Ontario Announces Immediate Changes to Industrial Conservation Initiative in Response to COVID-19 Pandemic

Earlier today, the Government of Ontario approved an amendment to O.Reg 429/04 respecting the Industrial Conservative Initiative (ICI) intended to address concerns raised by large electricity consumers. The government’s announcement can be found here.

This amendment will suspend the 2020-21 ICI Base Period that began May 1st for all Class A customers which would have established a new Peak Demand Factor (PDF) for the 2021-22 Adjustment Period. As part of these changes, a Class A customers’ PDF, which was established over the 2019-20 Base Period and will take effect July 1, 2020, will carry over unchanged to allocate shares of Global Adjustment (GA) for the 2021-22 Adjustment Period. The Base Period to establish a new PDF for the 2022-23 Adjustment Period will begin on May 1, 2021 as usual.

For background, qualifying peak demand is determined to be the average of a customer’s highest monthly peak hourly demand values over a Base Period from May 1 to April 30 every year. Customers that are eligible to participate in ICI can be found here. In order to participate in the program most effectively, eligible customers curtail or otherwise displace their demand from the grid during periods of critical peak use in the province. The coincidence of a customer’s demand during the five highest overall demand hours of the year determines that customer’s PDF – effectively, a determination of the proportion of total system GA they are required to pay for the following Adjustment Period (commencing July 1 of the following year).

A central rationale of these changes, based on the advocacy government received from many Class A customers, is that economic productivity coming out of the pandemic should be of the highest priority, and that stability of electricity rates for large consumers over the recovery period should be assured. Under ICI, the necessity to curtail electrical demand during critical peak times over the next several months, was seen to be incongruent with those objectives.

Further, given the loss of electricity demand as a result of the economic downturn associated with the pandemic, and the strong resource supply situation Ontario is benefitting from, the province along with the Independent Electricity System Operator (IESO) assessed that power system reliability can be maintained over the coming months without the benefit of demand reduction typically attributable to ICI participation (≈1,400 MW on average). This is the case notwithstanding observations that electricity use in the province has been returning to normal seasonal levels over the past month. In fact, average electricity demand for June month-to-date this year is approximately 800 MW higher than June 2019, with substantially higher peaks and consistently equivalent off-peak levels of demand.

As such, the province is moving forward with an immediate and mandatory temporary pause on the need for Class A customers to reduce their peak consumption in order to set a new PDF for the 2021-22 Adjustment Period, and instead will be carrying over and applying their PDF for 2020-21 into 2021-22.

An important exception to this measure are new ICI participants for the 2021-22 program year; they will be assessed on their electricity consumption during peak hours in 2020-21 and must still operate under the ICI program as normal over the next ten months in order to establish their PDF for next year.

We believe that the province appreciates that some Class A customers who have invested in operational changes, or capital in energy management solutions such as generation and energy storage behind-the-meter (BTM), may be adversely affected by these measures. We understand that the province intends to continue a conversation with these impacted customers and industry to mitigate any negative consequences of this announcement.

Sussex continues to monitor pandemic-related impacts and changes to Ontario’s electricity sector. Please do not hesitate to reach out to a member of the Energy and Environment Practice should you have any questions about this announcement or other policies under consideration.