Definition of the Global Adjustment: confusing

February 20, 2017

Can it be that even the Minister of Energy (at the time) didn’t understand it?

The term “Global Adjustment” (GA) made its appearance on certain electricity bills on January 2011 and created confusion among those with a “retail” contract. (Previously, there had been a line item called the Provincial Benefit.)   The definition of “global” is “relating to the whole world” and “adjustment” is “alter slightly” — no wonder people are confused!

Brad Duguid was the Minister of Energy at the time of the name change which occurred the same time the Ontario Clean Energy Benefit (OCEB) began.  The OCEB followed the addition of the 8% provincial portion of the HST on hydro bills, along with start of the ICI (see below) and people were receiving bills with shocking increases.

At the same time as the name changed to GA from Provincial Benefit, the way billing occurred for ratepayers with peak capacity over 5 MW (large industrial companies) also started, providing a subsidy from other provincial ratepayers, and was called the Industrial Conservation Initiative (ICI).

In 2016 the GA represented $12.333 billion. On its own the GA, if it were a Ministry, would rank as third highest in provincial expenditures.

The Wynne government seems to have noticed this expenditure and its effect on households and businesses. CTV News on February 14, 2017 reported: “Senior officials told CTV Toronto that the plan will likely target the global adjustment fee, which fluctuates based on per-kilowatt-hour cost, and makes up approximately 85 per cent of the cost of electricity.”

The news report went on to say, “The fee was introduced in 2005, to help the province pay for new power plants as well as for investments in new energy projects. Now the government is considering spreading out payment over a longer period.”

That statement is obviously incorrect: it is Ontario’s ratepayers who pay for investments in new power plants and new energy projects. Spreading payment over a longer period is unacceptable as “amortization” (estimating the life span of the plants and projects) is a predetermined factor and unlikely to be changed.  That is why the Darlington nuclear plants are being refurbished.

Clarifying the GA

Now if one is looking for a simple explanation of what the GA is, Steve Aplin of Canadian Energy Issues defines it:  “It is simply a price recovery mechanism. It is the difference between the price the government promised any particular electricity generating company and the “market” price of electricity.”

The IESO (Independent Electricity System Operator) describes it as “This charge accounts for the differences between the market price and the rates paid to regulated and contracted generators and for conservation and demand management programs.”

On the surface the “GA”sounds simple unless you get the definition from some politicians or even some bureaucrats within the Ontario Ministry of Energy.  Following are a couple of excerpts from the “Standing Committee on Estimates, Energy Ministry on October 6, 2015”.   Then Minister Bob Chiarelli and his Deputy Minister, Mr. Serge Imbrogno were asked about the GA.

Hon. Bob Chiarelli: “—independently verified by the Ontario Energy Board, and it’s part of the all-in electricity price. Without the global adjustment, generators across Ontario would be unable to produce power. My understanding is that the global adjustment actually was initiated by the Conservative government when they were in office. I’ll turn it over—”

Mr. Serge Imbrogno: “I’ll be quick. The regulation price plan is calculated by the OEB. The OEB hires—I think they’ve had Navigant, in the past, to do the calculation. Partly it’s what’s in the global adjustment; partly it’s that they have a variance account, depending on if they collected too much or too little during the year. So it’s a calculation that the OEB makes. We don’t have that information to share with you at this point.”

Could it be that the two most senior people in the Ministry of Energy— where the GA was conceived — were unable to provide even a simple response? And the Minister himself was unaware it was his government that created the GA?

Premier thoughts

The September 2016 Speech from the Throne declared: “Since 2011, the Industrial Conservation Initiative has encouraged large electricity users — primarily large industrial customers — to take on-site steps to shift consumption away from peak periods and lower their electricity costs by up to one third. To benefit more businesses, your government will expand eligibility for the Industrial Conservation Initiative by lowering the threshold for participation and broadening participation to all sectors.”

What that means for Ontario’s households and the many small and medium sized businesses is pretty simple: the cost of subsidizing larger businesses will go up, meaning that benefit you may have received from the 8% reduction to your electricity bill will be wiped out.

Metro News Toronto, on December 19, 2016 quoted Premier Wynne about the issue of putting the GA on hydro bills. “I think being as transparent on bills as possible is a really good objective, but my challenge is greater than that,” she said in a year-end interview with The Canadian Press. “It’s not just about breaking out the number on the bill, it’s actually figuring out how to reduce that number.”

Perhaps the Premier should concentrate on getting herself and her cabinet to understand what the composition of the $12.333 billion that constitutes the Global Adjustment is before she tries to figure out how to reduce it!

NEXT: a calculation of the partial makeup of the $12.333 billion in the 2016 GA.