Is Switching to Class A the Right Choice for Your Business?

Recent announcements by the Government of Ontario will affect how electricity costs are charged to small and mid-sized industrial and commercial enterprises in Ontario. What do these customers need to know to understand how these changes will affect them?

With the rising costs of electricity, and the changes that have been going on in the energy sector, it is important for businesses to know about the potential saving options available to them. One potential for savings is to register as a Class A consumer under the Industrial Conservation Initiative (ICI).

Ontario’s Independent Energy System Operator settles energy market costs for several classes of customers, wholesale market participants, distributors and transmission companies.

Energy customers are also classified for specific rate structures by Regulation of the Government of Ontario, dealing with how market costs generally are to be treated, and settled, by the IESO.

Of interest to the current discussion are consumers eligible for ‘Class A’ allocation of generation costs, whether they are Class B, or low volume customers eligible for special allocations.

Class A Consumer
1. Commercial and institutional customers
a) Average monthly peak demand 1000 kilowatts or greater per site
2. Industrial customers
a) NAICS 31, 32, 33
b) Average monthly peak demand 500 kilowatts or greater per site

Peak Demand Factor
1. The average of the customer’s demand during the highest hour of the five highest peak days in a 12-month period.

Class B consists of all other energy consumers in the province. Low-volume customers are eligible for ‘regulated price plan’ rates.

The GA is included on hydro bills in Ontario to cover fixed and capital costs of electricity generation.

There are two different calculations for the GA charge; one for Class A and one for Class B. Class A consumers’ GA is determined by their energy usages during the 5 highest system peaks of the previous base period (May 1 to April 30). During these 5 system peaks, the percent of Ontario’s total energy usage that the company uses determines the percent of the total GA that the company pays each month. The remaining GA not paid by Class A consumers is split between all Class B consumers based on their total kW usage each month. For a more detailed explanation of the GA please refer to our previous article, Global Adjustment Changes and How it can Help Businesses.

Consumers who are eligible to sign up for the Class A category will be notified by their Local Distribution Company (LDC) before May 31, 2019. Each consumer who has an average monthly peak demand above 1 MW but less than 5 MW must individually opt into the Class A category. For all customers the last day to opt into the program for this year is June 15. The information about the next steps for the application will be provided by the individual LDCs as they each have a different process. For those who do confirm Class A status, the effects will not be included on your bill until the next adjustment period which runs from July 1, 2019 to June 30, 2020. Those with an hourly monthly peak demand above 5 MW are automatically included in the Class A category unless they individually opt out.

The chart above shows the time frames used for Class A consumers in the measurement and pay periods for their GA. The blue “Base” boxes represent the base periods. Base periods are the time during which a business’s energy consumption is being measured in order to determine the percent of GA they will pay. The red “Adjustment” boxes represent the adjustment periods. Adjustment periods are the time during which the business pays the GA determined during the previous corresponding base period. The numbers are included to show which base and adjustment periods correspond with one another. The “Base 1” does not represent the first ever base period as this program has been running since before 2015.

Should You Join Class A?

Having the choice to opt into the Class A consumer category creates an important decision for businesses. If the company had low energy usage during the 5 peak hours of the last base period the company can potentially save a lot of money by opting in. However, if the company’s energy usage was high during the top 5 peak hours, it can actually increase the portion of GA that they pay. Being able to calculate the difference is a huge asset to those who are considering the switch.

So how do you calculate if you should be a Class A consumer? To begin, you need to know the 5 peak hours of consumption in Ontario. The IESO has the system peak hours to date from the current base period published on their website: they can be found under the “Peak Tracker” heading. There are two different numbers listed beside each date: one is the Ontario Demand (MW) the other is the AQEW (MW). The Ontario Demand is the number that was published in real time. The AQEW (Allocated Quantity of Energy Withdrawn) is the number that is verified by the IESO and published 20 business days after the original peak. The AQEW is the number that is important to you because it is the number that you LDC will be using to calculate your GA.

