MANAGING YOUR ELECTRICITY COSTS: a guide for business

FIVE KEYS TO MANAGING ELECTRICITY COSTS

By understanding how and when your facility uses electricity, you will be able to discover opportunities to cut costs and boost profits. You will also be able to tell your customers and community that your business is using electricity wisely.

The IESO is a non-profit organization that manages the reliability of Ontarios power system and operates the wholesale electricity market. Every five minutes, the IESO forecasts electricity demand throughout the province and collects the best offers from generators and dispatchable consumers to provide the required amount of electricity.

The electricity market allows customers to see the price fluctuate based on supply and demand. As a result, they can shift electricity use away from peaks to times when the price is lower. The IESO works with customers paying the market price by creating educational material on the electricity market to help them manage their bottom line electricity costs. For more information, visit www.ieso.ca/business

1 UNDERSTAND HOW YOURE BILLED

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2 KNOW WHERE YOU STAND TODAY

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3 INVEST IN AN ENERGY MANAGEMENT PLAN

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Businesses that use over 250,000 kilowatt-hours of electricity per year (or at least $2,000 per month in electricity costs) pay the market price for electricity rather than the time-of-use prices that households, small businesses and designated consumers such as farms pay. As a business that pays market prices for electricity, your costs are based on: How much you use  Your peak demand  The time of day and week you use it if you have an interval meter

Cost-saving opportunities will become clear by finding answers to these questions:  How much electricity are you using?  Whats the pattern of your usage is it higher at certain times of the day or month?

An energy management plan can boost your bottom line over the short and long term. Setting goals for more efficient usage can significantly reduce your costs.

4 CONTROL YOUR ELECTRICITY USE

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5 CASH IN ON INCENTIVES

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Making changes to your operations or equipment can yield significant savings. Not all energy-saving ideas require capital investments:  Know the factors that affect the electricity price  Manage and reduce your total energy use and your peak demand

Learn how to work with your local utility, the Ontario Power Authority and your natural gas supplier to make the most of the available financial incentives for businesses that take steps to conserve electricity or change the way they use electricity.

A Guide for Business

UNDERSTAND HOW YOURE BILLED

Understanding how youre billed for electricity is the first step to reducing your electricity costs. A. ENERGY CHARGES (kWh)
BASIC TERMS (UNITS): Kilowatt-hours (kWh) Electricity/Commodity Charge
Electricity: This is the cost of the electricity supplied to you measured in kilowatt-hours (kWh). It is the part of the bill that is subject to competition. This means you can buy it through your local utility (Standard Supply Service) or choose a retailer licensed by the Ontario Energy Board.  Line Loss: When electricity is delivered along distribution lines, not all of it reaches its destination. For example, when electricity moves along the wires, some of it is lost as heat its simply a function of the physics of how electricity moves. Utilities use a loss factor to adjust the electricity consumption upward so that you pay the full amount of what it costs to supply your electricity. This difference is typically shown on bills as metered usage and billed usage. Global Adjustment: This accounts for the difference between the market price and the rates paid to regulated and contracted generators as well as conservation and demand management programs. Regulatory (Wholesale Market Services): This rate provides for the reliable management of the power system and the wholesale electricity market. It is approved by the Ontario Energy Board (OEB). Debt Retirement: This charge of 0.7/kWh is set by the Ontario Ministry of Finance to pay down the residual stranded debt of the former Ontario Hydro.

Global Adjustment Wholesale Market Services Debt Retirement SSS Administration Customer Charge*

Standard Supply Service (SSS) Administration: This $0.25 charge per month covers a portion of administrative costs that your utility incurs. Customer Charge*: This fixed monthly charge covers your utilitys administrative costs such as meter reading, billing and customer service.

