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.
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.
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| 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.
