During its throne speech on September 15, 2016, the Ontario government announced the expansion of its Industrial Conservation Initiative (ICI), thus giving more businesses access to a program that allows customers to significantly lower their year-round electricity costs by reducing consumption from the provincial grid during times of peak demand.

Ontario’s ICI has been in place since 2011, but only certain types of industrial customers currently qualify for the program, and only if the customer has an average hourly demand for electricity in excess of three megawatts (MW).

In September 2016, the Ontario government announced that the ICI will be expanded to include all types of businesses and the current three-MW threshold for participation will be lowered. More than 300 businesses already use the ICI and the government expects that over 1,000 new businesses will be eligible for ICI after the program is expanded.

HOW CAN THE ICI REDUCE BUSINESSES’ ELECTRICITY COSTS?

Global Adjustment

The ICI program allows businesses to save on the global adjustment portion of electricity costs — a charge that has been, by far, the largest component of a typical business’ electricity costs. The global adjustment varies from month to month, depending on many factors, and in some months customers who do not qualify for the ICI are paying more than C$100 per megawatt hour (MWh) of usage (e.g. in April 2016 the global adjustment charge for non-ICI customers was C$111.32/ MWh).

Non-ICI customers are known as Class B customers, while ICI customers are known as Class A customers.

Class B customers pay the standard monthly global adjustment rate on all the electricity they consume in a month (e.g. if a business uses 1,000 MWh in a month, and the global adjustment rate is C$100 for that month, the total global adjustment line item on their bill would be C$100,000 for that month, in addition to commodity and distribution charges).

Class A customers are charged on a completely different basis. The global adjustment paid by Class A customers varies individually depending on the amount of electricity consumed from the provincial grid during the five hours in a year when the overall demand for electricity in Ontario was the highest — those five hours are known as the “coincident peaks”. If a Class A customer is on average responsible for one per cent of the provincial electricity demand during the five coincident peak hours in a year, then that customer’s global adjustment rate would be set at one per cent of all global adjustment costs throughout the following year.

Strategies to Reduce Demand During Coincident Peak Hours

The ICI program allows a customer to reduce its global adjustment costs by taking steps to reduce the amount of power it consumes from the provincial grid during the five coincident peak hours each year (e.g. if a Class A customer uses two per cent of the provincial demand for electricity most of the time and it can manage to reduce its average demand from the provincial grid to one per cent during the five coincident peak hours, it will only be charged on the basis of one per cent usage for the next year).

Class A customers employ a variety of strategies to chase the coincident peaks, and thus reduce their costs. Ontario’s Independent Electricity System Operator publishes real time usage information that allows customers to estimate when the coincident peaks are likely to occur, and Class A customers can take steps to reduce their usage of electricity withdrawn from the provincial grid during those times. Even if a customer has very little ability to reduce its overall consumption during the coincident peaks, it may still reduce its global adjustment charges by obtaining power from a source other than the provincial grid during the coincident peaks.

Businesses that currently do not qualify for the ICI program, but still use a significant amount of electricity should look at whether they may be able to reduce their electricity costs by participating in the ICI program after it is expanded.