What’s the Deal With Ontario’s Global Adjustment Fee?

Let’s dig a little deeper into what you’re actually paying for

November 14, 2018

Ontario’s electricity prices have been skyrocketing for over a decade – something we can attribute to the Global Adjustment: a fee that was added to the electricity bills of Ontario home and business owners beginning in 2006.

The Goal of the Global Adjustment

The Global Adjustment fee was added onto electricity bills in order to cover the difference between the costs required to generate power, and the revenue received in the power industry. It was also added to cover the cost of creating new electricity infrastructure while ensuring enough power supply will be available in the province long-term.

The Global Adjustment is organized into three different portions, created from the division of Ontario Hydro in the year 1999. The first portion, the Ontario Electricity Financial Corporation (OEFC), deals with the debt from the previous Ontario Hydro and current contracts with non-utility generators. The second portion deals with payments to Ontario Power Generation (OPG) to cover cost differences between the regulated rates received by the OPG and market cost of the energy. The third portion covers payments from the Independent Electricity System Operator, which involve gas-fired facilities and renewable generators.
(Re: University of Victoria)

The Two Classifications of Large Power Consumers in Ontario

Large power consumers pay Ontario’s Global Adjustment Fee as either a Class A or Class B consumer. Class A consumers are consumers who participate in the Industrial Conservation Initiative and have an average peak demand of more than 5 MW. Class A consumers can pay the fee according to how their peak demand use contributes to the peak demand of the province.

Class B consumers will usually pay the fee through their billing cycle with their local power supply company, and have a peak demand of 50 kW as well as up to/including 5MW. However, as of January 1st 2017, Class B consumers with an average peak demand of over 1MW and up to/including 5 MW were eligible to be charged as a Class A consumer. Then in April 2017, the Industrial Conservative Initiative eligibility was further lowered from 1 MW to 500 kW to include more Ontario participants in certain manufacturing and industrial industries.

It’s Been A Rather “Aggressive” Adjustment…

The Auditor-General of Ontario reports that the Global Adjustment has cost an overall of $37 billion as of the year 2015 – a number that has undoubtedly grown exponentially since.

Known as "curtailing"; incorporated into the Global Adjustment is actually the price of no energy at all. This is a cost of the IESO paying suppliers to NOT produce electricity due to the possibility that an over-production could stress the system and lead to a blackout. Another thing included are certain conservation programs put into place by the government that make certain services free, such as when a new appliance is delivered to your home and the old one is taken away at no charge.

But just how much non-existent energy are Ontarians paying for? Well, according to an article by Global News in reference to the Independent Electricity System Operator (IESO): in 2015 alone, for every $100 in usage on an electricity bill, a whopping $77 would be the Global Adjustment fee – while the actual use of electricity was worth just $23.

What Does the HOEP Have to Do With It?

Ontario’s Global Adjustment Fee changes for consumers every month according to the HOEP (Hourly Ontario Energy Price). The lower the HOEP, the higher the fees in order to cover regulated and contracted power generation costs. According to Global News, the average HOEP in 2015 was at a fair market value of 2.36 cents/ kW hour while the Independent Electricity System Operator (IESO) paid wind producers up to around 13 cents/ kW hour – with the 11-cent difference charged to the consumer as a Global Adjustment cost.

Then there were solar producers who were paid as much as 80 cents for every kW hour for their energy production despite the 2.36 cents/kW market rate – with the 78-cent difference being charged to consumers through the Global Adjustment as well.

With Ontario’s Global Adjustment fee still dominating electricity bills across Ontario, organizations with heavier electrical consumption can benefit greatly from >Peak Shaving.

Why Peak Charges Exist

During the hours where power demand is at its highest, commercial and industrial power purchasers are charged more to their electricity bills – with these charges often making up roughly 30 to 70 percent of the total bill (Mosaicenergy.com). But why do these demand charges occur to begin with? Well, there are a couple of reasons why.

The first reason is because utility companies need to ensure that their customers’ power needs are met at all times, and they need to be prepared to supply additional capacity when energy demands are higher. This is typically in the form of costlier power equipment that is older and require regular maintenance - and so customers are charged with these costs in mind. There’s also the demand for solar power that is increasing; creating more instability on the grid due to wavering weather conditions.

The second reason for demand charges is to encourage power purchasers to reduce their energy usage during these peak periods, allowing utility companies to charge more to customers with inconsistent energy usage and less to those with a more consistent load.

How Power Consumers Can Peak Shave

It’s most ideal to begin employing a peak shaving strategy at the beginning of your power project for the greatest financial benefit.

One method of peak shaving involves the use of special technology that tracks data from various sources and provides real-time forecasts to predict peak hours where energy consumption is costing you most. Power production is then strategically slowed during these peak hours, without compromising performance.

Another method of peak shaving is using an on-site generator during periods of high demand. This kind of generator can be made to run automatically during peak hours, and shut off during non-peak hours, often with the assistance of your utility provider. A system can even be created so that the utility company is in charge of the peak shaving generator.

There is also another advantage to the on-site generator: it can provide backup power in the unfortunate event of a total power outage. While in the long-run, this peak shaving method can result in substantial savings, those considering this route should be informed about the initial installation costs as well as long-term maintenance before they make their decision.

While the Global Adjustment is seemingly here to stay, a smarter, more cost-efficient energy strategy can reduce your industrial or commercial organization’s monthly costs significantly – and it’s always worth putting into action.


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