Industrial Conservation Initiative program cost others $1.27 billion in past 12 months

Ontario’s Industrial Conservation Initiative program, which rewards large “Class A” consumers for lower consumption during periods of high demand from the system operator’s supplier, cost others $1.27 billion in past 12 months. I won’t review the history of the program today as I did 3 years ago in “Stakeholders” destroying the viability of Ontario’s electricity market, but I will note that since last March a Variance Account under the [un]Fair Hydro Plan – which shifts costs from ratepayers today to rubes sometime in the future – a debt of $1.2 billion accumulated with April’s total still to be posted.

Today the system operator (IESO) posted the top 5 peak hours for the adjustment period that ended April 30th, 2018 (it started May 1, 2017) – and Monday the IESO posted the final Global Adjustment figures for April. This post will contain:

  1. a quick demonstration of cost shift calculations,
  2. review of the ICI value proposition, and
  3. another jab at the province’s time-of-use (TOU) billing experiment performed on residential consumers.

For the 12 months of the ICI adjustment period the cost shift can be calculated as the difference between what Class A (larger consumers and ICI participants) did pay and what they would have paid were there not a separate class:

 

  • The total global adjustment charge for the period was $11.821 billion dollars, and total consumption (both classes) 138.194 terawatt-hours (million MWh), so the average global adjustment rate was $85.54/MWh.
  • Class A consumers were allocated a $1.8529 billion of the global adjustment total on 36.503 TWh of consumption which works out to an average global adjustment rate of $50.76/MWh
  • The $35.78/MWh difference in that rate, on 36.503 million MWh, means $1.27 billion was avoided

The justification for this cost transfer from the ICI program, and the excuse to have conservation it its name, is reducing consumption at peak eliminates the need to build generators for a few high demand hours a year. In an ICI backgrounder published last month the IESO claims, “In 2017, the ICI is estimated to have reduced peak demand by over 1,400 MW.”

1,400MW of capacity cost non-ICI consumers $1.27 billion dollars. That’s a capacity cost of $907 million per megawatt – which is astronomical.

It might be worth pointing out the 5 peak hours aren’t the highest 5 daily consumption hours in Ontario, but the 5 highest for demand from the IESO’s system. The difference is due to embedded generation which is now dominated by solar – of which there’s over 2,000 megawatts of capacity embedded in distribution networks. The embedded generators, when producing, reduce demand for supply from the IESO. That makes sense from from the IESO perspective, but there’s an element of lunacy from the small consumer’s perspective in that few “high 5” ICI hours fall during the hours the masses are paying “on-peak” time-of-use charges under the province’s regulated price plan (RPP).

high fives

Only one of the past adjustment period’s high 5 hours fell during an RPP on-peak rate period. It was in the winter, and at the time it was quite windy – so Ontario had lots of supply.  Good thing too, because some of the southern neighbours were struggling for generation at the time, so during the period’s only on-peak high 5 ICI hour Ontario was a net exporter, sending over 2800 megawatts south.

The neighbours didn’t pay the $900,000 capacity charge – Class B ratepayers would have except for the [un]Fair Hydro Plan.

Who knows who will end up paying it?

Who cares?

 

 

data for this post is in this spreadsheet
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