Class A Absurdity

My previous blog entry described the government's creation of a separate class of customer, which I put in the context of the need to get electricity pricing for industry competitive with other jurisdictions. I carefully referred to that methodology as 'absurd.' Today a review of why it is absurd, why it is bad that it is absurd, and why Ontario is worse off because absurd is tolerable in our electricity system.

The creation of the Class A customer, one with "average monthly peak demand in excess of 5 MW," and the methodology for setting their rates - " the five hours, occurring on different days, in which the greatest number of Megawatts (MW) of electricity were withdrawn by all market participants" - are set out in the Environmental Registry entry for the change to the global adjustment mechanism:  

The proposed changes to the global adjustment mechanism would provide large consumers with a strong incentive to reduce consumption at critical times, consistent with the government’s commitment to creating a culture of conservation. By reducing peak demand, the proposal is expected to avoid costly investments in new peaking generation resources and imports of electricity from jurisdictions reliant on coal-fired generation.

Absurdity #1:  There is an Environmental Registry entry for the change (greenwashing).

That stated purpose has gone unrealized in a number of ways.  The first is simply that at least one company, Sygration,  can advise customers 'with peak demand in excess of 5MW' when to turn on their generators for an hour - an action which isn't at all environmental.  It's notable that there was already a program in place to purchase demand reductions when the system required it (OPA's DR3), and the system rarely required it during the 5 hours comprising the data set for the Class A adjustment.

Absurdity 2:  Class A changes came from the political Ministry of Energy and not the Ontario Power Authority (OPA), which is responsible for both system planning and demand response programs.

The reason that our peak hours aren't necessarily hours we'd wish to have diesel generators fired up to curtail load on the grid are many, but significantly, it's the gluttonous procurement of a generation source, industrial wind, that is not expected to contribute to meeting peak demand to begin with.

Global Adjustment Period	Date	Hour	Ontario Demand	HOEP ($/MWh)	Wind (MW)	Net Export (MW)	Wind Capacity Factor
2012-13	2011-07-21	16	25,450	$98.59	557	432	40%
2012-13	2011-07-20	17	24,471	$125.41	300	539	21%
2012-13	2011-07-18	16	23,892	$40.08	103	302	7%
2012-13	2011-07-19	17	23,236	$52.82	28	801	2%
2012-13	2011-07-22	12	23,094	$39.32	75	827	5%
2011-12	2010-07-07	16	25,048	$99.82	58	179	5%
2011-12	2010-07-08	15	25,075	$76.12	72	-210	7%
2011-12	2010-08-31	16	24,876	$74.30	298	942	27%
2011-12	2010-07-06	16	24,671	$70.04	193	-160	18%
2011-12	2010-09-01	16	24,439	$57.26	580	563	53%

The brief history of actual hours used to set global adjustment rates for class A customers shows Ontarians were exporters in all 5 hours used in the most recent period, and wind capacity factors have been under 10% in over half the 10 hours currently on record.

Absurdity 3:  Capacity is not being purchased to match peak demand, but the price change is based on that premise

Unlike the change to the global adjustment mechanism enabling the Class A category, with it's lower charges, the Ontario Energy Board (OEB) utilized an open process in investigating transferring more costs to peak demand hours through altercation of the Time-of-use (TOU) pricing  structure for residential consumers.  That transparent process didn't alter the TOU pricing structure because it was clearly not justifiable to transfer all the costs for intermittent renewable sources to a few peak hours during the summer months.  The OEB fulfilled it's responsibility. in regulating "the province's electricity and natural gas sectors in the public interest." by not proceeding with changes.

Absurdity 4:  The regulator was not a participant in the development of the Class A global adjustment mechanism.

Given the need to control costs for industrial users, it is easy to ignore the transgressions of the political bodies of government (ministries) running roughshod over bodies that exist to plan, and regulate, Ontario's electricity system in as impolitic a manner as possible.  The government would follow the use of the Environmental Registry for the global adjustment with utilizing it to invite feedback on the supply mix directive.   Over a year later, the input on the supply mix directive remains unreleased, and another secretive process that masquerades as inviting advice is being held on feed-in tariffs.

If an honest attempt was made at addressing the cost of electricity for large industrial users in an intelligent, transparent fashion, the supply mix directive would have been very different.

And feed-in tariffs would probably be gone altogether.

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For a review of the impacts being experienced due to the introduction of the Class A; Aegent Energy Advisors' "Reallocation of Global Adjustment Costs: Updating for 2011 and Looking to 2014."

My views on the feed-in tariff mechanism, irrespective of particular recipients, are here and here