Note: your electricity bill may or may not reflect all the charges outlined here sometimes charges may be bundled. 2
Managing Your Electricity Costs

Although each utility in Ontario uses a slightly different bill format and terminology for its customers, two basic principles are common to all. Your electricity costs are based on:

A.
TOTAL CONSUMPTION
How much electricity you consume, measured in kilowatt hours (kWh).

B.
PEAK DEMAND
How quickly you draw it from the system, measured in either kilowatts (kW) or kilovolt-amperes (kVA).

B. DEMAND CHARGES (kW or kVA)

BASIC TERMS (UNITS): Kilowatts (kW) Delivery-Distribution* Delivery-Transmission* Transmission Connection Transmission Network
Transformer Credit

Transmission*: These regulated charges are required to cover the capital and operating costs of Ontarios high-voltage electricity grid. These costs are submitted by transmitters (e.g. Hydro One) to the OEB for regulatory approval. They include two components: T  ransmission Connection: Your utility is connected to the transmission system and the electricity has to be transformed to lower voltages before your business can use it. This charge covers the cost of doing this. T  ransmission Network: This covers the cost of operating and maintaining the towers, wires and other equipment used to deliver electricity from where its generated to your local utility. Transformer Credit: Customers who own and maintain their own transformers that connect them to the power grid receive this credit. The rate is based on peak demand, and is typically set at $0.60/kW.

Power Factor

Power Factor: Power factor does not typically appear as a line item on your bill unless your facility has low power factor which can result in higher distribution and transmission charges. Distribution and transmission charges are often billed on either the metered kW or 90% of the metered kVA, whichever is greater. A number of industries have found that correcting power factor can provide one of the fastest paybacks when making investments to reduce electricity costs. Your local utility can tell you if youre paying a penalty for power factor.

Distribution*: This rate, regulated by the OEB, covers the cost of delivering electricity from the transmission system to your business. The charges go to your local utility to build and maintain the distribution lines, towers and poles.

TALK TO YOUR UTILITY

If you have questions about how your bill is calculated or dont understand the cost breakdown, talk to your local utility. They can explain your demand and energy charges and confirm whether youre paying the market price for electricity.

A Guide for Business

1 UNDERSTAND HOW YOURE BILLED

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Understanding Global Adjustment

The Global Adjustment provides both adequate generating capacity and clean energy for Ontario. It accounts for the difference between the market price and the rates paid to regulated and contracted generators and for conservation and demand management programs. It covers the cost of building new plants, paying regulated rates to nuclear and hydroelectric baseload generators and greening the power system through conservation, demand response and cleaner generation. For most customers, Global Adjustment (GA) is charged on your total electricity use (kWh). The monthly rate varies depending on factors in the electricity market that shift the energy price higher or lower. A higher average monthly price exerts a downward pressure on money that needs to be recovered through GA which is illustrated in the chart on page 5. Your utility charges one of three monthly rates for Global Adjustment depending on when you are billed. Each rate is set to recover the total monthly costs for GA. All the rates are posted to www.ieso.ca/globaladjustment.

Evaluate a retail contract

If you sign a retail contract it only applies to the commodity portion of your bill (the market price). All other charges on your bill, including Global Adjustment will continue to apply. For low-volume consumers paying the Regulated Price Plan (RPP), Global Adjustment is factored into the RPP rate. If you sign a retail contract, you will see two line items on your bill: one for the price agreed to under the contract and a separate line for the Global Adjustment. If you are considering a retail contract, understand your demand profile so that you can weigh the most cost-effective option and determine whether to contract for all or part of your load. Also, make sure to compare historical market prices against the contract price and account for the Global Adjustment. Ask questions and compare offers before signing a contract. For a detailed list of questions to ask, visit www.ieso.ca/retailers.

GA for large consumers

Customers with a monthly peak demand over five megawatts (MW) are designated as Class A consumers. A determination of Class A consumers is made by taking your peak demand for each month in the base period (see table on the right) and determining if the average of those peaks is over 5 MW. For example, if a Class A consumer is assessed to be responsible for one per cent of Ontarios peak demand for the five highest hours of the base period they will be charged for one per cent of the total Global Adjustment costs through the subsequent billing period. Class A consumers receive an annual notification from their utility with their percentage of peak demand, called the peak demand factor. Current peak demands and forecast demand information is available at www.ieso.ca/peaktracker.

