Ontario’s ICI Global Adjustment Consultation – what changes are coming to Global Adjustment billing?
In the spring of 2019, to fulfill their pledge of reducing hydro rates, the Ontario government held consultations to receive feedback from various energy users. The goal of the consultation was to hear first-hand from Ontario’s industrial consumers about how Ontario’s electricity system can help make businesses more competitive. The full report can be downloaded here: Report – Consultation on Industrial Electricity Prices
Consumer feedback was gathered from various industry members including automotive, forestry, mining, agriculture, steel, manufacturing and chemicals.
The topics discussed were the Industrial Conservation Initiative (ICI), competitive electricity rates, operational impacts of ICI, flexibility and choice for hydro and more. Feedback received via online submissions and in-person sessions confirmed that consumers are seeking competitive rates and stability when it comes to industrial electrical prices. Read on to get a better understanding of the change’s customers would like to see.
Industrial Conservation Initiative and Global Adjustment
Today, Ontario has 20,000 industrial electricity consumers. This is approximately one-quarter of total electricity demand across the province. Most large-scale consumers participate in ICI. ICI participants typically pay lower rates, since they are charged GA based on their individual contribution to the provincial peak. This pricing framework provides an incentive for energy consumers to curtail use during peak demand hours.
Many noted that ICI has been critical to the successful operation of their business and made their business more competitive. Several stakeholders went further and noted that the viability of their business was dependent on the savings in GA that the ICI enabled. While recognizing that ICI is not perfect, many expressed that they do not want to see the program changed or eliminated.
Critical feedback was mostly received from non-participants that felt the cost shift from participants to non-participants (Class A to Class B) associated with ICI is unfair, as not all the costs included in GA are capacity related.
A significant number of ICI participants gave feedback that the program has become too big since participation opened up to smaller load facilities. As the number of ICI participants has increased, some consumers feel that it has become more difficult to predict and forecast peaks, which can have major financial implications for their business.
Competitive Electricity Rates
A recurring theme in the consultations was that Ontario’s high electricity prices – relative to those of competing jurisdictions – have made the province less competitive. This leads to a perception that Ontario is not business friendly. Participants noted that any increase in electricity costs would impact their ability to compete and grow in Ontario. Participants also stated that while they saw value in stable and predictable electricity rates, they would not be willing to pay more for increased stability in rates.
Stakeholders stated that being able to predict their bills is important for their business operations, and that unpredictable rates were extremely frustrating from a financial planning perspective.
Operational Impacts of ICI
Participants stated that lost production resulting from electricity curtailment needs to be addressed. During peak periods, many businesses often have to shut down or shift their production to reduce their Peak Demand Factor and obtain the benefits of ICI. This can have a cost burden on companies’ production and labour expenses.
Consumers did not like having to choose between shutting down production (potentially disrupting employees or losing business and money) or continuing production and paying much higher electricity bills.
Stakeholders also felt that predicting peaks is difficult. Even if they shut down production, they may inadvertently miss a peak, lose the “ICI benefit” and therefore be out both the GA charges and costs incurred from lost productivity. Stakeholders stated that they would rather focus on their lines of business rather than electricity cost mitigation.
Edgecom Energy’s Take
It is great to see that the government is taking consumers real concerns to heart when improving the electricity sector. The stakeholder feedback approach and methodical roll out of changes to any programs makes Ontario a better place to do business.
Going forward, we expect a more predictable and slower roll out of any changes to Ontario’s hydro rate structure. This is great as it gives businesses longer term planning horizons and more predictability in how to participate in ICI and other hydro programs.
The result of the feedback so far
This ministry of energy guides the planning of hydro in the province by issuing Directives to the IESO. After the feedback on the ICI, the Government has published two mandates to the IESO: The Billing Practices Directive requires the IESO to review and report to the Minister on opportunities to improve billing and settlement processes and customer service practices for electricity market participants.
The Generation Contract Review Directive mandates the IESO to review existing generation contracts with the goal of reducing rates. The directive indicates that lowering the cost of generation is a “central theme” in the feedback received in the recent industrial electricity pricing consultation.
Moving forward, The Ministry of Energy, Northern Development and Mines has vowed to study consumer feedback to establish options for electricity consumers and improve the electricity pricing framework. The ministry aims to take an evolving approach towards broadly addressing the issues presented during the consultations.