The description of the proposed regulation
Tgw&language=en) includes various explanations of its purpose including:
i) a strong incentive to reduce consumption at critical times;
ii) [correcting] inefficient price signals to consumers ... since electricity consumed during
off–peak periods is charged the same global adjustment rate as electricity consumed during on–peak
iii) [correcting] large volume consumers, who are not the primary drivers of costs to meet peak
demand, paying more than their fair share of costs; and
iv) more accurately reflecting large consumers’ contribution to global adjustment costs.
A modification to the current global adjustment would be fair and lead to more efficient pricing
signals, however there is a strong likelihood that the proposed modification is excessive, and can
lead to large volume customers paying much less than their fair share of the global adjustment.
Although it may be correct to say that large volume customers are not the primary drivers of costs
to meet peak demand, it is incorrect to imply that all or even a large majority of global
adjustment costs are incurred because of peak consumption. Most of the generation in Ontario is
under some form of contract or regulated pricing, including production from nuclear plants and
baseload hydroelectric plants, i.e. payments are being made to have plant available at all times,
and not just to meet the larger demand in peak periods. Moreover, a majority of wind-powered energy
- paid for under the FIT program and appearng in the Global Adjustment - will occur off-peak since
there is a tendency for more wind energy earlier in the day and during non-peak months.
As a consequence a large portion of Global adjustment, possibly approaching half, may be associated
with production during off-peak hours.
The goals of the proposed regulation (namely, the 4 points summarized above) would also be achieved
if any significant portion of the total Global Adjustment were re-allocated as proposed. For
example, allocating 50% [or a similar percentage] of the Global Adjustment to Class A based on
energy consumption, and the remainder based on consumption during the top five peak hours meets the
stated goals even better. Using this two part allocation is fairer since it better reflects
off-peak generation's contribution to Global Adjustment, and contributes to improved efficiency
since it still provides considerable incentive for Class A customers to avoid peak consumption.