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

Let’s dig a little deeper into what you’re actually paying for
30 November, 2021 by
What’s the Deal With Ontario’s Global Adjustment Fee?
T&T Power Group.

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

The Goal of the GA 

The global adjustment charge was added onto electricity bills in order to cover the difference between the costs required to generate power, and the revenue received in the energy market. It was also added to cover the cost of maintaining our sprawling electricity grid and 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, all part of the Ontario Energy Board (OEB). 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 (IESO), 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. 

Customers with an NAICS code commencing with the digits "31", "32", "33" or “1114” and an average monthly peak demand of at least 500kW can opt-in to Class A and participate in the Industrial Conservation Initiative (ICI). This includes most larger manufacturing, industrial and greenhouse customers. Customers with other NAICS codes can participate provided their average monthly peak demand is greater than 1MW. 

Following the ICI program’s mandatory hiatus in support of Covid-19 economic recovery, Class A customers who are participants of the base period from May 1st, 2020 to April 20, 2021 can now resume with the peak demand-reducing program, as its hiatus has officially come to an end.

Class A consumers pay a monthly fee according to how their demand for electricity contributed to the peak demand of the province in the previous year. This is determined by something called a Peak Demand Factor that gets measured during the electrical grid’s top five demand peaks each year. 

Customers who are either ineligible or have chosen not to opt-in to Class A make up the Class B customer group. Class B customers pay a fee according to however many kilowatt hours (kWh) of electricity they consume monthly, regardless of their demand at any particular moment. 

It’s Been a Rather “Aggressive” Adjustment...

The Auditor-General of Ontario reports that the charge has cost an overall of $37 billion as of the year 2015 – a number that has undoubtedly grown since. In the first three months of 2020 alone, Global Adjustment fees exceeded $3.4 billion.

Introduced in 2010, the Industrial Conservation Initiative (ICI) provides some relief for the Province’s largest energy users. The ICI incentivizes Class A customers to reduce their load on the grid during peak hours through a process commonly known as ‘Peak Shaving’ or ‘GA Busting’. By running their facilities completely on generator or battery power during the top five peaks of the year, they can eliminating their global adjustment fees entirely. 

While the ICI has provided crucial demand response to the system operators, all global adjustment fees not paid by Class A users get passed along to Class B customers. The Ontario Energy Board asserts that in 2017 the ICI shifted $1.2 billion in electricity costs to households and small businesses, thereby increasing the cost of electricity for households and small businesses by 10%. 

The price of no energy at all 

Incorporated into the fee is the cost of paying suppliers to NOT produce electricity. When electricity demand is low, the IESO is obligated to pay generators to curtail due to the possibility that an over-production could stress the system and lead to a blackout. 

Just how much non-existent energy are Ontarians paying for? Well, 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. 

Also included in the global adjustment fee are the costs of the Feed-in Tariff (FIT) program that awarded long term contracts to renewable energy generators at above market value, and conservation programs such as rebates on energy efficient appliances. 

What Does the HOEP Have to Do With It? 

Ontario’s Global Adjustment Fee changes for consumers every month according to the Hourly Ontario Energy Price (HOEP). Calculated by the IESO, the HOEP is the average of twelve market clearing prices set in each hour. 

The lower the HOEP, the higher the global adjustment fee required to cover regulated and contracted power generation costs. According to the IESO website, the HOEP in January of 2020 was charged at a fair market value of 1.48 cents/ kW hour while they paid wind producers up to around 13 cents/ kW hour – with the 11-cent difference charged to the consumer as part of global adjustment fees. 

Solar producers were paid as much as 80 cents for every kW hour for their energy production despite the 1.48 cents/kW market rate – with the 98% increase being charged to consumers.

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