Is Switching to Class A the Right Choice for Your Business?
Recent announcements by the Government of Ontario will affect how electricity costs are charged to small and mid-sized industrial and commercial enterprises in Ontario. What do these customers need to know to understand how these changes will affect them?
With the rising costs of electricity, and the changes that have been going on in the energy sector, it is important for businesses to know about the potential saving options available to them. One potential for savings is to register as a Class A consumer under the Industrial Conservation Initiative (ICI).
Ontario’s Independent Energy System Operator settles energy market costs for several classes of customers, wholesale market participants, distributors and transmission companies.
Energy customers are also classified for specific rate structures by Regulation of the Government of Ontario, dealing with how market costs generally are to be treated, and settled, by the IESO.
Of interest to the current discussion are consumers eligible for ‘Class A’ allocation of generation costs, whether they are Class B, or low volume customers eligible for special allocations.
Class A Consumer
1. Commercial and institutional customers
a) Average monthly peak demand 1000 kilowatts or greater per site
2. Industrial customers
a) NAICS 31, 32, 33
b) Average monthly peak demand 500 kilowatts or greater per site
Peak Demand Factor
1. The average of the customer’s demand during the highest hour of the five highest peak days in a 12-month period.
Class B consists of all other energy consumers in the province. Low-volume customers are eligible for ‘regulated price plan’ rates.
The GA is included on hydro bills in Ontario to cover fixed and capital costs of electricity generation.
There are two different calculations for the GA charge; one for Class A and one for Class B. Class A consumers’ GA is determined by their energy usages during the 5 highest system peaks of the previous base period (May 1 to April 30). During these 5 system peaks, the percent of Ontario’s total energy usage that the company uses determines the percent of the total GA that the company pays each month. The remaining GA not paid by Class A consumers is split between all Class B consumers based on their total kW usage each month. For a more detailed explanation of the GA please refer to our previous article, Global Adjustment Changes and How it can Help Businesses.
Consumers who are eligible to sign up for the Class A category will be notified by their Local Distribution Company (LDC) before May 31, 2019. Each consumer who has an average monthly peak demand above 1 MW but less than 5 MW must individually opt into the Class A category. For all customers the last day to opt into the program for this year is June 15. The information about the next steps for the application will be provided by the individual LDCs as they each have a different process. For those who do confirm Class A status, the effects will not be included on your bill until the next adjustment period which runs from July 1, 2019 to June 30, 2020. Those with an hourly monthly peak demand above 5 MW are automatically included in the Class A category unless they individually opt out.
The chart above shows the time frames used for Class A consumers in the measurement and pay periods for their GA. The blue “Base” boxes represent the base periods. Base periods are the time during which a business’s energy consumption is being measured in order to determine the percent of GA they will pay. The red “Adjustment” boxes represent the adjustment periods. Adjustment periods are the time during which the business pays the GA determined during the previous corresponding base period. The numbers are included to show which base and adjustment periods correspond with one another. The “Base 1” does not represent the first ever base period as this program has been running since before 2015.
Should You Join Class A?
Having the choice to opt into the Class A consumer category creates an important decision for businesses. If the company had low energy usage during the 5 peak hours of the last base period the company can potentially save a lot of money by opting in. However, if the company’s energy usage was high during the top 5 peak hours, it can actually increase the portion of GA that they pay. Being able to calculate the difference is a huge asset to those who are considering the switch.
So how do you calculate if you should be a Class A consumer? To begin, you need to know the 5 peak hours of consumption in Ontario. The IESO has the system peak hours to date from the current base period published on their website: they can be found under the “Peak Tracker” heading. There are two different numbers listed beside each date: one is the Ontario Demand (MW) the other is the AQEW (MW). The Ontario Demand is the number that was published in real time. The AQEW (Allocated Quantity of Energy Withdrawn) is the number that is verified by the IESO and published 20 business days after the original peak. The AQEW is the number that is important to you because it is the number that you LDC will be using to calculate your GA.
By plugging in your own organization’s data into the following 7 step formula, you can determine if joining Class A is a good option for your organization. Another option is to use Powerconsumer’s free calculator tool.
We have included the actual coincidental peaks of the 2016-2017 base period as of March 27, 2017 in the following chart.