Hydro math shifts the money

Pennies from the pockets of householders and small businesses have turned into a multi-million-dollar benefit for big electricity users, an industry consultant says.

It’s the result of a tweak to a pricing formula, put in place a year ago.

But the agency that operates Ontario’s electricity market says the new pricing system is making the power system more efficient, which benefits all customers. That’s not the case put by Aegent Energy Advisors. The firm, whose clients are small and mid-sized businesses says that big power consumers like paper mills, auto plants, miners and oil refineries have paid $225 million less for power in the past year. The flip side is that householders and small businesses have paid more, but not a lot more.

Bill tweak has householders and small businesses paying more, industry consultant says

Aegent figures that small users paid just under 0.2 cents a kilowatt hour more for power under the new system. For a typical household, that comes to an extra $1.75 a month, the firm calculates. But the benefit for big users is more substantial. They saw their price drop by about 1 cent a kilowatt hour, or 28.7 per cent of the regulated rate.

It all happened through a littlenoticed change in the formula for a part of the hydro bill that few people understand.

In theory, electricity trades on an open market of buyers and sellers.

In fact, much of the price is now determined by contracts with privately owned generators, such as nuclear operator Bruce Power, the private firms that run the province’s gas-fired generators, and renewable power generators.

All those special contact prices are combined into what’s called the “global adjustment” that’s rolled into the price of power.

The global adjustment varies from month to month, but it’s now generally more than the market price.

Last year, for example, Ontario consumers and businesses paid $5.3 billion in global adjustment charges, and only $4.5 billion in market prices. What changed a year ago was how the global adjustment charges were divided among large and small customers.

Under the new formula, the share charged to big industrial users under a formula is based on their peak power usage. The higher their peaks, the more they pay. Aegent calculates they’ve paid $225 million less in the past year than they would have under the old formula. But Terry Young, vice-president of the IESO, said there’s more to the story than Aegent is portraying. The new pricing system gives big power consumers an incentive to use less power during period of peak demand, he said. That means there’s less need to build expensive power plants that run only occasionally and sit idle most of the time. The cost of building and operating those plants works its way into the price borne by all consumers. As a result, decreasing the need to build them benefits everyone. That general benefit doesn’t show up in the Aegent analysis, he said.