Global adjustment status quo

Global adjustment status quo foreseen into 2020

Ontario commercial electricity customers urged to stick to conservation agenda
Tuesday, May 21, 2019
By Barbara Carss

Commercial landlords have been left off the stakeholder list for Ontario’s in-progress consultation on industrial electricity prices, but any resulting overhaul of hydro rates is expected to flow through to the operating costs of a broad range of non-residential buildings. Hosts of a recent seminar to help commercial electricity customers explore options to mitigate the global adjustment (GA) apportionment on their hydro bills caution that the rules could be changing.

“We all know it’s quite a complex topic and there are a lot of things happening,” observed Bala Gnanam, vice president, energy, environment and strategic partnerships with the Building Owners and Managers Association (BOMA) of Greater Toronto. “Before, it was confusing and somewhat stable. Now, it’s confusing and somewhat chaotic. But the one thing that’s consistent is that it’s confusing.”

Delivery of conservation and demand management (CDM) incentives is also in flux as Ontario’s Independent Electricity System Operator (IESO) assumes oversight of a more modest program following the March 21 directive from the Minister of Energy, Northern Development and Mines, Greg Rickford, which terminated the previous government’s conservation framework. Insiders affirm that the departure of CDM account managers from local distribution companies (LDCs) — with reportedly dozens suffering job loss at Toronto Hydro and Alectra Utilities in recent weeks — leaves a gap in service.

“We are being asked to do a whole lot with way less funding,” Rob Edwards, the IESO’s private sector business manager, told seminar attendees. “There is going to be an impact. We will not be offering the same hand-holding component.”

IESO settling in as CDM delivery agent

BOMA Toronto schedules the annual event in advance of the mid-June deadline for large consumers with average monthly peak demand of at least 1 megawatt (MW) to opt in as Class A customers for the purposes of Ontario’s Industrial Conservation Initiative (ICI) program. However, with a new government taking office last summer, this year’s edition touched on hinted or already enacted energy policies with repercussions for the commercial real estate sector.

Given the ongoing consultation with industrial consumers and the ICI program’s customary July 1 to June 30 timetable, the current formula for allocating GA costs is generally thought to be locked in for at least another year. Changes in the CDM regime are unfolding more rapidly.

Amendments to the Electricity and Ontario Energy Board Acts, adopted on May 9, now give the government flexibility to fund CDM programs through general tax revenues rather than the electricity rate. That likewise gives the government discretion to adjust or cancel that budget as it chooses, although, the IESO is working on the premise that funds will continue to flow.

“What we understand is that we will be doing programs post-2020,” Edwards reported.

In the interim, the Minister’s directive — which did not require legislative approval — has begun to play out, with LDCs now largely relegated to administering CDM contracts that were in place before April 1. The IESO has developed and is rolling out a replacement slate of offerings for April 1, 2019 to December 31, 2020, largely mirroring eight of the 16 incentive programs the LDCs previously offered.

“It’s not an all-bad-news story,” Edwards asserted. “There is an emphasis on business programs and continuity for low-income and Indigenous communities.”

For the buildings sector, financial support will continue to be available for in-house energy managers, lighting and equipment retrofits and/or building system upgrades, and whole-building energy performance. Applicants will now deal directly with the IESO, which is formally and informally procuring resources to help handle its new responsibilities.

An RFP will soon be issued for third-party technical reviewers and program support, while energy service providers are tagged as an important part of outreach efforts. “We have great relationships with our trade allies and we want to grow that immensely,” Edwards reiterated.

Instead of vetting applications, LDCs are now invited to join the applicants. Ontario’s 68 LDCs will have access to a $27-million pot earmarked for specialized local programs, but there is no guarantee of continuity of earlier efforts, such as Toronto Hydro’s race2reduce, which the Minister’s directive effectively shut down. LDCs will now have to apply anew for IESO approval and funding for such programs.

2019-20 ICI program cycle set to begin

Meanwhile, commercial electricity customers large enough to qualify as Class A customers are waiting for LDCs to release peak demand factors, derived from each eligible account’s peak energy demand during the five hours between May 1, 2018 and April 30, 2019 when the highest total system demand was recorded. Should they choose to participate in the ICI program, the peak demand factors will be used to calculate Class A customers’ monthly share of the global adjustment from July 1, 2019 to June 30, 2020.

