Changes to how Global Adjustment costs are allocated
Prior to January 1, 2011, all Global Adjustment (GA) costs were allocated to consumers on a "postage-stamp" or energy-consumed basis. Total costs in the month were spread across all energy consumed in the province for the month, resulting in a uniform unit rate per MWh that was applied to all consumption by all consumers.
Starting January 1, 2011, GA costs were grouped into two classes, with each class allocated a share of the GA costs. Class A consumers - those with average monthly demands over 5 MW - pay their share of the GA based on their average energy consumption during the five highest load hours that occur in Ontario each year. Of note is that no more than one hour per day can fall into this group of so-called “High 5” hours. Each Class A consumer’s share of total GA costs each month is their "Peak Demand Factor" – the quotient of the consumer’s average demand during the High 5 hours divided by the average provincial demand during those same hours.
Many Class A consumers don’t have much flexible load to speak of and so their Class A benefit is derived from having a naturally favourable load factor. Other Class A consumers benefit greatly from flexible load, with each incremental megawatt of their average avoided High 5 load providing about $300,000 per year of benefit. This group of Class A consumers is therefore quite interested in precisely when High 5 hours occur.
Proxy for High 5 demand, relationship to temperature
The actual definition of the number that makes up each High 5 value is complicated, but the Ontario market term “Ontario Demand” is a reasonable proxy. Class A consumers looking to predict High 5 hours can then look at Ontario Demand and other relationships that may predict this value. Since Ontario’s electricity demand is highest in summer, a natural avenue of exploration is temperature. Back in 2008, Ontario’s Independent Electricity System Operator estimated that at temperatures above 30 C, a 1 degree C increase in temperature caused the daily Ontario peak demand to rise by 450 MW. Analysis of Ontario Demand daily peaks and peak daily temperatures (at Toronto Pearson Airport) for weekdays during the summers (June – September) of 2010 – 2012 also demonstrate the relationship between temperature and load, with correlations ranging from 0.88 to 0.90.
The table below shows the High 5 hours for each of 2010, 2011 and 2012, along with the daily maximum temperature (at Toronto Pearson Airport) and how each of these peak day temperatures ranked in each year.
Data for the three years show high agreement between days on which High 5 hours occurred and peak daily temperatures. In 2012, all High 5 hours occurred on the days with the top five daily peak temperatures. In 2011, High 5 hours occurred within a set of days with the seven highest peak daily temperatures. The 2011 data show a slightly weaker relationship but still three of the High 5 hours occurred within a set of days with the four highest peak daily temperatures.
If we consider the July 19, 2011 High 5 hour and its peak daily temperature of 29.5 C to be an outlier, the pattern suggests that days with a peak temperature of 32 C or more are likely candidates to be High 5 days. For 2010 – 2012, there was an average of 11.3 days each year when peak temperatures were 32 C or more and an average of 16.3 days each year when peak temperatures were 30 C or more.
Which hours of the day?
So, it seems temperature is pretty important. Turning to the question of which hour of the day is likely to be a High 5 hour, the next table shows the distribution of the 15 High 5 hours we’ve had during 2010 – 2012. Note that “HE” refers to “hour ending”, based on a 24-hour clock and Eastern Standard Time.
The sample size is not that large but our view is that the HE12 High 5 hour was an outlier and that High 5 hours are most likely to occur during the 4-hour window of HEs 15 – 17 or 2 pm to 6 pm EDT. If hot temperatures drive power demand, it makes sense that peak demand will be reached in the afternoon after several hours of daylight sun.
Putting this to use
GA Class A consumers or candidates with truly flexible load will want to hover over their “off” switch during potential High 5 hours, ready to reduce load. A commonly held belief is that in order to minimize consumption during these hours, such consumers need to cut load in anywhere from 50 to 100 hours each year to make sure they are off during the High 5.
If one were to use a temperature threshold of 32 C and the 4-hour range noted above, that would make for about 45 hours per year when one might have to cut load. Using a more conservative temperature threshold of 30 C and the same 4-hour range, one might have to cut load in about 65 hours.
GA Class A eligibility, economics
To learn more about whether or not you qualify for Class A and whether or not it makes sense to choose to be treated as a Class A consumer, you may contact Bruce Sharp at Aegent Energy Advisors (firstname.lastname@example.org or 416.622.9449 X112).
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