TIMELINES FOR THE BASE PERIOD AND THE BILLING PERIOD

Real-time information on when Ontario electricity demand is at its highest is available at: www.ieso.ca/peaktracker

BASE PERIOD
Peak-setting period May 1, 2011 to April 30, 2012 May 1, 2012 to April 30, 2013 May 1, (Year X) to April 30, (Year X+1)

ADJUSTMENT PERIOD
Billing period July 1, 2012 to June 30, 2013 July 1, 2013 to June 30, 2014 July 1, (Year X+1) to June 30, (Year X+2)

Managing Your Electricity Costs

Controlling our energy costs is important: when we see a high hourly electricity price, we send a notification to all of our facilities to curtail consumption.
Alex Savu, Energy Manager, CFB Borden

AVERAGE ELECTRICITY PRICES PLUS GLOBAL ADJUSTMENT

The market price of electricity plus Global Adjustment forms the commodity portion of your bill.
Average Ontario Energy Price Global Adjustment

8 7 6 5 4 3 2 1 0
2006 2007 2008 2009 2010 2011 2012

A Guide for Business

KNOW WHERE YOU STAND TODAY

Understanding how much energy you use and when you use it can reveal cost-saving opportunities.

Interval meters track usage hourly

For market rate customers, interval meters are the only way to take advantage of fluctuations in price. Interval meters track how much electricity you use on an hourly basis or in some cases, 15 minutes. Having an interval meter means your utility charges the Hourly Ontario Energy Price (HOEP) for electricity based on your usage for each hour. Businesses without interval meters pay a weighted average of the hourly price which is based on the consumption patterns of similar consumers in your area, rather than just your own.

If your electricity use is fairly consistent 24 hours a day, or if you use more electricity during off-peak hours, its likely you can reduce your costs by installing an interval meter. Your local utility or an energy consultant can help you determine whether it may be advantageous to purchase one.

Get the details on your demand

Demand profiles are like a fingerprint, which details the characteristics of your companys electricity use over time. They are important tools to help understand your companys electricity use patterns and how to manage them more effectively.

By looking at your demand profile, you will see what times of day you use electricity, how much you use and when your peak demand occurs each month. Understanding when your business sets a demand peak can help determine which equipment or processes could be shifted in order to lower demand charges this could comprise up to 30 per cent of your total bill. You can also determine whether there are ways to avoid using electricity at the most expensive times of the day. Your local utility or an energy consultant can provide you with data and information to create, view and use your demand profile.

Managing Your Electricity Costs

Energy management starts with understanding how and when you currently use electricity. Then you can find ways to reduce it.
Dipal Patel, Energy Manager, CBRE Limited

AVERAGE HOURLY COST TO USE 1 MW OF ELECTRICITY IN 2012

This example compares the cost of consuming 1 MW during the three eight-hour shifts.

$90

$80

$70

$60

$50
8am 4pm 12am

A Guide for Business

INVEST IN AN ENERGY MANAGEMENT PLAN

Having an energy management plan helps you to identify goals and systematically work to achieve them.

Understanding your businesss technical systems and how your employees operates them are two of the keys to identifying opportunities to use electricity wisely and reduce your electricity costs. Outlining this information in an official plan helps your employees understand what changes need to be made and why. It also helps you track your progress, cost savings and payback on investments in energy efficiency over time.
The following eight steps provide a simple, systematic approach to understanding how your business uses electricity, what influences costs, how you can use less and how to chart your success.

Step 1: Understand your Energy Costs

Knowing the factors on your bill that influence your demand (kW or kVA) and energy (kWh) costs provide insight to the steps you can take to reduce those costs.

Step 3: Understand When Energy is Used

The cost of electricity is influenced by when its consumed. Your companys demand profile shows your energy use patterns information which is essential if youre considering changes to lower demand, or, if you have an interval meter, to take advantage of times of day or month when electricity prices are lower.

Step 2: Monitor and Target

Comparing monthly data can help you determine how energy consumption at your facility varies over time. For example, comparing energy consumption against production can help you determine energy costs per unit of production as a means of assessing potential savings opportunities.

Step 4: Understand Where Energy is Used

Identify equipment that draws the most power. If you improve its efficiency, you will see a bigger reduction in your electricity costs. An energy audit provides a useful, detailed breakdown of how much electricity is consumed in your facility and where.

