Time of Use or Tiered Price; What to Do?

Background

On October 13th the OEB announced new electricity rates would commence on November 1st 2020. 

TOU rates would increase as follows:

Off peak increases from   10.1 to 10.5 cents/kWh or 4.0%

Mid-peak increases from 14.4 to 15.0 cents/kWh or 4.2%

Peak        increases from 20.8 to 21.7 cents/kWh or 4.3%

Tiered prices would also increase as follows:

Tier 1 up to 1,000 kWh/month            from 11.9 to 12.6 cents/kWh or 5.9%

Tier 2 in access of 1,000 kWh/month from 13.9 to 14.6 cents/kWh or 5.0%

The OEB also made two additional changes with the new rates:

Residential customers would automatically default to TOU rates on their utilities first billing cycle after November 1st. However customers are now allowed to chose Tiered Pricing if they make a formal declaration to their local utility; the rate changeover to take effect on the first billing cycle 10 business days after receipt of the declaration.

The Ontario Electricity Rebate (OER) will increase from 31.8% to 33.2% of the Total Electricity Charge before HST starting November 1st.

The sum impact on consumers will vary depending on their monthly consumption, the rate chosen, and for those using TOU rates when they consume their power. The OEB estimates that for a typical consumer using 700 kWh per month of electricity their power cost will increase by $2.24 or 1.97% monthly on a year over year basis!

 Relationship Between Peak, Mid-peak and Off-peak Power

In a typical year if you consumed 1 kW every hour of every day you would find that the number of off peak hours is between 5,772 to 5,784 depending on the number of weekends in the calendar year. That equates to roughly 66% off peak,17% mid-peak and 17% peak hours when looking at monthly consumption patterns.

[Note - The percentages can vary slightly due to the number of weekend days and statutory holidays in any given month. Further utilities use billing cycles that do not align with calendar months and are not always uniform in length; i.e. 29 days to 35 day billing cycles].

 What To Do?

The decision as to what rate to choose depends on how much electricity you consume per month and the hourly pattern of your consumption. 

Do you consume 1,000 kWh or less per month?

Your rate under the tier structure will be 12.6 cents/kWh for all power consumed in the month.

Your alternative is TOU rates and a quick calculation will provide the equivalent break even based on the percentage of off peak, mid-peak, and peak power you consume. Typically mid-peak and peak power percentages are usually fairly close so it is assumed for the simple calculation they are split evenly. 

Generally if you consume 1,000 kWh or less per month you are better off on tiered pricing.

In the case where you can increase your off peak usage to more than 73.25% of your total monthly consumption you would start to save money on TOU rates.

Money isn't everything so consider the effort required to shift your consumption to off peak hours versus how much you might save through lower costs.  

(See equation 1 under Calculations for the detail)

Do you consume more than 1,000 kWh per month?

When you consume more than 1,000 kWh per month the weight average of the tiered rate increases and the required percentage of off peak power consumed to break even under TOU rates declines.

At 1,200 kWh per month you would be better off on TOU rates if you consumed roughly 70.9% or more off peak power in a month

At 1,400 kWh per month you would be better off on TOU rates if you consumed roughly 66.0% or more off peak power in a month

 (See equation 2 under Calculations for the detail. A graphic presentation is also available to see your choices)

 Seasonality

At this juncture we know these rates are in effect until May 1 2021 barring any unexpected changes by the government. There is an important consideration that should be noted - the threshold for winter tiered rates is 1,000 kWh/month; higher priced tier 2 rates kick-in above this level. It is expected that starting May 1, 2021 summer tiered rates will kick in and the threshold for tier 1 drops to 600 kWh per month.

Typically consumers use more power in the summer for air conditioning which could drive up usage.

Tiered rates will become more expensive for those consuming more than the tier 1 threshold monthly consumption limit of 600 kWh. 

It is therefore highly recommended that you review your rate choice again in April 2021 when summer rates are usually released. 

Issues

The conservative government continues to modify and change rates and billing methodologies making it more difficult for the average rate payer to understand what they are paying. Power rates continue to rise despite the election promise by Ford to reduce rates 12% below those in effect under the previous Liberal government.

Introducing an option to change rates will ultimately lead to some ratepayers paying too much due to lack of information and understanding.

System Demand Management will now suffer by allowing consumers to choose tiered pricing; thereby reducing the price incentive to shift usage away from high demand hours to low demand hours.

