COVID-19 repercussions driving up global adjustment costs for commercial electricity customers

COVID-19 incubates global adjustment 2021-22

Ontario’s commercial customers brace for higher electricity costs
Tuesday, May 26, 2020
By Barbara Carss

The late May heat wave signals the launch of the annual chasing-the-peaks challenge for many of Ontario’s large commercial building operators. Electricity customers with average monthly demand of at least one megawatt (MW) have the opportunity to lock in a favourable factor for calculating their share of global adjustment (GA) costs for an entire year, but it depends on how adroitly they can reduce energy loads during the five hours of the year when the highest system-wide peak demand is recorded.

This year, efforts to predict and shed load during those five hours could be even more taxing than usual as landlords weigh demands for enhanced ventilation — an expected outcome of COVID-19 — against the need to quickly curb energy-intensive building systems.

“The two strategies are really not going to blend well together,” Jon Douglas, director of sustainability with Menkes Developments, observed during a recent online seminar sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto. “Going into the summer, the complexity of (mitigating) the GA is just getting a lot trickier and it’s a lot harder to predict.”

“With the impact of COVID, mechanical demand is going to be much higher,” concurred Michael Hasko, senior property manager with Dream Office Management. “It changes things in terms of what buildings can do to respond.”

Meanwhile, owners/managers of small and mid-sized commercial buildings have received assurance that the global adjustment will be capped at 11.5 cents per kilowatt-hour (kWh) for April, May and June 2020, but that comes with the knowledge that they’ll have to repay the accumulated amount above that threshold beginning in 2021. The Ontario government announced the temporary deferral earlier this month because pass-through billing for the opaque envelope of fixed costs was rising while energy demand plummeted due to COVID-19-triggered business shutdowns. Customers who pay the GA on a volumetric per-kWh basis would have otherwise faced cost increases upwards of 15 per cent on their April bills.

“This goes kind of at the heart of the problem we have,” acknowledged Tim Christie, director, energy system planning, with the Ontario Ministry of Energy, Northern Development and Mines. “These fixed costs accrue regardless of consumption, and currently these fixed costs are spread among lower consumption.”

Challenges abound for Class A and Class B consumers

With energy demand unlikely to return to pre-pandemic levels any time soon, both groups of commercial account holders — labelled Class A or Class B according to how the GA is apportioned — are bracing for higher costs in the future. For Class A consumers, cost-saving potential will be diminished even if they successfully curtail demand during the five peak hours since those peaks are expected to be lower than usual.

Conventionally, the peaks have occurred in the summer and in the late afternoon or early evening. A large portion of the workforce ensconced in home offices, and ramping up air conditioning earlier in the day, could influence that timing.

“If the peak has shifted earlier, it will be a lot harder (for commercial buildings) to get aggressive,” Hasko predicted

“The flipside of that is: maybe the peaks are not going to happen this summer. Maybe the peaks are going to be in the winter,” speculated Neal Bach, president of the energy analytics firm, Energy Profiles Limited.

Regardless, energy management specialists hypothesize Class B consumers will be even harder hit since they have no option except to shoulder the share of the GA they’re allocated.

“Class B is very limited in what it can do other than reduce kWh,” advised Scott Rouse, managing partner of the consulting firm, Energy@Work. “In terms of Class A, it’s so building-specific. Year-over-year, the (GA) rate change will very much depend on how aggressive the building is in managing the peak demand factor.”

Overseeing a portfolio with a mix of three Class A and seven Class B buildings, Hasko likened the approach to “a 100-metre dash” in Class A buildings, where energy management efforts are tied to very scoped but moving targets, while a continuous emphasis on energy efficiency is paramount in Class B buildings. “Class B, it’s much more like a marathon,” he said.

Calls for further provincial intervention

On that front, Rouse urged the Ontario government to leverage the conservation and demand management (CDM) incentive programs that, last year, it instructed the Independent Electricity System Operator (IESO) to oversee until the end of 2020.

“This is a great opportunity to explore every opportunity for electricity conservation. Hopefully, we will come out of this learning something,” he asserted. “Can the Ontario government help? I think there is a tremendous opportunity for that. Max out the CDM program.”

In addition, some commercial electricity consumers are seeking clarification and/or further COVID-19-related concessions. Notably, business shutdowns and the resulting declining energy demand since mid-March bumped some customers below the required average 1 MW monthly threshold to qualify for Class A.

Although the new cycle of the Industrial Conservation Initiative (ICI) began on May 1, prospective Class A participants have until June 15 to formally opt in. Some electricity customers are now asking for a re-evaluation of Class B status attributable to pandemic circumstances so that they can be readmitted for another year of the program. As of mid-May, Christie reported the issue was still on the Ministry of Energy’s “to do” list, where it was relegated behind other troubleshooting priorities such as flattening time-of-use rates for residential, farm and small business customers and introducing the three-month cap on the GA.

“I realize we don’t have a tonne of time,” he conceded. “This issue of eligibility is something we will look at. We’ve got to get this resolved one way or the other.”

COVID-19’s disruption of the government’s legislative agenda also appears to have delayed moves hinted in last fall’s economic outlook and fiscal review to revise the GA settlement process, at least for large industrial customers.

“As we come out of COVID, maybe we’ll put some of these changes in place,” Christie said. “We are under no illusion that the program is perfect. When it was started, I don’t think any of us thought it would get to the point where it is now, where it is 80 per cent of the market.”

Barbara Carss is editor-in-chief of Canadian Property Management.

Leave a Reply

Your email address will not be published. Required fields are marked *

In our efforts to deter spam comments, please type in the missing part of this simple calculation: *Time limit exceeded. Please complete the captcha once again.