Is Global Adjustment in Ontario here to stay?
The Global Adjustment was introduced in 2006 to help Ontario cover the difference between electricity’s market rate and the contractually higher rates the provincial government had agreed to pay new generators in an attempt to stimulate private investment in Ontario’s generation system.
All Ontario electricity customers pay global adjustment to cover the cost of the province’s new electricity infrastructure and conservation programs, which ensure adequate long-term electricity supply.
With the passing of the Green Energy Act in 2009, GA charges spiked and have been on the rise ever since.
A 2015 report by auditor-general Bonnie Lysyk concluded that Ontario ratepayers had paid $37 billion more than necessary from 2006 and 2014 and will spend an additional $133 billion by 2032 due to inflated GA charges.
Whether GA charges are necessary is a hot topic of a debate whose arguments tend to fall, like most public squabbles on energy policy in Ontario, along the lines of political party loyalty.
What’s not up for debate is the fact that GA charges can account for up to 80% of an organization’s electricity bill.
The Industrial Conservation Initiative (ICI)
Introduced by the Government of Ontario in 2011, the Industrial Conservation Initiative (ICI) is a form of demand management that allows organizations to reduce their GA costs by reducing their demand during the five periods when total demand on the Ontario grid is at its peak.
Although all electricity consumers pay Global Adjustment, only Class A customers–those with an average monthly peak demand greater than 1 MW (or with 500 kW if the company has NAICS codes commencing with the digits “31”, “32”, “33” or “1114”) during an annual base period from May 1 to April 30–can participate in the ICI.
In April 2017, the ICI threshold was lowered to its current requirement (Ontario Regulation 429/04). Previously, the threshold had been much higher (minimum 5 MW in 2016), which excluded large manufacturing and industrial sectors from participating.
This 2017 change, which increased the number of large consumers who could participate in the ICI and therefore reduce GA charges, has impacted electricity prices significantly in Ontario.
The ICI’s unintentional cost shift
According to the Ontario Energy Board (OEB), the Global Adjustment has grown from CA$700 million in 2006 (8% of the province’s total electricity supply costs) to CA$11.9 billion in 2017, accounting for 80% of Ontario’s electricity supply costs.
During this time of GA growth, peak demand in Ontario has dropped due in large part to ICI participants reducing peak load contributions, decreasing their GA charges in the process.
In 2017, when the ICI drastically lowered its minimum peak load requirements, participants reduced their consumption by 42% during peak conditions.
While reduced peak demand brought through the ICI has proven to be healthy for the grid, the initiative has also given birth to an unintended consequence Ontario policymakers realize must be addressed.
In its report, the OEB concluded that the ICI has brought about an unintended shift of electricity costs recovered through the GA from large volume consumers to households and small businesses.
The burden of costs the GA was established to alleviate, it turns out, has hardly been alleviated. Instead, the costs have merely been shifted from large consumers to small.
In 2017 alone, the OEB asserts that the ICI shifted CA$1.2 billion in electricity costs to households and small businesses, thereby increasing the cost of electricity for households and small businesses by 10%.
The OEB concluded that the ICI as currently structured “is a complicated and non-transparent means of recovering costs, with limited efficiency benefits.” The initiative “does not allocate costs fairly in the sense of assigning.”
Like much of Ontario’s energy policy, the future of the ICI is not yet set. There are talks for and against a flat rate for GA to be paid all consumers. There are debates on a new restructuring of the ICI altogether.
Expect the new government to have its hands full examining what, if anything, can be done about GA charges and the ICI in 2019 and beyond.
Organizations, large or small, looking toward offsetting high GA costs in the future would be wise to keep abreast of any changes to the ICI, because they may have a profound impact on demand-side energy management strategies currently in the works.
This post was excerpted from the 2019 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.
CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.
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