Managing Your Electricity Costs

Step 5: Eliminate Waste

Energy waste can appear in many forms including excess time, volume, pressure and temperature. In order to realize energy savings opportunities, its important to match the energy your business actually uses to what is really needed. Once these requirements are established, eliminating waste becomes an effective cost-savings tool.

maintain existing equipment, or investing in more energy-efficient technology. While some operational changes can have relatively low or no implementation costs, investments in equipment upgrades or retrofits may have a shorter payback period than you would think and can lead to permanent long-term savings.

Step 8: Monitor your progress, share the results

Charting your progress over time helps you share these successes with staff and encourage them to keep looking for ways to lower electricity costs. Consider creating an operational schedule and maintenance plan that takes advantage of opportunities to reduce electricity costs.

Step 7: Optimize the Energy Supply

Once you have reduced your requirement for energy, you may consider supply-side alternatives to meet your energy needs such as heat recovery, cogeneration and renewable generation options like wind, solar or biofuels.

Step 6: Maximize Efficiency

The condition of your companys equipment and operating conditions can have a significant impact on potential energy savings. Consider changing the way you operate,

By analyzing the energy use of all our buildings, we can identify opportunities to decrease our energy consumption, which in turn decreases our overall carbon footprint.
John Lucic, National Director of Energy Management, Revera Inc.

A Guide for Business

CONTROL YOUR ELECTRICITY USE

Making decisions on potential energy savings initiatives is easier when you combine your demand profile with electricity pricing trends.

Understanding how electricity prices vary can help you manage electricity costs. Simply put, if you have an interval meter, using less electricity at times when the price is high can cut costs considerably.

Prices tend to be lower overnight and on weekends when power demand is typically lower. Conversely, the price of electricity can peak in the late afternoon or early evening as people arrive home from work. Supply is determined by how much generators can produce. Certain power sources are more expensive to run than others. These higher-cost generators only run when demand is high relative to available supply.

Factors that affect the electricity price

What influences fluctuations in electricity prices? Electricity acts like any other commodity where price depends on supply and demand but unlike material goods electricity cannot be stored. When demand for electricity is high, more generation is needed. This often drives up the cost of power. Weather plays a big factor in electricity demand. Think about hot summer afternoons when chillers are running full tilt, and industrial production is at its peak. In Ontario each degree over 16 degrees Celsius creates an additional 280 MW of electricity demand, which is like adding a city the size of Burlington to the grid.

Hourly price trends

For most of the year, electricity prices tend to be higher in the afternoon, particularly between 4:00 p.m. and 7:00 p.m. Prices are usually lowest on weekends and overnight, between 11 p.m. and 7 a.m. If you have an interval meter, shifting operations to cheaper times of the day, or testing back-up generation during high-priced times, will save money. Running operations overnight can reduce your commodity costs by more than 20 per cent.

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Managing Your Electricity Costs

The Region continues to track our energy usage and compare it to market prices. Since 2006, the Region has saved $21 million from our total energy budget.
Steve Hall, Director of Corporate Energy, Region of Peel

Tracking weather can help to lower costs

One of the most important factors affecting electricity prices is weather. Ontario sees its highest electricity demands in the summer because of air conditioning use, especially during periods of high temperatures and humidity. The chart below shows electricity demand during the highest peak day of 2012. From noon until 8pm, Ontario used more than 24,000 megawatts (MW) of electricity. The electricity price during that time was 13.2 cents/kWh. Thats almost four times higher than the average electricity price in July. Tracking weather patterns and using electricity wisely during those times can save you money.

In winter months, electricity patterns change. More lighting is required because of shorter days, so electricity use is noticeably higher after the sun sets. Hourly electricity demand is tracked and forecasted throughout the day at www.ieso.ca/demand. For business customers paying the hourly price of electricity, it is important to recognize potential impacts on price when demand is high. When electricity demand exceeds the forecast, it can also push prices upward as more generation is required to meet higher levels of demand.

