“I find the High-5 program has led to large cost transfers from some large industrial consumers to other consumers,” says Sen.
June 11, 2015 – The Ontario government should scrap its peak-demand electricity-pricing program for large industrial electricity users in order to lower costs for Ontario households, according to a new C.D. Howe Institute report. In “Peak Power Problems: How Ontario’s Industrial Electricity Pricing System Impacts Consumers,” author Anindya Sen suggests that this program is responsible for one-quarter of the increased costs of electricity for households.
Under the High-5 program, also called the Industrial Conservation Initiative, which was introduced in 2011, a significant share of annual electricity costs for large industrial electricity consumers is based on their energy consumption during the five highest demand hours that occur in Ontario each year. Sen finds that the program succeeded in incenting large industrials to reduce their consumption during peak hours, and therefore, reduce their share of the so-called Global Adjustment, which all electricity customers pay to cover fixed, long-term contracts with generators. Hence, large industrials end up paying less of the Global Adjustment and small consumers end up paying more.
“I find the High-5 program has led to large cost transfers from some large industrial consumers to other consumers,” says Sen.
The author notes that high and rising electricity prices are a concern for all Ontarians. For example, a recent survey suggests that Ontario industrial businesses pay 26 to 29 percent more for their electricity than businesses in New York and the New England states. Ontario businesses pay 40 percent more than the average business in 14 jurisdictions around the Pennsylvania-New Jersey-Maryland area. “Reform is badly needed,” comments Sen. “And, Ontario prices are not only high relative to the US, but also in comparison to other Canadian provinces.”
Sen recommends that the government should move industrial customers from the “blunt and imprecise” High-5 program into a market-based demand management program as part of the electricity market reforms under development.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
Click here for the full report.
For more information contact: Anindya Sen, Professor of Economics, University of Waterloo; 416-865-1904, or email: kmurphy@cdhowe.org.