Ontario is a Bottomless Pit for Class B Ratepayers as the ICI Demonstrates

The Ford Government announced, via a press release, on June 26, 2020 that they were freezing the rates for Class A ratepayers for two years.  That means they will not be required to reduce consumption during peak hours! In Ontario those “peak hours” generally occur during the hot summer months.  Greg Rickford, Minister of Energy, Northern Development and Mines stated: “Today’s announcement will allow large industrial employers to focus on getting their operations up and running and employees back to work, instead of adjusting operations in response to peak electricity demand hours.”

The purpose of the freeze had to do with the fact that Ontario’s electricity consumption had fallen due to the pandemic; meaning our surplus capacity was exacerbated driving down the HOEP (market price), causing hydro spillage, wind curtailment, nuclear steam-off and increasing exports of surplus electricity.  All of the foregoing adds to the bill Class B ratepayers and taxpayers would be required to pay for, due to the reprehensible design of the Industrial Conservation Initiative (ICI) by the former government and the GEA which brought us intermittent and unreliable wind and solar generation backed-up with gas plants.

Despite the obvious benefit of the freeze at this time for both Class A and Class B ratepayers it proved upsetting to Mark Winfield, a Professor of Environmental Studies at York University.  York is the bastion of many eco-warriors, intent on destroying the economy in their push to rid us of any use of fossil fuels.  Winfield holds a Doctorate in Philosophy which he presumably believes qualifies him as a scientist capable of opining on “climate change” and any events emanating from the Energy Ministry!  It is worth noting Merriam Webster’s first definition of philosophy is: “All learning exclusive of technical precepts and practical arts” yet Winfield, for some reason, thinks his doctorate includes those “technical precepts”!

Winfield’s article is labelled “Is Canada’s Ontario an “Innovation Wasteland” for Energy? ” and suggests among other claims; the ICI introduction and “peak demand” reduction resulted in the creation of “the leading edge of innovation in electricity systems around the world”.  While it would be relatively easy to debunk the foregoing and other claims in Winfield’s article the fact is; the creation of the Global Adjustment linked to the ICI program drove up Class B electricity rates in Ontario far in excess of inflation and had a negative effect on both residential households and small/medium sized businesses.  The latter is where 60% of private sector jobs reside and a “technical precept” ignored by Winfield! It is ironic he also ignores the fact York University several years ago installed a 5 MW gas fired turbine and a few years later added another 5 MW gas fired turbine aimed at reducing their electricity consumption and its associated costs.

I will not go to the trouble of further debunking Winfield’s article but must confess I was never a fan of the ICI program.  It is far too simple in concept in that you are only required to pick five (5) “peak hours” out of the 8,760 hours in a year and even if you are close, it will result in significant savings compared to other ratepayers.  If you are one of those Class A ratepayers, simply firing up a gas generator allows you to exit the grid or reduce your demand and signal your electricity distributor you are conserving.  The result is a significant decrease in GA costs reducing their electricity bill for the 8760 hours of the following year.  The savings in costs are allocated to Class B ratepayers.

If Winfield had bothered to do some research he might have discovered the December 2018 Market Surveillance Panel’s Report issued by the OEB (Ontario Energy Board) titled: “The industrial Conservation initiative: Evaluating its Impact and Potential Alternative Approaches”.  Some of the “Innovation Wasteland” he may have discovered in the report was the following:

Information on exactly how much on-site generation or storage has been built in response to the ICI is not readily available. Nevertheless, there is some evidence that suggests such investments are being made. In 2017 and 2018, three Class A consumers made a combined 33 applications to the Ministry of Environment and Climate Change (as it then was) to build a total of 44 MW of natural gas-fired capacity. One of the express purposes for which this new on-site capacity is being built is “peak shaving”, which in turn suggests the purpose is, at least in part, to reduce Global Adjustment costs through participation in the ICI.” At that point Winfield may have understood “natural gas-fired capacity” is fossil fuel based and for decades has been used to generate electricity.

Winfield may also have come across some other “technical precepts” such as: “Ontario currently finds itself in surplus supply conditions, yet the incentive to reduce consumption under the ICI has never been stronger. Perversely, the incentive for Class A consumers to reduce peak demand—by investing in on-site generation capacity or otherwise—is strongest when there is ample supply and wholesale market electricity prices are low.”  What that infers is; the lower the HOEP price the larger the subsidy for Class A ratepayers.

The report also noted: “The Panel estimates that payments to peaking resources make up less than 20% of the costs recovered through the Global Adjustment. The remaining 80% of fixed capacity costs are for non-peaking resources, which Class A consumers use and benefit from during most hours of the year.” To clarify, the benefit for Class A consumers picking those “peak hours” has only a 20% impact in reducing capacity costs but they benefit for the full year penalizing Class B consumers for that other 80% benefit.

Another rather shocking benefit that occurred in 2017 is described in the report as follows: “During the five peak demand hours in 2017, five directly-connected Class A consumers consumed no electricity, meaning they pay no Global Adjustment during the following 12-month period.”  In 2017 the HOEP was 1.58 cents/kWh meaning those five Class A consumers paid that price for their consumption throughout 2018 whereas all Class B consumers paid 11.55 cents/kWh (HOEP of 1.58 cents/kWh + the GA of 9.97 cents/kWh = 11.55 cents/kWh) or 7.3 times more per kilowatt hour!  A clear demonstration there is something inherently wrong with the design of the ICI.

The panel report discloses some history since the advent of the ICI came into force in September 2011 when Brad Duguid was the Ontario Minister of Energy and it brings reality to how much Class B consumers have paid to subsidize Class A consumers.  “In 2011, approximately $300 million in Global Adjustment costs were shifted from Class A to Class B consumers as a result of participation in the ICI, representing approximately 3.5% of the total electricity supply costs for Class B consumers that year. In 2017, the costs shifted had increased to $1.2 billion, representing approximately 10% of the total electricity supply costs for Class B consumers. Since 2011, participation in the ICI has shifted a total of $4.91 billion in Global Adjustment costs from Class A to Class B consumers.”

What the foregoing demonstrates is the ICI is poorly designed and should be scrapped. Minister Rickford should ensure the replacement plan treats all ratepayers fairly. It might also be time to Defund the Environmental Studies Program at York University as they have trouble with actual facts related to Ontario’s electricity sector!

Author: parkergallantenergyperspectivesblog

Retired international banker.

4 thoughts on “Ontario is a Bottomless Pit for Class B Ratepayers as the ICI Demonstrates”

  1. Screw that! I am on Disability and spend all day at home. These wind Companies are going to be surprised when The Myth Is Canada Folks and we the People make legal Constitutions , and we do, all contracts with the current governments are null and void, and we will pay those wind companies no more than we pay nuclear hydro production. And this is going to happen sooner than you think and it is all legal

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