Ontario’s class distinction stings ordinary hydro customers

Electricity bill-payers are subsidizing business to the tune of over $1 billion, every year

 In early 2010, then Minister of Energy Brad Duguid issued a directive to the OPA (Ontario Power Authority) instructing them to create and deliver an “industrial energy efficiency program” specifically for large transmission connected (TX) ratepayers.

That directive led to the creation of the two classes of ratepayers that now exist in Ontario.

Originally, Class A ratepayers were only the largest industrial clients (TX) whose peak hourly demand was 5 megawatts (MW) per hour, or higher.   Since the launch of the new distinction in January 2011, Class A clients have evolved further under Energy Ministers Chiarelli and Thibeault, to allow those with peak demand exceeding 500 kilowatts (kW) per hour.

That move leave the great unwashed “B” Class – you and me — to pick up the subsidy costs for  Ontario’s larger employers. The concern was (is) that those companies without subsidies might exit the province and take their jobs with them.

The algorithm that determines what a Class A customer pays is related to how successful they are at picking the top five hours of Ontario’s peak demand. The “A” class companies who fire up their own generators (usually natural gas) or close their plants/operations down and reduce demand on Ontario’s generation sources during the five highest peak-demand hours over the 12 months, will get the biggest discount.

The focus on “conservation” during those hours carries the political hope of achieving “peak” demand reduction.  The theory is the reduction should result in reduced need for new generation.*

While that goal may have been the intent, at the same time Ministers Duguid, Chiarelli and Thibeault were (are!) giving orders to contract for more and more renewable wind and solar contracts to the point where the “market price” or HOEP (Hourly Ontario Electricity price) continued a slow descent due to surplus generation.   The HOEP in May 2017 achieved a new low of $3.17 per MWh or 32/100th of 1 cent/kWh. In June 2008, it was $62.30/MWh.

Both classes of ratepayer equally pick up the full cost of the HOEP on a per kWh basis!

With the focus on the cost shift of the ratepayer classes tied to the GA (Global Adjustment), the higher the latter the greater the cost shift.   The addition of so many more businesses to the Class A group simply amplified the cross-class subsidy!

For an example of the growth in the dollar value of that shift, let’s look at some June numbers, now that IESO has released the June 2017 summary report.

The first year the B to A shift happened was in 2011: for June of that year the GA was $423.1 million and Class A ratepayers picked up $46 million of that cost. Unfortunately, IESO did not start disclosing the consumption by ratepayer class until 2015, so it is not possible to determine what percentage of the GA was being paid by Class A versus Class B ratepayers.

The June 2015 IESO webpage discloses consumption of 11.004 terawatt hours** (TWh) with Class A consumption of 2.061 TWh (23%), and GA paid by Class A ratepayers of $90.4 million. That’s 9.6% out of total GA costs of $943.1 million.  So, Class B ratepayers picked up $126.5 million to subsidize Class A ratepayers that month.  That translates to a GA cost per kWh for Class A of 4.4 cents versus 9.5 cents for Class B ratepayers. HOEP for June 2015 was $15.31/MWh!

IESO discloses total consumption of 11.509 TWh for June 2016 with Class A consumption of 2.308 TWh (20.05%). The GA for Class A was $121.6 million out of GA costs of $995.3 million. Had the GA been allocated on the 20.05% Class A consumption, they would have paid $200.4 million meaning Class B ratepayers subsidies were $78.8 million for the month.  HOEP for that month was $20.17.

June 2017 total consumption was 11.617 TWh, of which 2.482 TWh (21.36%) was for Class A ratepayers. The Class A GA totaled $137.9 million, but if they had been allocated the 21.36% of their consumption on the GA of $1.208.8 billion instead of the 11.4%, they would have paid $258.2 million.  Class B ratepayers provided a subsidy of $120.3 million.

The 5,055,000 (2015 OEB Yearbook of distributors) Class B ratepayers in the province each picked up an average of $23.80 of subsidy costs for June 2017.

If that becomes the norm, those ratepayers will pony up around $1.4 billion annually. 

Back before former Energy Minister Duguid issued his directive, the Association of Major Power Consumers of Ontario, the Ontario Chamber of Commerce, and the Canadian Federation of Independent Business were lamenting the rising costs of electricity in Ontario. Some companies left the province due to costs, so it was inevitable the Ontario Liberal government would finally hear their pleas for relief.  The result? The creation of the two rate classes.

