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Changes to the Industrial Conservation Initiative offer cost reduction opportunities

October 2016

The Ontario Government recently announced initiatives to reduce electricity costs for consumers.  As part of this initiative, Ontario is proposing to expand the Industrial Conservation Initiative (ICI) program to include more than 1,000 newly eligible consumers with monthly peak demand greater than 1 MW, down from the current threshold of 3 MW.  In addition, sector-specific restrictions would be removed meaning consumers in all commercial, institutional and industrial sectors over the newly lowered threshold would now be eligible to participate.  The ICI program gives certain large consumers the chance to reduce their electricity costs, based on how they use power during peak demand periods.  Currently, there are about 300 participating consumers in ICI and expanding the program could mean about 1,000 more. 

The ICI program allows participants to be treated as Class A consumers for purposes of the Global Adjustment (GA) charge.  Class A consumers are charged GA on the basis of their share of the total system demand during the highest five peak hours of the year.  The remaining GA dollars are paid by Class B consumers.  The new Class A consumers will pay less of the GA pie since they pay their share of the system demand, but the total GA dollars does not go down as a result of the changes to the ICI program and the onus to pay the remaining lies with Class B consumers.  The residual GA dollars are recovered from Class B consumers as a volumetric charge (¢/kWh or $/MWh), determined by dividing the total residual GA dollars in the month by the total energy delivered to Class B consumers in the month.  Therefore, assuming that all new Class A participants have the flexibility to shift their electricity consumption during peak hours and avoid the GA, the unit cost for Class B consumers will likely rise because the residual GA dollars will be distributed over less volume (fewer Class B customers).

ICI may be ideal for newly eligible consumers that have fairly stable load profiles and those who have the flexibility to reduce their consumption during the highest five peak hours of the year. These consumers can achieve significant savings by shifting (or reducing) their operation from peak to off-peak hours taking advantage of the lower HOEP and not paying the GA during these periods. The potential for savings is illustrated by the average 2015 unit GA cost of approximately 4.1 ¢/kWh paid by Class A consumers and 7.9 ¢/kWh paid by Class B consumers.  If a consumer doesn’t have such operational flexibility, it may be subject to increased costs, particularly if its system demand is significantly high during the five peak hours.  Eligible consumers should consider these aspects and assess costs of operating in Class A versus Class B when deciding to opt in the ICI program.