Lowest Global Adjustment Ever – What is Happening?
In March, Ontario announced that the estimated Global Adjustment (GA) would be negative 4.06 cents/kWh. This is the lowest GA ever and the first time in 19 years that it has been negative for consecutive months (a credit on electricity bills). Many are wondering why this is happening and what to expect in the future.
This requires understanding that Ontario’s electricity market operates on a cost recovery basis. Electricity generators have a variety of different power purchase agreements (PPAs) which outline what they expect to be paid. The aggregate amount for these PPAs (along with certain amounts for infrastructure, maintenance and conservation) ultimately must be collected from consumers. When the variable market rate (OEMP or formerly HOEP) is lower than the owed amount, consumers must additionally pay the GA. Over the past 5 years, the GA has been declining because market rates have risen and are likely to continue doing so.
What about RPP?
Time-of-Use and Tiered rates are set to align with similar per kWh rates as OEMP + GA.
Does the GA prevent the total cost from increasing?
NO. The GA doesn’t independently decide the total cost, it is the outcome of the total cost and the OEMP.
Two primary factors are driving up market rates. First, the overall cost of generating power is increasing – this is the rising tide that lifts all boats. Ontario Power Generation recently applied to recover its cost of generating nuclear power at 20.7 cents/kWh – nearly double power from the previous rate.
On top of this, market rates are facing intense upward pressure because demand is outpacing supply, forcing more expensive sources of power to be called upon more frequently. This is causing the portion of total electricity cost to shift away from the GA and towards the market rates (OEMP).
Remember, this is what has already happened, not just conjecture.
