INTRODUCTION

The Ministry of Energy (Ministry) has proposed a regulation (the Proposed Regulation) under the Electricity Act, 1998 to significantly change the global adjustment cost recovery mechanism (Global Adjustment). The Proposed Regulation can be located at Ontario Environmental Registry ref 011-0973. The last date for public comments on the Proposed Regulation is October 11, 2010. If adopted, the Proposed Regulation is to take effect January 1, 2011.

BACKGROUND

The Global Adjustment was initiated in 2005. It was structured as a mechanism to ensure revenue for new generators by allowing for the recovery of certain electricity and system costs from all Ontario electricity consumers. The electricity and system costs contemplated by the Global Adjustment were not otherwise recoverable from wholesale market revenues. Currently, the Global Adjustment is charged or credited, on a flat rate basis, to all electricity consumers regardless of when the electricity was consumed.

SUMMARY OF AMENDMENTS

The stated objective of the Proposed Regulation is to promote conservation and demand management among large consumers. The Ministry suggests that this objective can be achieved by changing the method of determining Global Adjustment for large consumers on the basis of consumption during peak periods.

The proposed change includes establishing two separate classes of electricity consumers: Class A and Class B consumers. Class A consumers must have an average monthly peak demand in excess of 5 Megawatts (MW) over specified periods and must be registered market participants with the Independent Electricity System Operator (IESO) or a customer of a distributor in Ontario. All other consumers fall under Class B and will be billed on a volumetric basis. All new consumers will be considered Class B consumers until there exists sufficient evidence to permit Class A classification.

The Proposed Regulation requires the IESO to use market data and data collected from Local Distribution Companies in order to identify five peak hours for a given reporting period. Peak hours are defined as the hours in which the greatest number of MW of electricity were withdrawn by all market participants from the IESO-controlled grid. The five peak hours must occur on separate days.

A peak demand factor for each Class A consumer will be determined based on the individual consumer’s contribution to total system demand during the IESO identified five peak hours. The peak demand factor will then be utilized to determine the percentage of total Global Adjustment to be allocated to each Class A consumer. Class B consumers will continue to be charged or credited Global Adjustment on a flat rate basis. Namely, the Global Adjustment rate for Class B consumers will be determined by dividing the remaining total Global Adjustment cost by the total volume of consumption from all Class B consumers.

PUBLIC REVIEW AND COMMENT

The last date for public comments on the Proposed Regulation is October 11, 2010.