If you own or operate a large business that pays HOEP rates for its energy needs, then chances are that at some point, you’ve noticed a fee for “Global Adjustment” in the line item breakdown.
However, most Ontario energy consumers are unaware of the Global Adjustment, and may not know that they pay for it as part of their energy bill every month. What is the global adjustment, and why are you being charged for it?
In short, the Global Adjustment was an attempt at encouraging energy production.
Back in the early 2000s, the Ontario Government faced a difficult question: How could they encourage increased energy production (especially alternative forms of energy production), despite the threat of sudden price drops that could bankrupt these producers. In response, the government passed the Energy Restructuring Act in 2004, which provided for the Provincial Benefit (which later became the Global Adjustment).
The Global Adjustment serves to provide producers with a guaranteed price for the energy they produce. If the Hourly Ontario Energy Price (HOEP)—a spot market price that rises and falls due to changes in demand and supply—drops below the guaranteed rate, then consumers pay a fee that makes up the difference. Conversely, when the HOEP is higher than the guaranteed rate, then producers credit consumers for the difference. Because energy prices vary over time, the GA changes as well, offsetting the rises and falls of energy costs.
At the time of the Energy Restructuring Act, it was assumed that cost of energy production would remain relatively stable, so that even when the HOEP fell, the cost of the GA to consumers would be relatively minor. However, the cost of energy production, and especially the cost of green energy production, has dropped precipitously in recent years. This is due to improvements in technology, falling demand for oil and natural gas, and an increased supply of energy.
As a consequence, the HOEP is consistently lower than guaranteed rate, resulting in consumers consistently being charged for the Global Adjustment.
All Ontario energy consumers pay the Global Adjustment.
Many consumers are unaware of the existence of the Global Adjustment, because they’ve never seen it on their bills. However, this is because there are multiple ways of paying for energy services. Generally speaking, people pay one of three energy rates in Ontario:
- Hourly Ontario Energy Rate (HOEP)
- Time-Of-Use (TOU)
- Regulated Price Plan (RPP)
The cost of the Global Adjustment is built into TOU and RPP rates—which is what the vast majority of homeowners and small business owners pay—which means that you never see any mention of the Global Adjustment in your bill. On the other hand, HOEP rates—which is what large consumers are charged for—does not build additional charges into the overall rate, so instead GA and other fees are added to their bills as separate charges.
How the Global Adjustment is calculated
Global Adjustment are set by the Independent Electricity System Operator (IESO) and is the difference between the total payments and market revenues that all electricity consumers are expected to pay. Class A consumers, or companies in the Industrial Conservation Initiative (ICI), pay a Global Adjustment rate based on their Peak Demand Factor (PDF). The PDF is the quantity of electricity consumed during the peak 5 hours over a 12-month period.
For example, if your company used 1% of the total consumption during the peak 5 hours, it will be charged 1% of the total global adjustment charged on that cycle. A company can lower their global adjustment charge by reducing the amount of electricity consumed during peak hours.
The majority of electricity are Class B consumers. Once the PDF and Global Adjustment of Class A consumers have been determined, the remainder will become the Class B Global Adjustment. The monthly global adjustment rates for this class are estimated in two stages to accommodate the various billing cycles.
The average global adjustment costs in 2022 were 53.59 $/MWh or 5.34 ¢/kWh; and in 2021 were 73.49 $/MWh or 7.34 ¢/kWh, based on the IESO Global Adjustment Rates and Global Adjustment Rates for Class-B.
What is in the Ontario Global Adjustment fee?
The Global Adjustment rate for Class B consumers covers the difference between HOEP and the regulated rates from Ontario’s nuclear and hydroelectricity generators, the capital investment necessary to build and maintain the energy infrastructure, and the payments towards local distribution companies’ conservation program.