By plugging in your own organization’s data into the following 7 step formula, you can determine if joining Class A is a good option for your organization. Another option is to use Powerconsumer’s free calculator tool.

We have included the actual coincidental peaks of the 2016-2017 base period as of March 27, 2017 in the following chart.

Step 1

Insert how much electricity your company consumed during each peak demand hour in the corresponding box under “customer usage” in the chart above.  Be sure to put these numbers in MW not kW.

Example:

Step 2

Add the five “customer usage” numbers together.

Example:

Step 3

Divide the sum customer demand by the sum of the 5 AQEW to find the Peak Demand Factor. The number you get will be a very low number because it is the percent of all of Ontario’s electricity that your organization used at one location. By moving the decimal place to the left by 2 or multiplying the answer by 100 you will get a percent.

Example:

Step 4

Use historic numbers to judge how much GA you would have paid in the previous period.

The GA is calculated on a monthly basis. This means that each month for a Class A customer the total Ontario GA for that month is multiplied by the Peak Demand Factor to determine how much they will pay. One way to judge if signing up to Class A would save you money is to use last year’s GA numbers and compare the rate you would pay as a Class A to what you paid as a Class B consumer. The following chart lists all of the total Ontario GA costs for the last 8 months. This information and future updated versions can be found on the IESO website here.

By multiplying the Peak Demand Factor you calculated for the next adjustment period by the GA for the adjustment period we are currently in you can estimate if Class A would be beneficial to your company or not. Multiply each total GA amount by your Peak Demand Factor.

Example:

Step 5

Turn this into a ¢/kWh measurement.

Now turn each of these numbers into a ¢/kWh measurement by dividing each one by the total amount of kW your business used during the corresponding months. This can be done by multiplying each Class A assumed cost by 100 so that it is written as a number in ¢ instead of dollars. Then divide this number by the total amount of electricity in kW that the facility used in the month. This will show an estimate of how much you would have paid in Global Adjustment if you were registered for Class A in the previous year without changing consumption patterns.

Example:

Step 6

Compare the ¢/kWh price you have calculated to the ¢/kWh price actually charged during each of these months for Class B consumers. The IESO also has this information on their website. We have listed the IESO numbers in the chart below.

By plugging your numbers into the chart above it is easy to see which ones are higher and which ones are lower.

Example:

Please keep in mind that the last part of this process is just an estimation to compare potential cost differences between Class A and Class B consumption. If you sign up for Class A now it will not be reflected on your bill until the next adjustment period running from July 1, 2017 to June 30, 2018.
Step 7

Choose Class A or Class B.

If you find that your Class A assumed costs are higher than the GA cost per kWh then you should remain a Class B consumer for the upcoming adjustment period. However, if your assumed costs for Class A are lower than the cost per kWh charged to Class B consumers then it would be beneficial to join the Class A category. In the example given it would be beneficial for the company to join Class A.

If your Class A assumption calculations and Class B costs are almost identical it will probably benefit your company to join Class A as the GA charges have been steadily increasing yearly.

If, by these calculations, you determine it is not beneficial for your business to sign up for Class A, it is still important to try to reduce your energy consumption during system peaks. If you shed load on peak over the next base period (May 2019 – April 2020) you may find it beneficial to opt in next year. The effects of this will not be seen on your bill until the adjustment period starting in June of 2020, but it will benefit your business in the long run.

What will Class A mean for me?

In order to reduce your load as a Class A consumer for next adjustment period or if you want to opt in next year, it is important to know when to lower your energy consumption. Trying to predict when peak hours are coming is difficult. There are trusted service providers, such as Powerconsumer Inc., who are able to predict these peaks for you and warn you of upcoming market spikes.

If you would like to go beyond this calculation and discuss further energy saving options, or if you are having trouble with this calculation, the team at Powerconsumer is offering a free bill calculator to do the heaving lifting for you. If you have other questions, we are happy to assist you or discuss our free trial. We can be contacted at info@powerconsumer.com.