ELECTRICITY DEMAND IN JULY 2012

July 17: Humidex 45C July Weekdays: Avg Temp 24C

MW

28000 24000 20000 16000 12000

1:00am 5:00am 9:00am 1:00pm 5:00pm 9:00pm

A Guide for Business

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4 CONTROL YOUR ELECTRICITY USE

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Reduce your peak demand

You can use the same amount of energy overall and still reduce your electricity bill. How? All you need to do is manage your businesss electricity demand and draw the same amount of electricity from the system at a slower rate. Demand charges cover the cost of the size and type of wires and equipment needed to get the electricity to your business. Drawing a lot of electricity at one time creates a higher demand. Higher demand requires additional wires and transformers that can supply electricity at the rate you draw it without overloading. So, the higher your monthly peak demand, the higher your bill. Your electricity delivery charges for the month are based on one 15-minute or 60-minute peak. If you can reduce your peak, you will also reduce your delivery charges. Your local utility has conservation and demand management programs to assist in reducing or shifting the peak demand of your facility. Contact your local utility for more information.

MAKE OPERATIONAL CHANGES AND SAVE THREE WAYS: USE ELECTRICITY WHEN PRICES ARE LOWER, REDUCE YOUR PEAK DEMAND, AND USE LESS ELECTRICITY OVERALL.
Conserve and eliminate waste
You might be surprised to discover that making changes to use less electricity or using electricity wisely wont cost you much or anything at all, and can lead to considerable savings. Regular equipment maintenance or turning off equipment not in use wont cost much but can shave up to five per cent off your electricity bill. For example, a grocery store in Burlington took a closer look at how it used electricity. When they examined the stores demand they noticed that overnight electricity use dipped much lower on weekends. They realized that employees were turning off fewer lights during the week than on weekends. Changing the closing procedures on weekdays was easy and free, and the electricity savings added up.

A DEMAND PROFILE CAN POINT TO SAVINGS OPPORTUNITIES

More savings were obvious once the electricity use profile showed that more lights were being turned off on weekend nights than on weekdays.

kWh

500 400 300 200 100 0

M T W T F S S

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Managing Your Electricity Costs

YOUR PEAK DEMAND DETERMINES YOUR DELIVERY CHARGES FOR THE MONTH
Seeing when your peak demand occurs will give you an opportunity to see what equipment or processes you can reduce.

kW

800

600

400

200

Mon

Tue

Wed

Thu

Fri

Putting Energy Management on Permanent Display at the AGO

In November 2008, the Art Gallery of Ontario (AGO) completed a four-year construction project that added approximately 100,000 square feet of gallery space to its existing 486,000-square-foot floor plan. The design of the new gallery space had distinct architectural characteristics that needed to be integrated into the gallerys operations. Gary Bridgens, the Deputy Director of Projects and Operations, met these challenges head on with a plan to reduce energy by changing the way in which the gallerys heating and cooling systems

worked. The plan was achieved through a combination of consumption reduction and pricing strategies. It saved the gallery over half a million dollars in electricity costs during the first year of implementation. Part of their plan investigates the potential of LED and other efficient lighting technologies. Its a process that didnt start overnight. Since 2003, Mike Peroff, Manager of Plant Operations, has created a lighting inventory which tracks the wattage and type of the thousands of lights within the Gallery and the hours that they are on. The rate of

return is king, Peroff notes. We need to show that a lighting project will guarantee results before we start. Last year, their lighting retrofits saved over 38,000 kWh of electricity which helped the AGO qualify for an incentive payment through the gallerys local distribution company, Toronto Hydro. The plan includes upgrading technology and revising operational processes in tandem. Peroff notes that to get capital funding for energy management

initiatives, we need to build credibility through results. Bridgens adds, Its also credibility in terms of our most important stakeholder: the gallery patrons. Energy management is not only about reducing our consumption, but about ensuring that our patrons have a great experience at the AGO. Read the full case study at: http://ieso.ca/imoweb/businessIndustry/bi_profile-ago.asp

A Guide for Business

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4 CONTROL YOUR ELECTRICITY USE

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Consider self-generation
Generating your own electricity might be an option for your business. Wind turbines, solar panels, biomass/biogas systems or natural gas generators can be used to offset some or all of your electricity costs. If your on-site generation can be regulated at different times of the day, you could use it to replace what you would normally consume from the power system during your businesss demand peaks or when the price of electricity is high. It can be more economic to generate your own power during these times. An added benefit is that you can have back-up power in the event of power outages.

