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Explaining the Global Adjustment, Part 2
April 2008
The Global Adjustment is an Ontario electricity market mechanism used to transfer costs between the market at large and customers on a monthly basis. Some of these costs are related to regulated and contract prices for generators, while other cost components fund programs of the OPA itself.
In another article, we show how the generation cost-related aspects of the Global Adjustment, also referred to as the Provincial Benefit, act as a fixed price hedge of about $60/MWh on approximately 55 % of one’s electricity consumption. In months when the average price is less than $ 60/MWh, this part of the Global Adjustment is a debit. When the average price is greater than $ 60/MWh, it’s a credit.
But the Global Adjustment also provides the means for the Ontario Power Authority to collect amounts from electricity consumers that go to pay for OPA programs in conservation and demand management (CDM). These costs are not related to the prices for generation. (The OPA’s demand management programs include smaller generation projects such as those falling under the standard offer programs. These are excluded from this article as they were included in our analysis and discussion from last month.)
The OPA's near-term, non-generation, planned, annual CDM expenditures ($ million, 2007), as described in the OPA's Integrated Power System Plan submission, are as follows:
program area |
2008 |
2009 |
2010 |
2015 |
% increase, 2008 - 2015 |
energy efficiency |
$232 |
$262 |
$256 |
$287 |
24 % |
demand management/consumer behaviour - large customers |
$108 |
$112 |
$117 |
$158 |
46 % |
demand management/consumer behaviour - others |
$6 |
$6 |
$6 |
$6 |
0 |
fuel switching |
$22 |
$27 |
$43 |
$111 |
405 % |
total |
$368 |
$407 |
$422 |
$562 |
53 % |
unit cost to consumers [$/MWh] |
$2.37 |
$2.63 |
$2.72 |
$3.63 |
|
unit cost to consumers [¢/kWh] |
0.24 |
0.26 |
0.27 |
0.36 |
(unit values assume total annual Ontario consumption constant at 155 TWh)
The numbers above include both program delivery costs (~30 %) and incentives paid (the other 70 %). For many consumers, this cost of the OPA’s programs in 2008 will amount to about 0.24 cents per kWh, or about 2.5% of one’s total cost of electricity.
Peter Love, the OPA’s Chief Energy Conservation Officer, is not shy about pointing out these expenditures. After stating how much money the OPA is spending on CDM, he usually emphasizes “...and it’s your money”. This should serve as a reminder that the cost of the OPA’s programs are being added to every user’s bill, regardless of whether or not you’ll receive any of the billions in incentive dollars that will flow in the years to come.
Because the costs are merely a component of the Global Adjustment, it is not at all clear to most consumers just what they are paying for when they pay their electricity bill.
Note that the table above shows constant 2007 dollars, meaning that the percentage rise shown in the table does not include the impact of inflation.