The proposal to do away with the term ‘Provincial Benefit’ and use only the term ‘Global
Adjustment’ is a good idea; otherwise, this initiative falls short on many fronts.
Proposal Information: The proposal contains neither quantitative information nor directional cues
to the quantitative outcomes arising from the proposal. These exclusions prevent commenters from
providing informed input.
Consultation/Disclosure: The Ministry of Energy has not appeared to have any open consultation
process. The Independent Electricity System Operator, who played a large role in this process,
apparently consulted primarily with the Association of Major Power Consumers of Ontario (AMPCO) and
the Association of Power Producers of Ontario (APPrO). The former group is a major beneficiary of
the changes while the latter group creates the huge portion of costs that are being reallocated as
part of the initiative. Tellingly, some Class A customers that will be hurt by the initiative in
the short-term and possibly beyond were not consulted and/or were unaware of the initiative.
Concerning Class B customers, it appears none were consulted and that they have not benefited from
any actual or implicit representation.
Implementation Timing: Due to the lack of process disclosure and rushed implementation and as
mentioned above, some Class A customers will be hurt by the initiative, certainly in the short
term. It is patently unfair to use a “High 5” peak hour process when most of the five highest
hours in the transitional reporting period occurred BEFORE the proposal was made public and even
known by all affected parties.
Inappropriate Cost Transfer: The proposed changes to the Global Adjustment cost allocation are
supposed to provide strong incentives to reduce consumption during peak times. However some or
possibly a large portion of the benefit realized by Class A customers will come from no action at
all but instead by virtue of having a ‘High 5 Load Factor” of greater than 69%. In the case where
action is taken and using a current annual Global Adjustment dollar amount of about $ 4 billion,
cutting 1 MW during the ‘High 5’ hours produces a benefit of $ 168,000 (based on an estimated
transitional reporting period ‘High 5’ peak average of 23,800 MW). This far exceeds the annual net
revenue requirement (assuming a net market revenue of zero) of a simple cycle gas turbine (SCGT) or
similar power plant that would otherwise provide power during those five annual hours. It also far
outweighs the $ 10,000 that would be avoided if there were no such thing as the Global Adjustment,
Ontario had a true ‘energy-only’ market and users were avoided a maximum market clearing price of $
2,000/MWh during each of those five hours.
Looking down the road to 2015, the picture gets worse. To estimate how much worse it gets one
requires an estimate of potential increases to the Global Adjustment. In the absence of
information from an agency such the Ontario Energy Board, an alternative source of information in
the public domain is the evidence filed by the Canadian Manufacturers and Exporters (CME) in Hydro
One Network’s current rate case. An inspection of that evidence reveals the fact that between now
and 2015 annual Global Adjustment costs could rise by about $ 6 billion. With total Global
Adjustment costs of $ 10 billion and a normal weather ‘High 5’ peak average of about 21,000 MW,
under this proposal the annual value of one avoided MW for five hours will rise to a staggering $
476,000. This amount is more than enough to build a SCGT power plant and pay for it in UNDER TWO
Rationale: This proposal calls for the transfer of a portion of ALL Global Adjustment costs. Later
in this submission an alternative cost re-allocation method will be presented, based on the idea
that within the Global Adjustment costs there are distinct ‘peaking’ and ‘base load’ costs that can
be separately allocated. Before getting to this however, it is worth addressing the rationale
presented by one Ministry of Energy staffer for the re-allocation in general and why ALL Global
Adjustment costs should be re-allocated as proposed. It goes like this: residential and commercial
load growth have contributed completely to peak load growth, this in turn caused the need for coal
plants, natural gas replaces coal, all renewables displace emissions from natural gas plants.
Implicit in this is that conservation and demand management (CDM) is necessary because of
residential and commercial load.
This rationale is faulty; unfortunately time and space do not allow for a response.
‘Peak’ and ‘Base Load’ Global Adjustment Costs: As mentioned above, Global Adjustments can be
partitioned into two cost groups that could be allocated separately, to ‘peak’ and ‘base load’
costs. ‘Peak’ costs would include those for solar, natural gas plants, non-utility generators
(NUGs) and CDM. ‘Base load’ costs would then include those for Ontario Power Generation, Bruce
nuclear, wind and other renewables.
Using published NUG costs, conservative (high) estimates for natural gas plant contingent support
payments and CDM costs and assuming current solar costs are relatively negligible, current annual
‘peak’ Global Adjustment costs are about $ 2 billion. Based on total Global Adjustment costs of $
4 billion, the remaining $ 2 billion in Global Adjustment costs are then ‘base load’ costs. This
means that current Global Adjustment costs are 50% ‘peak’ and 50% ‘base load’.
Looking forward to 2015 and using the CME’s Hydro One evidence, it appears that $ 2 billion or
about 1/3 of the total $ 6 billion in Global Adjustment cost increases will be ‘peak” costs, with
the remaining $ 4 billion or 2/3 being ‘base load’ costs.
In total then, by 2015 total Global Adjustment costs of $ 10 billion could be comprised of $ 4
billion (40%) in ‘peak’ costs and $ 6 billion (60%) in ‘base load’ costs.
Alternative Reallocation Method: A lack of information and time prevents the formulation of a
detailed plan however it would likely involve allocation of ‘Peak’ Global Adjustment costs using a
‘High 5’ or similar method and a uniform or postage stamp method (as is currently used), based on
total energy consumption, to allocate ‘Base Load’ costs. Global Adjustment costs would then be
paid as follows: Class A customers would pay for ‘Peak’ based on their peak demand factor and ‘Base
Load’ based on their annual energy consumption. Class B customers would pay for both ‘Peak’ and
‘Base Load’ based on their annual energy consumption.