Global Adjustment Fees reduced during COVID-19
For many, Ontario's Global Adjustment Fee needs no introduction. 'GA' - as most people call it, accounts for more than half of a typical electricity bill and costs Ontario's commercial and industrial sector billions every year.
On Friday, May 1st, the Government of Ontario announced an emergency order had been passed "taking steps to defer a portion of Global Adjustment (GA) charges for industrial and commercial electricity consumers... for the period starting from April 2020."
This comes not long after residential electricity rates were locked at off-peak pricing 24/7.
So what does this mean for Ontario's struggling commercial and industrial base?
If you're not familiar with GA, it's a fee added to utility bills to settle the difference between market revenue and the true cost to generate and deliver electricity in Ontario. Think of it like this: you're a business owner, and at the end of each month you realize that you sold all your goods at a loss. So you send out another invoice to your customers to make up the difference. Now you or I probably couldn't get away with that, but this is the government we're talking about!
In the first three months of 2020, GA cost electricity consumers in the province more than $3.4 billion. This is in-line with a steady increase over the last few years, but it's a far cry from when the GA was first introduced a decade or so ago as a reduction on utility bills.
Global Adjustment may be a foggy, confusing beast with many components and inputs, but one general rule stands out: when provincial electricity demand is low, fixed system costs drive the GA one direction - up.
COVID-19 has caused a big drop in demand for electricity.
If it costs you $10 in gas to bring your truck to the farmer's market, your cost per tomato will be a lot higher if your truck is only half full. And yes, Farmer's markets are an essential business!
So when the government tells us that "This initiative is intended to provide companies with temporary immediate relief on their monthly electricity bills" it's important to understand that what they're really trying to do is offset the inevitable increase in Global Adjustment fees due to decreased electrical demand now that COVID-19 has most folk working from home or not working at all.
Further down the news release, they make this quite clear:
"Without this emergency order, a small industrial or commercial consumer (i.e., Class B) could have seen bills increase by 15 per cent or more. This emergency order will hold GA rates in line with pre-COVID-19 levels"
So for Class B rate payers, a discount of about 15% will be applied, but things will look... the same, for now.
But what about Class A? The really big players?
"Large industrial and commercial consumers (i.e., Class A) will receive the same percentage reduction in GA charges as Class B consumers."
Unlike Class B customers who pay their GA fee per kilowatt-hour, Class A customers pay based on something called a Peak Demand Factor (PDF). Simply put, the largest electricity customers in the Province can massively reduce their GA fee by curtailing their demand during peak hours on the electrical grid (check out my 'GA Busting 101' webinar for more on this).
If Class A customers play this game well, they can score a PDF of Zero, and pay Zero dollars toward the Global Adjustment.
But here's the tricky bit - even before the Government introduced this deferral on the GA, every dollar not paid by 'GA Busting' Class A customers gets passed to, you guessed it, Class B. So once things return to normal and these deferred GA costs have to be paid back beginning in the New Year, it seems likely that the balance will be dumped mostly onto the little guys while much of Class A dodges the bill with zeroed-out PDFs.
A deferral in Global Adjustment fees announced by the Ontario Government will only keep hydro rates where they are now for large customers, and the bill will have to be picked up starting next year by Class B and any Class A customers not actively GA Busting.
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