In effect, the creation of the two rate classes and the subsidy shift from Class B to Class A ratepayers should be labeled “employment insurance” as it was needed to simply retain jobs in jeopardy because many companies were threatening to leave the province due to high uncompetitive electricity rates.

Why can’t our Energy Ministers come to the realization they should cease contracting for new, unreliable and intermittent wind and solar generation that produces power out of phase with demand?

*   The claim by the government is that by not contracting for new capital investment in generation, we ratepayers save future rate increases

**1 terawatt is equal to 1 billion kilowatts

Author: parkergallantenergyperspectivesblog

Retired international banker.

8 thoughts on “Ontario’s class distinction stings ordinary hydro customers”

  1. I can verify now that the ontario lieberal government is moving forward with their secret backdoor deals and will cost Ontarions billions upon billions of dollars…. how do I know the lieberals are moving forward with more wind and solar contracts?????
    A couple weeks ago our mayor…. a councillor ….. and a member of DDOWT went to Aylmer to the ethanol plant… MOE Glen Thibeault and the green entarage were doling out your hard earned tax dollars to the local ethonal plant…. you know… ethanol… takes 2 barrels of desiel fuel to make 1 barrel of ethanol…. not to mention how much H2O it takes to make a barrel of ethanol….
    Anywho …… the 3 corner Mr. Thibeault and ask him if he remembers them….. he does….
    The mayor proceeds to inform the MOE that the residents of Dutton Dunwich are still opposed to the project…..
    Its not a part of DD economic plan….
    Not safe for people living amongst them…
    MOECC is ignoring thousands of complaints…..
    Not safe for the wildlife….
    Water is being contaminated in Chatham Kent….
    All wind energy produced being exported….
    Ontario has a robust supply of energy….

    Glen Thibeault stood there and looked at the 3 and said………

    “Are you guys sure you’re not just a bunch of NIMBYS?????”

    “Are you guys sure you’re not just a bunch of NIMBYS?????”

    Yup….. then said he would contact up…..

    Any of you folks out there thinking that an industrial wind project isn’t coming to your area had better wake up!!!! The remaining of the wind contracts will be moving forward…..
    And if they are elected next year they will deactivate the “suspension” of the LRP2…..

    BTW…. that ethanol plant we just invested in… is one of those plants that has it’s own gas generators because they can’t afford their hydro…..


    1. You mustn’t forget Wynne’s mandate letter to Chiarelli shortly after she got a majority government. Here is an excerpt from that letter wherein she says she wants 20,000 MW of renewable energy:

      “Championing Renewable Energy
      •Continuing to lead our government’s commitment to renewable energy, with the aim of having 20,000 megawatts of renewable energy online by 2025. You will continue to monitor progress toward targets for wind, solar, bioenergy and hydroelectricity as part of Ontario energy reporting.
      •Continuing to work with the ministry’s agencies to implement a new competitive procurement process for renewable energy projects larger than 500 kilowatts that will take into account local needs and considerations.
      •Continuing to respect the contracts that have been signed with energy producers, while always ensuring that these contracts enable the delivery of sustainable, affordable energy to Ontario’s ratepayers.
      •Working with the ministry’s agencies and with municipal partners to ensure that municipalities participate meaningfully and effectively in the decision-making process for the placement of renewable energy projects, including wind and natural gas.
      •Ensuring that timelines for meeting the LTEP’s energy storage procurement targets are met and that they address the regulatory barriers that limit the ability of energy storage technologies to compete in Ontario’s electricity market. As well, you will explore opportunities to build on the pilot projects through additional procurement.”

      Liked by 1 person

  2. Scott Luft informed me that the Class A versus Class B consumption was available prior to 2015 but IESO didn’t post it on their website–you had to ask for it! As a result Scott put up a short post with a couple of charts that confirm the costs of the subsidy was over $1 billion and should go higher due to Minister Thibeault reducing the entrance to the Class to those whose peak demand reaches 500 kWh per hour. Scott’s post is here: https://morecoldair.wordpress.com/2017/07/30/the-class-a-cost-transfer/

    Liked by 1 person

  3. Either give industry a break in the price, or they move or go out of business, thereby forcing more generators being paid to sit idle at an even greater cost and burden to the rest of the users regardless of class. In July, 21% of potential wind power was paid to sit idle as opposed to 15% in July 2016 for example.


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