APPrO comments on rate design

Trying to tinker with industrial and commercial electricity rates can be like playing whack-a-mole. In some cases, you need to get control of the whole playground before you can fix a small piece. APPrO has recommendations, starting with Coincident Peak as the basis of rate design.


Rate design process complicated by parallel developments

In early April the Ontario Energy Board received a range of advice from electricity market participants on the design of commercial and industrial electricity distribution rates. Some of the advice may prove challenging to integrate, not because of its diversity, but because it appears that any firm resolution of these types of rates may require clarification of the Board’s approach to other developments occurring in parallel. A key example of the kind of parallel development that could affect the approach to rate design is the range of responses to Distributed Energy Resources (DERs) that the Board will consider acceptable for local distributors in the near future. This concern was underlined when the Board itself announced a new consultation on “Responding to Distributed Energy Resources” on March 15, during the period when intervenors were preparing responses to the invitation to comment on rate design.

    Kicking off the rate consultation on February 21, the Board issued a Staff Report containing potential approaches to rate design for this class of customers. It explained that “The OEB has decided it is necessary to develop a new approach to rate design that would support customers’ adoption of these new technologies while encouraging efficiency in the operations of distribution networks.” The OEB’s cover letter for the Staff Report outlined the following objectives for the new commercial and industrial rate design:

1. Facilitate customer adoption of technology to manage energy use and costs, including the installation of distributed energy resources.

2. Increase efficiency of the system by encouraging cost effective investment in distributed energy resources.

3. Maintain fairness in the recovery of costs of maintaining a reliable and flexible distribution system and ensure that customers who install distributed energy resources do not shift costs to other customers.

4. Facilitate investments to modernize the grid in a paced and prioritized manner that will support customer choice and efficiency.

    APPrO supported the OEB objectives, but expressed concern that “the OEB objectives may warrant further refinement, and that not enough information has been shared on potential prioritization of the objectives.” APPrO stressed that benefits of DERs must be systematically recognized and recommended a refinement to the third objective, reading as follows: “Maintain fairness in the recovery of costs of maintaining a reliable and flexible distribution system and ensure that customers who install distributed energy resources do not shift net costs to other customers, recognizing that DER’s often provide cost savings and system benefits that must be netted against unadjusted costs.”

    Formal comments were submitted by a range of stakeholder organizations including:

Association of Major Power Consumers in Ontario

Association of Power Producers of Ontario

Building Owners and Managers Association

Canadian Biogas Association

Canadian Solar lndustries Association

Cornerstone Hydro Electric Concepts Association

Coalition of Large Distributors

EDF Distributed Solutions

Electricity Distributors Association

Energy Storage Canada

Environmental Defence

Independent Electricity System Operator

Hydro One Networks

London Property Management Association

Ontario CHP Consortium

Ontario Sustainable Energy Association

Peak Power

Power Workers’ Union

School Energy Coalition

Toyota Motor Manufacturing Canada


    APPrO recommended that the Board instruct OEB staff to conduct further consultation with the following understandings:

a) Integrate Commercial and Industrial Rate Design with the new consultations: The OEB has launched two integrated consultations (i.e., Utility Remuneration (EB-2018-0287) and Responding to DERs (EB-2018-0288))

b) Establish a comprehensive engagement plan with target timeline

c) Pair any significant change in rate design with a suitable methodology to assess or estimate the benefits of DERs.

    APPrO concurred with Board staff and endorsed their recommendation to “Establish a fixed distribution charge for commercial customers with demands under 10 kW who’s use of the distribution system is like residential customers” and to “Implement a demand charge mode, rather than the current volumetric charge, for distribution service for all commercial and industrial customers with demands greater than 10 kW to reflect these customers use of the system” basing demand charges on Coincident Peak rather than Non-Coincident Peak.

    APPrO commended the Board and staff on its policy of moving to fixed charges for most customer classes. It said that the OEB policy enunciated on April 3, 2015 in “A New Distribution Rate Design for Residential Electricity Customers” (the April Report) “stands as an enduring set of principles for rate design. It was entirely appropriate and highly constructive to recognize that ‘customers primarily value connection to distribution services and the essential service of billing.’ The Board articulated a foundational principle for future distribution rate design when it said, ‘there are few costs in the distribution system that change with the energy that flows through the grid. Distribution assets are designed to deliver power reliably and have by their nature long service lives and largely fixed costs.’” APPrO went on to stress however that, “the basis for fixed charges should be determined by the customer’s Coincident Peak wherever that is feasible. Coincident peak charges provide the most accurate price signals for both customers (in terms of the value of managing demand) and for the LDC (in terms of anticipating capital requirements).”

    The subject of exit fees was also addressed in the Staff Report. APPrO identified serious risks from inappropriate application of exit fees and observed that, “Any system for exit fees must be designed, using a comprehensive stakeholder consultation process, with full regard for the objectives of encouraging innovation, while instituting fair and rational measures for preventing uneconomic investment. The measures for preventing uneconomic investment must be evidence-based, objective, transparent, widely understood, the product of substantial stakeholder consultation, and have the effect of reducing uncertainty.”

    In terms of future process APPrO recommended “further consultation under pre-defined terms,” saying that “the new consultation should occur together with the newly launched intertwined consultations by the OEB (i.e., Utility Remuneration and Responding to DERs) with specified timelines.”

    It appears that further refinements of regulatory policy are likely in this area, and could have significant implications for the development of electricity resources and infrastructure in Ontario.

          For more information on the rate design proceeding, including copies of the submissions from APPrO and other participants, readers may wish to visit the following location on the OEB website:


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