Ontario Electricity: A Proposal to Expand Global Adjustment Class A

May 2014

The Global Adjustment proposal discussed in this article was put on hold by the dissolution of Ontario’s legislature.  Time will tell the fate of the proposal.  Regardless of the outcome of the election, we believe the change will eventually occur.

• A proposal has been made to change the eligibility threshold for Global Adjustment Class A, by lowering it from an average demand of 5 MW to 3 MW.
• The mechanism for determining Global Adjustment costs will likely be the same as that currently used and so will provide to newly-eligible customers the same benefits being enjoyed by similar, current Class A customers.
• The timing of the change may not be imminent but newly-eligible customers should begin preparing now.

On April 24, the Ministry of Energy announced a proposal to expand the eligibility criteria of the Industrial Conservation Initiative (ICI) – formerly known (at least according to the Ministry) as the Global Adjustment Allocation.

Currently, customers with an average, all-hours monthly demand of 5 MW are eligible to be treated as Global Adjustment (GA) Class A customers and pay their share of GA costs based on their consumption during so-called “High 5” hours - the top five provincial demand hours each year.  The new proposal is to lower the threshold from 5 MW to 3 MW.

Information is very thin at this point and many details remain to be seen but the proposal is significant for two reasons.  First, the GA has recently undergone explosive growth and it will continue to grow.  Second, many Class A-eligible customers are achieving substantial GA savings by choosing to be part of Class A and paying a lesser share of total GA costs than they would have had they remained Class B customers.

If we assume that newly-eligible customers will have the option of participating, then one rather large question remains:

Is this a straight expansion of the current program, with GA costs for the newly-eligible determined using the same current Class A methodology, or is the change an “expansion of the status quo” as proposed as part of the Independent Electricity System Operator’s (IESO) Stakeholder engagement #106 (SE-106)?

Background

As part of SE-106, three alternatives to the status quo were evaluated, with expansion appearing to be the most desirable.  The expansion explored differed from the original Class A treatment in that the new class of customer would pay a different, fractional share of total GA costs each month.  The numerator in the share calculation would be the customer’s load during the peak transmission network hour for the month while this latter value would be the denominator.

If the proposed expansion uses the same methodology currently used, newly-eligible customers with similar usage profiles to existing Class A customers will derive the same benefit in terms of their percentage of GA savings.  If the proposed expansion follows the SE-106 expansion model, newly-eligible customers will be treated differently.

Straight expansion or SE-106 expansion? 

Informal discussions with the IESO indicate the lowering of the GA Class A threshold will be a straight expansion, meaning the newly-eligible will pay their share of the GA on the same High 5 demand basis as existing Class A customers.  This is good news because if the SE-106 expansion is implemented, the new Class of B1 customers will achieve significantly lower GA savings.

Timing

High 5 hours and accompanying customer demands are tracked and identified during a 12-month base period.  This information is then used to determine each Class A customer’s GA share for the adjustment or billing period that begins two months later.  The latest base period ended April 30, 2014 and the associated adjustment period begins July 1, 2014.

Except for a couple of IESO market participants, newly-eligible consumers will otherwise be served by LDCs who have a range of GA Class A experience (some with none) and capabilities.  Between the end of the base period and the beginning of the associated adjustment period, eligible customers receive a “peak demand factor” report from the IESO or their LDC and then must decide whether or not they want to be a GA Class A or Class B customer.

We strongly suspect that the combination of details to be finalized, customer outreach to occur and LDC settlement mobilization challenges will prevent the newly-eligible from starting to be treated as GA Class A customers as of July 1, 2014.

Next steps

Even without a July 1, 2014 adjustment period start, customers with average peak demands above 3 MW – and even some with demands less than but close to 3 MW – should get started in preparing for this change.  Preparations include evaluating:

• Hourly data and likely High 5 hours to determine one’s notional peak demand factor and potential gain/loss if choosing to be a GA Class A customer;
• Demand management opportunities during the base period that just started on May 1, 2014 and that could yield benefits in the adjustment period that begins July 1, 2015; and
• For customers with behind-the-meter generation, different operating strategies that could result in lower overall energy costs.  Considerations would include any interaction with participation in the Ontario Power Authority’s DR3 program.

Learn more Aegent Energy Advisors can help you prepare.  To learn more about the proposed change, the potential opportunity or threat for your enterprise and how to minimize your Global Adjustment cost, contact Bruce Sharp at bsharp@aegent.ca or 416.622.9449, x 112. 

IESO Stakeholder Engagement on Global Adjustment: An Update Read more »

Predicting Ontario “High 5” Demand Hours Read more »