Reallocation of Global Adjustment Costs: Updating for 2011 and July 2012 to June 2013

July 2012

• During 2011, Class A consumers paid a lower share of total GA costs - 10.4% versus the 16.0% they would have paid under the previous structure. As a result, they paid a GA rate that was $13.28/MWh or 35.3% less than the rate they would have paid under the old framework.
• Class B consumers paid a higher share of total GA costs - 89.6% versus 84.0% under the previous allocation. Consequently, they paid a GA rate that was $2.55/MWh or 6.8% more than the rate they would have paid under the old structure.
• At this juncture, the aggregate Class A GA cost share for July 2012 to June 2013 is projected to drop slightly - to 10.28%.
• Starting with the July 2012 to June 2013 settlement period, Class A-eligible consumers will continue to have the option of opting out of Class A and being included in Class B.

In January 2011, changes were implemented to the way Global Adjustment (GA) costs are allocated within the Ontario electricity market. In January 2012, twelve months of post-change operation information had been accumulated and Aegent reported on the cost amount transferred from Class A to Class B. A further update is provided below, as well as other GA Class A/B news.

Global Adjustment - What is it? / Changes to how costs are allocated

In previous articles, we discussed the GA in detail and changes to how Global Adjustment costs are allocated. To read more, see Changes to Allocation of Global Adjustment Will Increase Costs for Most Consumers as well as Reallocation of Global Adjustment Costs: Updating for 2011 and Looking to 2014.

Changes to previously-reported numbers.

In January 2012, we reported on the first twelve months of the GA cost allocation change that started in January 2011. At that time, our analysis was based on erroneous data provided by the Ontario Independent Electricity System Operator (IESO). Their original data under-reported Class A energy consumption by 10.9%. It would certainly improve information transparency and reduce the likelihood of similar errors if the IESO posted this information in a regular and automated way.

Cost shares for 2011

(These values differ from what we reported in January 2012.)

Under the previous GA cost allocation structure, Class A would have paid 16.0% of the total GA costs, with Class B paying the remaining 84.0%.

Under the new arrangement, Class A's 2011 aggregate share of total annual GA costs was 10.4%, with Class B paying the remaining 89.6%.

Total GA costs for 2011

(Using correct data did not affect the total GA costs.) For 2011, total GA costs were $5.310 billion, for a monthly average of $443 million. Of note is the December 2011 GA cost of $540 million - well above the previous monthly high of $498 million set in May 2011

Cost impacts for 2011

(These values differ from what we reported in January 2012.)

Total Ontario GA-related consumption for 2011 was 141.1 million MWh, meaning that under the old postage-stamp GA allocation structure, the uniform unit rate would have been $37.63/MWh.

Under the new allocation, the average Class A unit cost paid was $24.35/MWh - a savings of $13.28/MWh or 35.3% relative to the uniform rate.

Under the new framework, the average Class B unit cost paid was $40.18/MWh - an increase of $2.55/MWh or 6.8% over the uniform rate.

The total cost transfer, from Class A consumers to Class B consumers, was $302 million for the year.

Cost shares for July 2012 through June 2013

Back in January, we projected that the top-five hours used for determining individual Class A GA cost shares, adjusted for embedded generation, would be 23,600 MW. The actual value used for the settlement period starting July 1 will be 23,647 MW.

If for the approaching settlement period the aggregate Class A top-five load remains unchanged at 2,432 MW, Class A consumers will in aggregate pay 10.28% of total GA costs. Should the actual aggregate Class A top-five load be below this level, the aggregate Class A share will also be lower. The reverse is also true.

The actual Class A share will be known when the IESO releases Class A/B data for July 2012.

Changes to inclusion in Class A

Previously, Class A-eligible consumers (those with an average monthly all-hours peak demand exceeding 5 MW) had the choice to opt out of Class A and be included in Class B. Starting with the settlement period of July 1, 2012 to June 30, 2013, inclusion in Class A was to become mandatory. On June 1, 2012, the Ontario government issued a regulation to change this, by extending the previous ability to opt out of Class A. It appears this may continue as an annual option.

Global Adjustment: Problem or Symptom?  Read more »