the regulated TOU, Tiered, and ULO rates include both the market price and the Global Adjustment.

4. Why Ontario uses long‑term contracts

Ontario’s electricity system requires long‑term planning. Nuclear refurbishments, hydroelectric upgrades, and renewable energy projects take years to build and operate. To ensure reliability, the province signs long‑term contracts with generators to guarantee stable supply.

These contracts provide:

  • predictable revenue for generators
  • stable long‑term supply for the province
  • investment certainty for large infrastructure projects

But they also mean that when the market price is low, the Global Adjustment increases to cover the contracted costs. This is why GA is such a significant part of Ontario’s electricity system.

5. How demand is forecast and managed

Electricity demand changes constantly — hour to hour, day to day, and season to season. The IESO forecasts demand using weather data, historical patterns, economic activity, and real‑time grid conditions.

Demand typically peaks:

  • on hot summer afternoons (air conditioning)
  • on cold winter mornings and evenings (heating)

To manage these peaks, the IESO uses:

  • flexible generation (mainly natural gas)
  • imports and exports with neighbouring regions
  • demand response programs that pay large users to reduce consumption
  • storage resources such as batteries and hydroelectric reservoirs

Keeping supply and demand balanced is essential — even small mismatches can affect grid stability.

6. Imports, exports, and interties

Ontario is connected to neighbouring electricity systems in:

  • Manitoba
  • Quebec
  • Michigan
  • New York
  • Minnesota (indirectly)

These connections allow Ontario to import power when it is cheaper elsewhere and export power when Ontario has surplus supply. Imports and exports help stabilize prices and improve reliability.

Contrary to common belief, exporting electricity does not raise residential bills. In fact, exports often reduce system costs by generating revenue that offsets expenses.

7. How the IESO affects your electricity bill

Most Ontarians never interact directly with the IESO, but its decisions influence several parts of your bill:

  • Energy prices — the IESO runs the market that sets the HOEP.
  • Global Adjustment — the IESO administers contracts and system costs that feed into GA.
  • Reliability programs — costs for capacity, reserves, and planning flow into rates.
  • Demand forecasting — affects how much flexible generation is needed.
  • Long‑term planning — influences future rates and infrastructure investments.

While the IESO does not set residential electricity rates (that is the Ontario Energy Board’s role), its market operations and planning decisions shape the underlying costs that appear in TOU, Tiered, and ULO pricing.

8. Why electricity prices change over time

Electricity prices in Ontario shift for several reasons:

  • Fuel costs — natural gas prices affect peak generation costs.
  • Weather — extreme heat or cold increases demand.
  • Contracted supply — long‑term contracts influence GA.
  • System upgrades — refurbishments and new infrastructure add costs.
  • Market conditions — supply and demand affect the HOEP.

These factors combine to shape the regulated rates paid by households.

9. The future of Ontario’s electricity market

Ontario’s electricity system is entering a period of major change. The IESO is planning for:

  • growing electricity demand from EVs and electrification
  • new nuclear projects and refurbishments
  • expanded energy storage
  • more renewable generation
  • modernized market rules

These changes will influence future electricity prices and the structure of the market. The IESO’s long‑term planning documents outline how the province expects to meet rising demand while maintaining reliability.

10. Why understanding the IESO matters

Most Ontarians never see the wholesale market or the control room where grid operators balance supply and demand. But the IESO’s work affects every household electricity bill. By understanding how the market functions, you can better interpret rate changes, understand the role of the Global Adjustment, and see how Ontario’s energy mix influences long‑term costs.

This guide is educational and intended to help Ontario residents understand how electricity is bought and sold in the province. For official information, visit the IESO or Ontario Energy Board websites.