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.

 

 

 

Ontario Power Prices Have Fallen!

On August 26, 2016 I posted this blog Ontario Power Prices Are Too High!  in which I pointed out that "Prices are out of control and many folks are feeling the pain."Someone was listening and that is why this post is long overdue.

Of course it wasn't just my concern .In fact according to a Nanos Research poll sited in the Globe and Mail article "Why does Ontario's electricity cost so much? A reality check" hydro rates were the number one issue of concern for Ontario residents back in November 2016. No wonder the Liberal government had to do something.



The government was well aware of the public's negative opinion on rising power costs and began working on solutions. On September 27, 2016 the government issued a press release Actions to Reduce Energy Costs highlighting a number of initiatives to reduce rates and costs. The debt retirement charge had already been dropped for residential customers on January 1st 2016 and legislation was passed to provide the equivalent of an 8% rebate to consumers, equivalent to the HST, starting January 1, 2017.

Then on March 31, 2017 the Ontario government issued another press release highlighting Ontario's Fair Hydro Plan .The legislation enacted would immediately cut hydro rates on average by 25% through a number of initiatives. That was all welcome news but I needed to see whether or not the government actions would actually lower my bills.

Price

 As I previously noted in my original blog Ontario Power Prices Are Too High! I take the dollar cost of each of my semi-monthly bills and divide by the consumption to arrive at my effective cost of power. My starting point is the August bill from the previous year through to the June bill of the current year. [That effectively means for 2017 I am using billing information from June 14 2016 through June 13 2017 and the 2018 information is for 10 months].

Chart 1: Power Prices are Declining

  Chart 1 clear shows the uptrend in my average power cost per kWh has abated and my cost has declined. Based on the chart my unit cost of power is now lower than in 2014.

Consumption & Cost

 As previously pointed out we have been diligent in reducing our consumption through a variety of means so as to not get hurt too badly when power rates were going up. That trend has continued into 2018 and our family will set a new record low for power consumption.

Chart 2: Our Annual Cost of Electricity has Fallen

 Now that rates have fallen we are finally reaping our reward of significantly lower electricity costs.  In 2018 we will pay less than 60% of our peak cost in 2011.

Mike Says...

Since 2003 power rates have risen by about 3% pa due to the actions of the Ontario government while we have decreased our power consumption by almost 50% leaving us with the lowest cost of electricity since we moved into our home in 1994. Interestingly enough our power cost is now less than what we pay for water and waste water in Mississauga - a topic for another day.

If not for the pain of higher prices I am not sure we would have been as diligent in reducing our consumption. The vast majority of our actions have not resulted in a decline in our standard of living but have centered on reducing inefficiencies and wasted power. 

Included in our consumption numbers is the power used to charge our plug-in hybrid that was leased back in December 2016. While we don't drive a lot we nevertheless use about 50 kWh monthly to charge our car.

We are most appreciative of the actions of the Ontario government to rein in power costs - we can confirm that we got our 25% reduction as advertised.