What You Need to Know About the Global Adjustment to Help You Manage Your Energy Costs Today
Customers often ask me questions about the global adjustment (GA) and ways to manage it, so I thought it would be helpful to write a blog that answers your most frequently asked questions. Knowledge is power.
The GA is a consumption based rate in X c/kWh. So, the only way to manage your consumption is to manage your kWh, and the good news is that if you can reduce your kWh you can reduce your GA. Understanding the relationship between your consumption and the GA will help you take control of your energy costs and make a real difference to your bottom line.
How does the Global Adjustment (GA) work?
The GA accounts for the difference between the market price and the rate paid to generators and for conservation and demand management programs. And most notably, it pays for much needed electricity infrastructure renewal in Ontario. The lower rates of the past were not enough to pay for new generators, they were just paying for the ongoing operation of the generators we already had. To liken it to our daily lives – we were paying the mortgage on our house, but the family was growing and we needed a bigger house, so we had to take out a home renovation loan to build more rooms. Think of the GA as making payments for those renovations.
In addition to paying for more generators to keep the lights on, as a province we decided to eliminate coal and make a move towards more renewable generation for health and environmental concerns. In 2005, Ontario healthcare costs linked to air pollution were estimated at greater than $6 billion per year.1 Coal plants were still the province’s leading contributor to mercury pollution and the greatest cause of acid rain. But with the move away from coal, by 2014, Toronto Public Health reported that air pollution-related deaths fell by 23% and hospitalizations fell by 41% over the past decade.2 Air quality is now markedly better than when coal plants were operating. You can find out more from the Environmental Commissioner of Ontario.
It was clear that we needed to eliminate coal, but to do so, we had to build more generation to fill the gap created by eliminating the coal fired generators. Bruce Power played a big part in the off-coal program. And we did it at a cost 30% lower than the residential cost of electricity. Find out more here.
How is the GA Calculated?
Wind and solar are the simplest examples to show how the GA works and how it’s calculated. Take a wind farm, for example. In January 2016, the average market rate, or the HOEP (Hourly Ontario Energy Price), was 1.3 c/kWh and the wind farm had a contract with the government for 11 c/kWh. The balance of that contractual commitment was paid to the generator through the global adjustment of 9.7 c/kWh. At the end of each month, the IESO adds up all the 9.7 c/kWh for all the generators in the province.
In December 2015, the most recent month with available data, the GA was $999.6 million.3 The IESO took that $999.6 million and distributed it over all the kWh used in the province to come up with the rate that was charged to customers. Continuing with the December 2015 example, there was a total of about 10.5 billion kWh in the province, so the rate was about 9.5 c/kWh for the GA in December.
Finally, to get the electricity to your facility, the LDC (Local Distribution Company) adds their component for distribution and transmission. Steve Glover wrote a great post last month on energy consumption and how to save some money on your distribution charges. Read his post here.
Why are there so many different rates?
All of the information to calculate these rates is not available until mid-month so your LDC likely needs to use an estimate to match your billing cycle. For this purpose, the IESO provides a couple of estimates – creatively called the 1st estimate and the 2nd estimate – for LDCs to use to bill their customers in different billing cycles. Don’t worry if you’re billed on 1st estimate, 2nd estimate or the actuals, because they all work out to the same result in the end. And if you’re still not sure if your GA charges are correct, as part of our energy management services, we offer bill verification. Find out more here.
Why does the GA increase?
Remember the basics: the GA is the total dollars paid to generators and it’s divided by the total consumption in the province to get the rate you pay on your billing in c/kWh. Those are the most important variables to understand. The GA increases for 2 reasons – new generators keep getting added to the system and we’re conserving more energy:
- New generators keep getting added to the system. For climate change concerns and long run reliability of the provincial electricity system, we’re still installing more generators. There are very good reasons why we need to keep building generators – upcoming nuclear refurbishments are one reason, but that is a whole different subject for a different blog. In total, by the end of 2016 we will add another 3 billion kWh of generators to the system,4 which means in 2016/2017 those generators will be adding costs to the global adjustment.
- We’re conserving more energy The second reason why GA costs increase is energy conservation. Recall the equation from the first example: total GA cost/total kWh for the province. As the demand falls in the province, the denominator gets smaller, which means the product, the GA, will increase.
What can I do about the GA?
Knowledge truly is power. And now you have the knowledge about the GA to take action. You can’t contract or procure your way out of the GA, so what can you do? You know it’s a consumption based rate and you get charged X c/kWh. So, the only way to manage your consumption is to manage your kWh. If you can successfully reduce your kWh you can reduce your GA. But the first step is to understand your consumption. That’s why we developed the Bruce Power Saver – the innovative tool that helps Ontario businesses be successful by maximizing their energy efficiency. You can find out more about the Bruce Power Saver on our website.
Interested in learning how to get started with energy management? Check out our five minute webinar “Crawl, Walk Run: How to start managing energy costs.” Click below to watch now.