The larger remainder of commercial accounts will be designated as Class B and will pay for the bucket of costs the GA encompasses on a straightforward per kilowatt-hour (kWh) basis. That’s determined after the Class A portion is subtracted out every month.

The commercial sector’s discontent with this split is longstanding and well-documented. Keith Sandor, vice president with the energy storage developer/provider, NRStor Inc., noted that, on average, Class A customers paid 7 cents/kWh toward the GA last year, while Class B customers paid 11 to 12 cents/kWh.

“That’s roughly a 35 per cent difference between Class A and Class B,” he said. “If you’re Class B, you’re a price taker.”

Nevertheless, having relatively recently gained standing for larger commercial buildings when the threshold for ICI program participation was lowered to 1 MW in the fall of 2016, commercial real estate operators and advocates are wary of future policy shifts. Beyond seven sessions to hear specifically from consumers in the automotive, forestry, mining, agriculture, steel, manufacturing and chemicals sectors, the consultation on industrial electricity prices has asked for feedback on nine questions — beginning with a multi-part question related to the effectiveness of the ICI and its peak-hour triggers.

“Obviously, they are getting their asses lobbied off by big industrials,” suggested Adam White, chief executive officer of the energy management analytics firm, powerconsumer inc.

White traced the ICI program’s decade-long evolution, arguing that it was originally conceived largely as an instrument to support trade-exposed manufacturers in the wake of the 2008 financial crisis, which had bonus complementary benefits for the electricity system. Sandor pointed to “skyrocketing GA costs” and concern about spiking peak demand as other key factors in the ICI’s genesis.

“The GA was roughly one-third of what it is now,” Sandor noted.

“The justification at the time was there were about 250 (eligible) customers in Ontario and they all had the right meters in place,” White recalled. “Now there are thousands of customers eligible to opt in. It has gone maybe about as far as it can go.”

After opening the program to larger commercial accounts — a 350,000-square-foot office building would typically have an energy load in the 1 MW range — the former government also extended access to manufacturers with peak demand of at least 500 kilowatts. However, White noted that the initial 250 or so large industrial consumers still represent half of the overall Class A load, while approximately 50,000 customers make up the other half.

Online submissions to the consultation process will be accepted until June 14 — in sync with this year’s deadline for eligible Class A customers to register for the ICI program. “It affects all of us so we should try to get our voice heard,” urged Scott Rouse, managing partner with the consulting firm, [email protected]

No imminent changes to GA allocation formula expected

Seminar presenters advise both Class A and B customers to assume a global adjustment status quo, at least for their short-term decision making. In particular, the next four months could have a critical influence on costs for 2020-21 since the five peak hours almost invariably occur in the summer.

Rouse endorsed an energy management strategy that considers how to curb energy loads when those peaks are projected and/or in progress, but also focuses on minimizing energy use in general. The latter will be imperative for Class B customers.

“The support you are going to get from the LDC now that the CDM group is gone is going to be a lot different,” he predicted. “One of the real valuable tools is real-time monitoring. Letting the operations team see what’s happening, when it’s happening, is extremely valuable.”

“Once you are Class A, you are chasing peaks for the following year,” Abdi Mohamed, IESO business manager for LDCs, reminded seminar attendees. “It’s becoming a bit of a challenge to chase those peaks, but it’s not impossible.”

And it’s likely less perilous than gambling on other scenarios. An outcome from the consultation on industrial prices is not expected before this fall, and a reduction in CDM program costs will make a negligible dent in the various program and contracted supply costs — including the multi-year nuclear refurbishment commitment — opaquely lumped into the GA.

“The actual quantum in the global adjustment isn’t going anywhere. When Pickering (refurbishment costs) comes out, it will come down in real terms and then it will stay flat,” White advised. “How’s it going to be allocated? That’s the big question.”

Energy and conservation policy advisor Marion Fraser has watched the global adjustment’s purpose change and its momentum build throughout the 21st century. “The GA was created by the then IMO (Independent Electricity Market Operator) in order to deal with a new adjustment based on largely out-of-market purchases for reliability, and it became this new other thing,” she reflected. “No matter what decision is made, in the short term, someone will lose out and someone will benefit.”

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

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