July 21, 2016 5:57 pm
Updated: December 8, 2016 4:27 pm

What is the Global Adjustment fee? The mysterious cost Ontario hydro customers must pay

WATCH ABOVE: It's not just rural Ontario residents feeling the pinch of high hydro bills; businesses are suffering too. As Shirlee Engel reports, one man says his company is in jeopardy before he even gets it off the ground.

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A product of Ontario’s 2009 Green Energy Act, the Global Adjustment fee is a charge billed to all hydro customers in the province.

For major manufacturers and large businesses, the fee appears separately on electricity bills. But for residential customers and small businesses, the fee is hidden – appearing on your electricity bill as a part of the per kilowatt hour charge.

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According to data obtained by Global News from the Independent Electricity System Operator (IESO), the organization responsible for managing Ontario’s energy system, residential customers and small businesses in Ontario paid an average of 7.9 cents per kilowatt hour in Global Adjustment fees last year.

So for every $100 in usage that appears on your electricity bill, $77 of that is the Global Adjustment fee. Meaning the cost of electricity use is only $23.

What exactly is included in the Global Adjustment fee?

First, there’s the difference between what the IESO pays energy producers for the electricity they produce, known as the contracted rate, and the actual fair market value of this electricity, known as the Hourly Ontario Energy Price, or HOEP.

In 2015, the average HOEP was 2.36 cents per kilowatt hour, while the IESO paid wind producers as much as 13 cents per kilowatt hour. The remaining 11-cent difference was then passed on to the consumer in the form of the Global Adjustment fee.

Solar producers, many of which signed contracts with the government for as long as 20 or 30 years, were paid as much as 80 cents per kilowatt hour for the energy they produced, despite the fact that fair market value for this energy was the same 2.36 cents per kilowatt hour. Here, too, the 78-cent difference was passed on to consumers.

And while the argument can be made that the Global Adjustment fee simply reflects the true cost of producing reliable, green electricity in the province, this ignores the fact that, in 2015 alone, Ontario sold more than 22.6 billion kilowatt hours of electricity – enough to power 2.5 million homes – to places like New York and Michigan at the fair market price of 2.3 cents per kilowatt hour – generating a loss of more than $1.7 billion for Ontario hydro customers.

So while Ontario customers are required to pay for producing green electricity, utility providers in the United States are able to access this same energy source for a fraction of the cost.

In other words, Ontarians pay the Global Adjustment fee, delivery fees, administration fees and HST, while American utility providers pay for the electricity alone.

The Global Adjustment fee also includes what’s known as “curtailing,” when the IESO pays energy producers not to produce electricity out of fear too much production could cause stress on the system and result in a blackout.

But when asked not to generate power, electricity producers must still be paid because the Government of Ontario initially agreed to purchase everything the energy producer’s facilities were capable of putting out.

The Global Adjustment fee also includes certain government conservation programs.

For example, when you receive a tax credit for purchasing new high-efficiency appliances or LED light-bulbs, that’s included within the Global Adjustment fee. When a delivery man takes away an old refrigerator for free, or when they recycle your old computer parts, the cost of these services are all part of the Global Adjustment fee.

Why conservation won’t make a difference

Over the past seven years, Ontario has signed numerous agreements with energy producers guaranteeing minimum levels of revenue regardless of how much energy they produce.

TransCanada, set to open their Napanee Generating Station later this year, signed an agreement with the Ontario Power Authority in 2012 that guaranteed the company would receive a minimum of $13.7 million per month once the plant comes online – even if they produce zero electricity.

“Essentially… TransCanada is being paid nearly $165 million a year to leave their power generating station running on idle,” said Parker Gallant, former vice president of TD Bank and an outspoken critic of the province’s green energy strategy.

With agreements similar to this in place across the province, Gallant thinks it’s no wonder hydro rates in Ontario continue to rise.

The easiest way to explain it, said Gallant, is that when energy consumption drops due to conservation, the Global Adjustment fee must be increased to make up the difference. So the less power Ontarians use, the higher their electricity costs must be in order to cover the minimum revenues energy producers are guaranteed.

© 2016 Global News, a division of Corus Entertainment Inc.

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