Engage staff in the process

Day in and day out your employees operate machinery, control your building management system and turn on computers, lights, etc. Engage employees in the energy management process so that they understand the impact that energy costs have on your organizations bottom line. Engaging staff in the process means that they will be more likely to use electricity efficiently and presents opportunities for ongoing training and collaboration between business units. That can lead to employees that are more likely to share ideas about how energy use can be reduced in their area.

St. Marys Cement: A 360-Degree Focus on Energy Management

Operating under the name E=MC2, the St. Marys Cement Energy Management and Conservation Committee developed a 68-item action plan to direct the plants efforts to reduce its energy consumption and costs. The multi-disciplinary committee was started by Fabio Garcia, Plant Manager, and Jim Storey, Electrical Maintenance Manager for the Bowmanville operations. Both men recognized there was room for improvement in the way St. Marys managed its energy consumption. In early 2006, Garcia and Storey assembled a cross-functional team to ensure all affected business units had input into the committees mandate, direction and activities. Already, those activities have delivered $870,000 in energy savings. Some of the lowest cost projects yielded the biggest paybacks, Garcia says. The single most important change we made was rescheduling some of our operations to off-peak hours. This concept, known as load shifting, has saved the company hundreds of thousands of dollars. Were glued to the IESO website, Garcia continues. Were constantly monitoring the wholesale price of electricity to plan our operations. And while its not the easiest way to manage a plant, its definitely the most economical. In addition to using the price of electricity to guide daily operations at the Bowmanville plant, control room operators also rely on alarms set to go off if the plant approaches pre-determined demand thresholds. By lowering its instantaneous demand for electricity by 500 kilowatts (kW), St. Marys has been able to trim almost $2,000 from its monthly electricity bill. Read the full case study at: www.ieso.ca/imoweb/businessIndustry/bi_profile-st-maryscement.asp

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Managing Your Electricity Costs

Some of the lower cost projects yielded the biggest paybacks.

Fabio Garcia, Plant Manager, St. Marys Cement Bowmanville

A Guide for Business

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CASH IN ON INCENTIVES
Taking advantage of incentive programs can go directly to your bottom line.

Before you investigate potential retrofits to electrical equipment in your facility, check to see if there are any incentive programs that can help to reduce the cost of the project. Most incentive programs require applications to be submitted before the project is started. Also be sure to investigate demand response programs. They can help your bottom line, and also improve the reliability of Ontarios power system by helping to reduce the strain on the system during times of high demand.

Energy Conservation

The Ontario Power Authority (OPA) offers several province-wide energy efficiency programs that provide funding to retrofit current electrical equipment and to perform energy audits. There are also incentives for new construction projects that Demand Response exceed energy efficiency standards in the Ontario Building Code. For The OPA offers demand response more specific program information programs that pay business, industrial for your business or home, visit and institutional consumers to reduce www.saveONenergy.ca Keith Wernham, maintenance person prices at Jonesare energy when electricity Packaging changes a fluorescent light bulbvolumes in high or when there are high Your local utility is the delivery agent the manufacturing facility. The fluorescent based of demand on the electricity system. for these province-wide programs, lighting installed replaces the original halide lighting, and may also offer specific programs decreasing Jones consumption of electricity by approximately 600,000 kWh per year. to address local issues. Your utility can also offer insight into other programs and tell you what programs are available in your area. Contact your LDC for more information: www.ieso.ca/findutility

Natural gas providers offer a number of conservation and demand management programs designed to increase overall energy efficiency. Contact your natural gas provider for more information on these programs, and how they can work for you.

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Managing Your Electricity Costs

FOR MORE INFORMATION ON:

Your local distribution company www.ieso.ca/findutility Electricity prices www.ieso.ca/business Retail electricity contracts www.ieso.ca/retailers Province-wide conservation programs www.saveONenergy.ca Federal government Office of Energy Efficiency www.oee.nrcan.gc.ca

Independent Electricity System Operator 655 Bay Street, Suite 410 P.O. Box 1 Toronto, Ontario M5G 2K4 www.ieso.ca/business

Phone: 905.403.6900 Toll-free: 1.888.448.7777 Fax: 905.403.6921 E-mail: customer.relations@ieso.ca