This is another example of how government interference has caused unnecessary investment in the Ontario power market. Specifically when the Liberals first introduced smart metering I was opposed and wrote two blogs about why. The second one Ontario Residential Smart Metering (Update 2016) pointed out my concern about how most consumers would not be able to shift demand enough to justify the cost of the meters. In essence the Ontario government spent the money less than 8 years ago for smart metering. Now this Ontario government will allow those consumers that do not benefit to opt out of TOU rates thereby diminishing the benefits from billions of dollars in smart metering investment.

My utility Alectra provides a comparison feature where I can measure my electricity usage against similar homes in my area. What is shocking to see is the amount of money some consumers are paying monthly for electricity; that said its their money, right? 

Well actually not just theirs since the Ontario government provides a 31.8% OER against their bill before HST. One lucky ratepayer with a $1,760 monthly bill would have actually had a total bill of $2,283.75 before the $726.23 reduction for the OER; a subsidy that was 7 times my total bill for the month! 

In Mikes opinion the government has to cap the subsidy levels for the OER; too many consumers are being subsidized for utilizing far more than the average level of electricity consumption.

Detailed Calculations

Mathematically we can determine the breakeven between the tiered rate of 12.6 c/kWh and TOU rates: 

A) where monthly consumption is 1,000 kWh or less using equation 1 where:

1)     X*(10.5) + Y*(15) + Z*(21.7) = 12.6   where X+Y+Z =100% and Y=Z

X is the percentage of off peak power consumed per month.

Y is the percentage of mid-peak power and Z is the percentage of peak power.

 X=73.25%, Y=13.375% and Z=13.375% which means that if you consume more than 73.25% of your power during off-peak hours you would be better of on TOU rates rather than tiered rates.

B) when monthly consumption is in excess of 1,000 kWh use equation 2 to determine the weight average tiered rate and plug this back into equation 1 in place of 12.6 c/kWh. 

For instance 1,200 kWh/month consumption

2)     ((1000*12.6) + (200*14.6))/1200 = 15520/1200 = 12.933 is the weight average tiered price

1)     X*(10.5) + Y*(15) + Z*(21.7) = 12.933   where X+Y+Z =100% and Y=Z

 X=70.90%, Y=14.55% and Z=14.55% which means that if you consume more than 70.9% of your power during off-peak hours and your total monthly consumption is 1,200 kWh or more per month you would be better on TOU rates.

For instance 1,400 kWh/month consumption

2)    ((1000*12.6) + (400*14.6))/1400 = 18440/1400 = 13.171 is the weight averaged tiered price

1)     X*(10.5) + Y*(15) + Z*(21.7) = 13.1714   where X+Y+Z =100% and Y=Z

 X=65.96%, Y=17.02% and Z=17.02% which means that if you consume more than 65.96% of your power during off-peak hours and your total monthly consumption is 1,400 kWh or more per month you would be better on TOU rates.

 

Rate Choice: Tiered vs TOU

Graphically you can see from the above chart which rate would be cheaper based on the expected % consumption of off peak power. during the November 1st 2020 through April 30th, 2021 winter time period.

Below the red line Tiered Rates are more cost effective and above the line TOU rates are the lower cost.

Up to 1,000 kWh per month you would need to consume roughly 73.25% off peak power to be indifferent. Over 1,000 kWh per month tier 2 rates kick in on the increment and the breakeven curve begins to fall; i.e. you need to consume less off peak power to be indifferent.

 

 

 

No Break for Ontario Power Consumers

Since my last blog Ontario Power Prices are Rising Faster Than Inflation  was published on February 4th 2020, the Ontario power market has seen significant changes in rates in reaction to the Covid-19 virus pandemic. Now seems an appropriate time to review those changes and the impacts they have had on  power costs.

Review

Doug Ford's government won election on June 7, 2018 in part because of the perceived mishandling of the electricity file by the previous Liberal governments. As pointed out in my post Ontario Power Prices Have Fallen! the Liberals were successful in reducing rates by 25% but that was too little too late to win them re-election. One of the promises Ford made to help him win a majority was to lower electricity prices by an additional 12%  

November 1st 2019 the government changed the way electricity is priced by increasing hourly Time-of-Use (TOU) rates significantly and introducing the Ontario Electricity Rebate (OER); a 31.8% reduction in the Total Electricity Charge before HST. From this point onward comparing rates became a mute point. 

