Ontario’s large commercial customers have begun a new cycle of electricity price embedding with somewhat more straightforward parameters for carving out their share of the global adjustment in 2023-24. A recently filed Ontario regulation now ties the five hours of system-wide peak demand, which are central to large customers’ cost calculations, to real-time consumption from the provincial electricity grid.
Previously, analysts with the Independent Electricity System Operator (IESO) also factored in the volume of energy storage that hydroelectric generating stations drew to meet system demand. The five peak hours were identified from the resulting tally, which is known as the adjusted allocated quantity of energy withdrawn (AQEW). This presented an added challenge for customers aiming to reduce their energy loads during the five peak hours since the track record of Ontario’s Industrial Conservation Initiative (ICI) shows that the adjusted AQEW can vary by 300 to 900 megawatts (MW) from the real-time reading.
“This change will allow peaks to be more confidently predicted,” observes Neal Bach of Brightly, which is now the parent company of the energy management and analytics firm, Energy Profiles Limited. “There will no longer be a 20-day wait for the AQEW to be finalized to solidify the peak hour, and it will prevent occurrences like last year where a peak shifted from 5 p.m. to 8 p.m. based on the AQEW.”
Speaking last week during a webinar sponsored by the Building Owners and Managers Association (BOMA) of Greater Toronto, Tim Christie, director of electricity policy, economics and system planning with the Ontario Ministry of Energy, advised that the new peak hour baseline and other accompanying tweaks to the regulation governing the ICI program arise largely from a 2019 stakeholder consultation. At the time, Ministry officials directly conferred mainly with industrial electricity users, but commercial customers — both the larger entities that qualify to participate in the ICI program and the greater number of accounts that do not — were also invited to make submissions.
Under ICI program rules, all customers with monthly average energy demand of 1MW and designated manufacturing sector players with average monthly demand of 500 kilowatts (kW) can opt in as Class A participants. Their share of the global adjustment — which even after the removal of an estimated $3 billion in costs related to renewable generation contracts still averaged about 7.35 cents per kilowatt-hour (kWh) in 2021 — is pegged to their energy usage during the five hours of system-wide highest demand between May 1 and April 30, and then fixed for the following 12 months from July 1 to June 30. After the Class A allocation is subtracted out, non-qualifying or Class B consumers pay the remainder of each month’s GA costs on a volumetric $ per kWh formula.
“For Class A, what it really comes down to is preparing for the five hours. You don’t know when exactly they’re going to occur so you have to use the information available and target maybe 20 days during the peak season, with a four-hour window,” Edward Newton, an energy analyst with the consulting firm Energy@Work, told webinar attendees. “Generally, for each kW you reduce, it amounts to between $100 and $120. So decreasing 100 kW during one of the peaks, that can lead to $12,000 in savings, but the reverse is true if you get caught during a peak and your demand is high.”
Christie suggests peak hours based on real-time consumption should make that exercise a little less perilous. He reiterated that the Ministry’s prime objective is to encourage demand response, not create booby traps.
“We heard a lot of concern from consumers that hours could fall in or out once they were adjusted. People could make decisions about taking conservation measures using the real-time demand and, after the fact, that could change. It led to a lot of frustration,” he reported. “So we changed the regulations. This should make it easier for people to participate with a little bit less volatility and a little more transparency.”
Administrative streamlining measures and data collection authorization
The regulatory amendments also include a couple of streamlining measures that could be of interest to the commercial real estate sector. The regulation now includes a mechanism to recognize that a campus of buildings registered as a single Class A consumer in the ICI program could split into smaller components if one or more buildings are sold to new owners. The amended rules allow existing and new holders of the properties to remain in Class A until the end of the current ICI cycle (June 30) provided they have a formal agreement of how the billing will be divided and the necessary metering in place.
“It’s come up a handful of times over the years,” Christie noted. “The reg didn’t have language to identify how to deal with that situation so we’ve now clarified that.”
Property owners would still need to work through the details with their local distribution company (LDC) or the IESO, depending on their grid connection. Additionally, LDCs or the IESO will now handle all administration related to changes in property ownership without having to wait for the Ministry of Energy’s instructions to do so.
“Prior to this point, if you wanted to change control of your facility, you would write to the Minister, and the Minister would approve or deny it. In practice, they were all approved so it just became a paperwork exercise,” Christie said.
Another new regulations authorizes the Ministry of Energy to collect more information from Class A consumers on an annual basis, including: total electricity consumption; average maximum monthly demand; the peak demand factor (PDF) used to allocate their share of the global adjustment; and their code under the North American industry classification system (NAICS). This will augment the Ministry’s current records of Class A consumers’ addresses. However, much of the additional information, with the exception of the NAICS codes, will be converted to anonymized data.
“We will use that information to do program analysis and evaluation,” Christie explained. “The ICI program over the years has — as we’ve reduced eligibility criteria and the wholesale price has gone down and the GA has gone up — become a very material program. A lot of money is allocated for this program and we increasingly didn’t have sufficient data to be able to do appropriate analysis and evaluation. We had decent data for IESO-connected consumers, but for LDC-connected consumers, we always had issues actually determining who was participating.”
Barbara Carss is editor-in-chief of Canadian Property Management.
