Ontario to offset electricity costs with fixed rate for global adjustment in April, May and June

Ontario to temporarily offset electricity costs

Global adjustment fixed for April, May, June with differential collected in 2021
Monday, May 4, 2020
By Barbara Carss

Electricity costs will be partially deferred for Ontario commercial and industrial customers in April, May and June to temporarily offset a sharp rise in the global adjustment (GA). The envelope of fixed costs for contracted supply, nuclear facility refurbishment programs and conservation and demand management initiatives accounted for about 89.5 per cent of the commodity cost of electricity in March, but has since soared upward as province-wide energy demand declines due to COVID-19-related business shutdowns.

“There is a monthly settlement that has to be paid and it’s a lot of money. It’s almost $1 billon monthly,” observes Adam White, chief executive officer of the energy forecast and management advisory firm, Powerconsumer Inc.

In fact, Ontario’s Independent Electricity System Operator (IESO) estimates the total GA price tag will be nearly $1.25 billion in April. However, late last week, Ontario Energy Minister Greg Rickford announced a new fixed rate of $115 per megawatt-hour (MWh) or 11.5 cents per kilowatt-hour (kWh) will be in effect until at least June 30.

The move addresses the estimated 15 per cent increase in GA costs that smaller commercial and industrial customers would have encountered on their April bills. Instead, they’ll pay the differential above 11.5 cents/kWh in added monthly increments beginning in January 2021.

“Ontario’s industrial and commercial electricity consumers are being impacted by COVID-19. We know this is a challenging time for them,” Rickford acknowledged. “This would provide immediate financial support for more than 50,000 companies when they need it most: as they do their part to stop the spread of COVID-19 and as they prepare to help get our economy moving again.”

While the Ontario government’s announcement focuses primarily on customers paying the GA on a volumetric per-kWh basis — smaller and mid-sized commercial buildings with monthly peak demand less than 1 megawatt, defined as Class B for the purposes of GA allocation — it indicates that larger commercial customers and small manufacturers will “receive the same percentage reduction” on top of their formula for calculating GA allocations.

Some of these customers — defined as Class A for the purposes of GA allocation — also face significant electricity cost increases if their normal energy loads have dropped. That’s because their current share of the GA is prorated to their energy use during the five hours with highest system-wide peak demand in the period between May 1, 2018 and April 30, 2019.

That’s not a dilemma for designated essential industries that have continued to operate and consume a somewhat consistent amount of power throughout the COVID-19 crisis. However, the commercial buildings that qualify for Class A — typically office towers and retail malls of at least 350,000 square feet — have been largely empty since mid to late March. Manufacturers qualify for Class A at a lower monthly peak demand threshold of 500 kilowatts, and many such smaller enterprises have also been shut down.

“They are going to have to keep paying every month according to their peak demand factor whether they are running or not,” White says.

“Their consumption has dropped, but their GA costs have been increasing, resulting in a blended rate that, for some, will be more than 25 cents/kWh,” reports Neal Bach, president of the energy analytics firm, Energy Profiles Limited. “This reduction is especially important for them.”

Prolonged shutdowns and the associated drop in energy use could have other consequences for customers who would normally be just above the required threshold for Class A status. They now risk falling into Class B, which conventionally pays a disproportionately greater share of the GA.

“What we want is a solution for keeping companies in Class A on the other side of this pandemic,” White submits.

Even customers retaining Class A status will likely garner more modest savings through Ontario’s Industrial Conservation Initiative. Their demand during the five hours of system-wide highest demand between May 1, 2020 and April 30, 2021 will set Class A customers’ apportionment of the GA for the period from July 1, 2021 to June 30, 2022. With a new cycle of chasing those five peaks now underway, it’s still unclear when the province will be fully back in business.

“The summer peaks this year are going to be low and every customer that is Class A is going to have a higher peak demand factor,” White projects.

The Building Owners and Managers Association (BOMA) of Greater Toronto will host its annual workshop May 12, via webinar, to discuss possible strategies for both Class A and Class B consumers.

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

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