electricity cost cuts

Ontario offers unequal electricity cost cuts

Commercial customers excluded from expanded perk for industrial sector
Tuesday, March 7, 2017
By Barbara Carss

The Ontario government is unsure how many small manufacturers are newly eligible for the Industrial Conservation Initiative (ICI) since the minimum threshold for their participation was lowered last week. “Unfortunately, we don’t have these numbers,” acknowledges Natasha Demetriades, a spokesperson for the Ministry of Energy.

However, it is clear how many commercial customers have been included in the program expansion. None.

Ontario’s promised electricity cost cuts come with other unknowns for commercial customers. Premier Kathleen Wynne’s message was directed almost entirely at residential ratepayers last week as she outlined a plan to refinance some elements factoring into the Global Adjustment — which, in recent years, has accounted for as much as 80 per cent of the commodity cost of electricity — but the expanded perk for the industrial sector will shift a greater share of the Global Adjustment burden onto commercial customers with monthly electricity loads less than 1 megawatt (MW).

Industrial customers with an average peak energy demand of at least 500 kilowatts (kW) will now be eligible for the program, while the minimum requirement for commercial customers remains at 1 MW. Conservation and demand management (CDM) specialists are surprised after the provincial government’s September 2016 move to open up the program more evenly.

“This will just add a layer of confusion,” suggests Scott Rouse, an engineer and managing partner of the consulting firm, [email protected] “After everything the commercial sector has done to help the province in contributions to the goals of the Long Term Energy Plan, and energy and water benchmarking and reporting, why not include commercial?”

The ICI program is a scheme for allocating the Global Adjustment prorated to participants’ consumption during the five hours of a designated 12-month period, from May 1 to April 30, with the highest system-wide demand for electricity. The Ontario government does not forego any revenue through the program, but, rather, simply realigns how it is collected.

Customers who can anticipate and curb demand during these five peak hours will have a favourable mathematical factor for calculating their electricity bills, locked in for one year. Customers who don’t qualify for the program pay the Global Adjustment as a straightforward add-on per kilowatt-hour (kWh) of usage.

“Lowering the threshold for program participation will allow more energy-aware customers to reduce use and cost,” says Andrew Pride, a consultant specializing in energy management and strategic conservation planning. “The balance of the Global Adjustment costs will have to be absorbed by those who don’t qualify or participate in the ICI program so, again, this reinforces the need for energy consumers to conserve as much as is practical.”

New regulation in development

A one-line “quick fact” in the Ontario government’s March 2 overview of its electricity relief plans states: “Ontario is expanding the Industrial Conservation Initiative (ICI) program by reducing the threshold from 1 MW to 500 kW and targeting more small manufacturing and industrial consumers.” A follow-up statement from the Ministry of Energy, issued March 6, explains that the target is exclusively focused on industrial customers.

“We are working to develop proposed amendments to O.Reg. 429/04 that — if accepted by Cabinet — would enable eligible electricity consumers in the manufacturing sectors (i.e. NAICS codes commencing 31, 32 and 33) with average peak demand greater than 500 kW and less than 1 MW to benefit from ICI participation,” it confirms.

Many of Ontario’s 70+ local distribution companies will need to prepare as well. “Utility rate structures aren’t set up to differentiate small industry from small commercial so an extra layer of administration will be required from the utility sector,” Pride notes.

Both the newly designated small manufacturers and the commercial and industrial operations that gained entry when the threshold for participation was dropped to 1 MW last fall have until June 15, 2017 to officially opt into the program. (Although the base period begins May 1, the peak hours typically occur in the summer or, occasionally, winter months.) Given that large commercial office towers and retail malls typically have monthly energy loads in excess of 1 MW, many building owners/managers have about three months to make a decision, recognizing that an influx of industrial newcomers could further burden non-participants, who are, perhaps fittingly, categorized as Class B customers.

“If you’re Class B, I would be concerned,” Rouse says.

Some of the existing participants have reaped hundreds of thousands or millions of dollars in annual savings since the program was first introduced in 2010 for customers with a monthly electricity load of at least 5 MW, but it’s not expected be so easy for commercial enterprises. Industrial customers have much more flexibility to pull back or shut down production during periods of peak electricity demand, whereas demand on office towers’ HVAC systems tends to be in sync with peak periods.

This reality arguably makes commercial customers more aligned with the objectives of Ontario’s Conservation First Framework and associated goal to reduce province-wide electricity consumption by 7 million megawatt-hours (MWh) by 2020 since ingrained energy efficiency will have to be a key component of their strategies to reduce peak demand. It’s unlikely to be accomplished through five hours of strategic shutdowns.

Global Adjustment contents remain vague

The panoply of costs buried in the Global Adjustment make it difficult to parse out where Ontario’s promised electricity cost cuts will come from. In pledging a 25 per cent hydro bill reduction to residential customers, Premier Wynne pointed to a $50-billion investment in generation, transmission and distribution assets between 2005 and 2015 and reported that these costs would be amortized over a longer period rather than wholly flowing through to current ratepayers.

“Over time, it will cost more and it will take longer to pay off, but it is fairer because it doesn’t ask this generation of hydro customers alone to pay the freight for everyone before and after,” she said.

Other Global Adjustment components will be moved to different funding envelopes. “A number of important programs such as the Ontario Electricity Support Program and the Rural or Remote Rate Protection program would now be funded from provincial revenues instead of by electricity consumers. This will provide savings to industrial (and commercial) customers, who currently fund a portion of these programs,” the Ministry of Energy statement reiterates.

Still, many non-residential customers expect the Global Adjustment will continue to represent a significant chunk of their electricity costs. Antithetically to the Ontario government’s conservation goals, building owners/managers might be prompted to run energy-intensive systems longer than necessary to boost their monthly energy loads over the required threshold for ICI participation.

Entry into the program does not guarantee a Global Adjustment reduction, however. Customers with energy-efficient operations, and the expertise to accurately predict the five peak hours and respond accordingly, will be the main beneficiaries.

“It is going to open up for a lot more participation, but participants should be careful,” Rouse advises. “I strongly urge commercial customers to start looking at this issue well before June 15.”

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

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