In this article:
- Ontario Global Adjustment fee
- Why Ontario introduced the Global Adjustment and how does it work
- How HOEP, TOU, and RPP electricity pricing work
- The difference between Class A and Class B consumers
If you own or operate a large business that pays Hourly Ontario Energy Price (HOEP) rates for its energy needs, then chances are that at some point, you have noticed a fee for “Global Adjustment.”
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 Electricity Restructuring Act in 2004, which provided for reforms that eventually evolved into the Global Adjustment.
The Global Adjustment serves to provide producers with stable pricing for the energy they produce, while also covering conservation programs, contracted generation, and infrastructure-related electricity costs. If the Hourly Ontario Energy Price (HOEP), a spot market price that rises and falls due to changes in demand and supply, drops below contracted or regulated rates, then consumers pay a fee that makes up the difference. Conversely, when the HOEP is higher than the regulated or contracted rate, the Global Adjustment may decrease or become negative, reducing total electricity charges. Because energy prices vary over time, the Global Adjustment changes as well, offsetting the rises and falls of energy costs.
At the time of the Electricity Restructuring Act, it was assumed that the cost of energy production would remain relatively stable, so that even when the HOEP fell, the cost of the Global Adjustment to consumers would be relatively minor. However, changes in Ontario’s electricity market, including increased electricity supply, changes in demand patterns, and growth in renewable energy generation, contributed to lower market prices over time.
As a consequence, the HOEP has often remained lower than contracted and regulated electricity rates, 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 have 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 Price (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, meaning that you never see any mention of the Global Adjustment in your bill. On the other hand, HOEP rates (which is what many large consumers are charged for) do not build additional charges into the overall rate, so instead, Global Adjustment and other fees are added to their bills as separate charges.
How is the Global Adjustment calculated?
Global Adjustment charges are set by the Independent Electricity System Operator (IESO) and are 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. The Peak Demand Factor is the quantity of electricity consumed during Ontario’s top five peak demand hours over a twelve-month period.
For example, if your company used 1% of the total consumption during the peak five 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 consumers are Class B consumers. Once the Peak Demand Factor 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 hydroelectric generators, the capital investment necessary to build and maintain the energy infrastructure, and the payments towards local distribution companies’ conservation programs.
Key takeaways:
- The Global Adjustment was implemented to cover the difference between market electricity prices and contracted or regulated electricity costs in Ontario.
- Global Adjustment charges are determined by the Independent Electricity System Operator (IESO).
- Class A consumers (large operations) can reduce Global Adjustment costs by lowering electricity usage during Ontario’s peak demand hours.
- The Global Adjustment helps fund contracted electricity generation, conservation programs, and infrastructure projects.