With the Covid-19 outbreak the Ontario government made some emergency orders to revise rates. On March 24th 2020 it was announced that winter TOU pricing would be suspended for a 45 day period and that residential and small commercial customers would pay a flat 10.1 cents/kWh rate equivalent to the then current off peak price. Other measures were taken to extend the winter disconnection ban and suspending collection actions until July 31st, and offering flexible payment plans to provide more time to pay balances owed.

On April 14th the Ontario Energy Board (OEB) announced they would retain the current prices instead of setting new rates on May 1st. This was followed by a new press release on May 6th the day before the initial suspension was to end announcing the Ontario government extended the emergency pricing until May 31st, 2020.

On June 1st the Ontario government decreed that TOU customers would begin paying 12.8 cents/kWh for all power consumed while customers on tiered rates would continue to pay 11.9 cents/kWh for the first 1,000 kWh per month and 13.9 cents/kWh for any additional consumption in the month.

On October 13th the OEB announced new rates to commence on November 1st 2020. 

TOU rates would increase as follows:

Off peak increases from   10.1 to 10.5 cents/kWh or 4.0%

Mid-peak increases from 14.4 to 15.0 cents/kWh or 4.2%

Peak         increases from 20.8 to 21.7 cents/kWh or 4.3%

Tiered prices would also increase as follows:

Tier 1 up to 1,000 kWh/month       from 11.9 to 12.6 cents/kWh or 5.9%

Tier 2 in access 1,000 kWh/month from 13.9 to 14.6 cents/kWh or 5.0%

The OEB also noted two additional changes being introduced with the new rates:

RPP customers would automatically default to TOU rates on their utilities first billing cycle after November 1st. However TOU customers are allowed to chose Tiered Pricing if they make a formal declaration to their local utility; the rate changeover to take effect on the first billing cycle 10 business days after receipt of the declaration.

The OER will also increase from 31.8% to 33.2% of the Total Electricity Charge before HST starting November 1st as well.

The sum impact on consumers will vary depending on their monthly consumption, the rate chosen, and for those using TOU rates when they consume their power. The OEB estimates that for a typical consumer using 700 kWh per month of electricity their power cost will increase by $2.24 or 1.97% monthly.

 Cost Impacts 

Chart 1: Annual Electricity Consumption vs Cost

I continue to track our power costs and consumption and then calculate the effective price of power being charged. While these are unique to our experience it is nevertheless a simple method of understanding how all the changes are impacting us.

Chart 1 shows that we have continued to reduce our annual power consumption and cost for electricity through 2020 (as previously noted in prior blogs I use a September through August annual cycle). So from September 19th 2019 through August 20th 2020 as billed by my utility Alectra Utilities, our annual consumption declined by 909 kWh or 9.5% while our cost dropped by $63 or 4.8%.

Our annual consumption of power peaked in 2011 at 21,263 kWh and cost of power a year later at $2,597. Since 2003 we have decreased consumption by 12,280 kWh or 58.7% (3.5% pa). Our cost has also declined by $628 or 33.3% (2.0% pa). 

Chart 2: Effect Cost of Power 2003 - 2020

Chart 2 is a calculation of what our effective cost of power is by dividing our annual cost by the power consumed. Our effective price peaked in 2016 and began to fall as the Liberals started to enact measures to lower the price. The Conservatives took over and really own the results from 2018 onward.

Our effective rate increased by 2.22% in 2019 and a significant 5.07% in 2020 despite the emergency relief rates enacted by the government. If not for our continued diligence in conservation our costs of power would have surely increased.

Chart 3 Effective Power Cost by Billing Cycle

Chart 3 provides a little more insight as to how our effective rate jumped around in the last year. The November 1st 2019 new TOU prices caused a significant increase until the first emergency rate came into effect in March. The second spike occurred during the summer after the the 12.8 cent/kWh fixed price was enacted and we had an exceptionally hot summer with greater consumption.

After more than two full years of governing by the Conservatives, there has been no reduction in power rates and in fact power prices continue to rise faster than inflation.

Once again the graph shows that under the Ford government our power prices continue to rise faster than inflation and only due to a concerted effort to lower consumption have we managed to keep our cost of power lower each year.

As a footnote our September effective price has jumped again to 14.7 cent/kWh and October to 16.3 as a result of lower consumption.

This is the perverse nature of the system - the less you consume the higher your effective rate.

 I am in the process of evaluating the choices consumers face on November 1st. I have already declared our intent to change to tiered rates for the winter at least as we consume less than 1,000 kWh per month and we don't use enough of our power at the off peak price to make up for the overall lower tier 1 rate.