New hydro rates for business: Ontario government consulting on potential changes to regulation

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The Ontario Ministry of Energy, Northern Development and Mines has launched a consultation focused on helping businesses. Getting input is essential for the design and effectiveness of current industrial electricity pricing programs. The Ministry has extended the deadline for submissions until June 14.

If there is an element of the current approach to industrial pricing that is particularly challenging, and a specific change that you feel would be beneficial, now is your chance to communicate directly with the decision makers.

The consultation questions reflect an appreciation for the complex tapestry of electricity rate structures for business and industrial customers in Ontario. Depending how much electricity you use, where in the province you are served and by whom, and how much you’re willing or able to be flexible in terms of when you use energy, you might be paying as much as 20 cents per kWh to operate, or as little as 2 cents per kWh or less. It pays to understand what kind of customer you are, and what options you have, as you consider the government’s questions.

The main question for most customers is whether the current Industrial Conservation Initiative remains a valid approach for allocating costs bundled as part of the Global Adjustment, and, if it is valid, which customers should be eligible to participate. The more flexible you are, the more you save as a Class A customer. The less flexible you are and the more prone you are to using power on peak at the same time as other peak power users and driving up system costs, the more, it would seem fair, you pay.

The policy intent of the Global Adjustment Class A cost allocation methodology is to create an incentive that rewards reductions in demand during the few most critical hours of system peak, and that reduces costs—for capacity, energy and losses associated with peak loads—for all customers.

Class A rates favour customers with flatter loads, more continuous processes and energy requirements, and with the flexibility or technology to reduce demand during peak times. Class B rates favour only the least efficient consumers, by allocating costs they cause on the system to all other customers. Class B rates provide no reward for efficient demand management, no incentive for flexible operations and only distort economic signals for efficient consumption behaviour and effective conservation strategies.

Class A customers—those in the know—will be expressing their views to the Ministry, but the important audience is the Class B customer. Research and experience in Ontario prove the challenges of engaging small and mid-size industrial and commercial business managers. For most, energy costs are a small fraction and, for most, a small worry. Those for whom it’s a visible source of pain will tend to be less passive, and of those, some will become active. Most customers will remain passive.

Passivity does not mean, however, that Class B customers should be disinterested or disenfranchised. More efficiently designed rates will reward customer behaviours that are more efficient for the customer and for the system overall, even if the customer herself might be completely unaware. Access to fair rates should be the default. More efficient rates will create economic signals for investment, directing capital and operating attention where it creates most value. This is better for everybody.

There are multiple considerations in designing rates. Efficiency has to be number one, but there are other important policy outcomes. Rates that are efficient in the short-run are not sufficient to drive appropriate long-run investment decisions. The Class A methodology has served to retain a number of important industry sectors, facilities, employees and communities, but it has not worked for every sector. Large continuous process facilities with long-run capital cycles need substantially more certainty, or put another way, less forward policy and regulatory risk, than the current policy framework and cost allocation methodology can provide.

The Ministry asks about customers’ preferences for dynamic rates or flat rates, that potentially cost more but are more stable and predictable. Some people are risk averse and opt for long-term mortgages, but the short-run mortgage always is the lowest interest rate. The same holds in the electricity sector. The Ontario energy market already provides a role for retailers and marketers and there are companies in Ontario who will help you hedge your exposure if that is what you want. You will tend to pay a premium.

There are questions about market renewal and regulatory modernization that are important macro-scale policy concepts, but they are future-oriented, ambiguous in timing and outcome, and for most small and mid-size customers insufficiently material and unduly complicated to reward further investigation.

The last question is to you. Look at your bill. Compare it month-over-month and year-by-year. Ask yourself these questions. How much energy are you using? How much is it costing you per month, per kWh and per kW/kVA? Look at the big cost items on the bill. That’s what you should be focusing on.

If you’re Class A you have options. If you’re Class B you really don’t have much choice, but you do have a voice.

If you have questions, check out our free online cost savings assessment tool designed to estimate indicative benefits for customers from switching from Class B to Class A.

Powerconsumer also offers peak alert services.

Contact us for a free trial.

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Ontario Ministry of Energy, Northern Development and Mines Consultation Questions

  1. What impact has the Industrial Conservation Initiative (ICI) had on your operations and business competitiveness? How easy or difficult is it for you to lower consumption in potential peak hours in order to reduce Global Adjustment (GA) charges? What changes, if any, could be made to ICI to improve fairness, industrial competitiveness or reduce red tape?
  2. What are your thoughts on a rate mitigation program that is based on electricity intensity, trade exposure, or both?
  3. Given the choice, would you prefer a more dynamic pricing structure which allows for lower rates in return for responding to price signals or a flat rate structure that potentially costs more, but is more stable and predictable?
  4. Some jurisdictions have offered targeted electricity programs, that use a competitive evaluation process, to achieve economic development objectives. In some jurisdictions, evaluations are based on elements such as job commitments and investments. From your perspective would such a program be beneficial in Ontario?
  5. The Northern Industrial Electricity Rate (NIER) program currently provides a rebate to eligible electricity consumers. What changes, if any, could be made to NIER to improve fairness and industrial competitiveness?
  6. Electricity retailers currently have a limited role in Ontario’s electricity market. If the option were available, would your company consider entering into an all-in commodity contract with a retailer, even if it involved a risk premium?
  7. What are your views regarding the proposed updates to the electricity market or procurement mechanisms being proposed by the Independent Electricity System Operator?
  8. Beyond the commodity portion of the electricity bill, is there anything that you would like to see changed in terms of delivery and regulatory cost recovery or bill presentment?
  9. Are there any other thoughts that you would like to provide with respect to industrial electricity price mitigation?

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