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 Are Too High! 

My service provider is Enersource Hydro (now Alectra Utilities) Mississauga and I just received my latest electricity bill covering the period June 12th through August 13th 2016. I had to go back 24 previous bills (August 2012) to find one this high! No doubt the hotter than normal summer temperatures were a contributing factor; we were guilty of using 6.8% more electricity in this billing period than the same period in 2015. However the main reason is our average cost per kWh was 20% higher than last year. Ouch!

This aroused my curiosity; what exactly is the cost for electricity in Ontario? So I opened up my files and took a closer look at our billing cost, consumption, and the average unit price we paid for electricity going back to October 2002. [I keep close track of utility bills as part of my home office costs so the information was close at hand].

Price

To make things easy I simply took the dollar cost for each billing period and divided it by the electricity consumed to determine my average unit price. This makes the most sense to me because it equates what I pay to exactly what I use. I then totaled annual cost and consumption based on an August through June cycle. Here is what I found...

Chart 1: Power Prices are Increasing

Since 2003 our average unit price has risen from $0.090/kWh to $0.169/kWh. This is an increase of 87.8% over the last 13 years or a 6.75% per year average growth rate. In comparison the Canadian Consumer Price Index during roughly the same period of time has climbed a more modest 29.1% or 2.24% per year.

More bad news - in recent years the price increase has accelerated. Since August 2013 my average price has increased by 31% or 10.3% per year - with no apparent end in sight. [My last two bills for the 2016 year had average rates of $0.172/kWh and $0.182/kWh].

Consumption

Chart 2:Consuming Less is No Longer Reducing My Bills

External factors like temperature and humidity do impact the consumption of power but it is fairly obvious from Chart 2 that in recent years we have found ways to reduce our electricity use. To illustrate this point our average annual consumption from 2003 through 2012 was 20,230 kWh with a peak consumption of 21,263 kWh in 2010. Since then we have had six years of declines. Our 2016 usage was 12,398 kWh - the lowest level since we have been in our house; (8,865) kWh  or (41.7)% lower than the 2010 peak and (38.7)% lower than the 2003 to 2012 average.

Billing Cost

Our annual cost of electricity since 2003 has averaged $2,183 with a peak cost of $2,597 in 2011. Since 2011 our annual cost has fallen. By 2015 we were paying $(701) or (27)% less than 2011 and essentially the same amount as in 2003! This was accomplished by a significant reduction in consumption that more than made up for the price increases. Our 2016 cost was  $205 or 10.8% higher than 2015 and a chilling reminder of what happens when consumption doesn't fall anymore.

Long Term Price Impact

Using the Ontario Energy Board Monthly Bill Estimator I took my 2003 consumption and divided it equally into six to simulate an average bi-monthly bill. I picked my utility from the drop down box (Enersource Hydro Mississauga). I have Time of Use (TOU) billing and for this exercise I left the splits for off-peak, mid-peak and peak usage at the provincial average of 65%, 17% and 18% respectively. Popping in consumption of 3,486 kWh my estimated bi-monthly bill would have been $598.49 or $3,590.94 annually. If we had done nothing our power bill in 2016 would have resulted in a 91% increase in annual costs (assuming today's prices, normal TOU consumption patterns and our 2003 consumption).  

TOU Consumption

Part of the efforts we have made to manage our electricity costs is to consciously try to defer usage to off-peak hours; 7 pm to 7 am on business days and anytime on weekends and holidays. In that regard we pay less than the average provincial consumer using the same quantity of electricity as our split for 2016 averaged 73% off-peak, 14% mid-peak and 14% peak. The TOU savings for us amounted to about $66 annually and our electricity bill as a result is (3.1)% lower than it otherwise would have been.

Mike Says ...

Since 2003 power prices have risen by almost 90% and our consumption is down almost 40% leaving us with a reasonable increase in our electricity cost.  

It has not been easy reducing our power consumption and shifting demand to lower cost time periods. We have incurred other costs; investment in new energy efficient devices, and changes in our energy usage habits including a willingness to forgo consumption (i.e. turn up the thermostat on our AC) to reduce costs.  

But after five years and a very hot summer we are tiring of this never-ending battle. Now that our consumption has stopped declining we could be facing significant increases in future power costs. It is one thing to reduce consumption to save money and something totally different to reduce consumption to minimize cost increases. In the latter case you are getting ahead and in the former barely staying afloat.

If the real reason for rising prices is to contract for more expensive new generation should there not be incrementally higher price points for excessive consumption? As brother Mike correctly points out the Ontario power system penalizes the poor but does nothing to curtail the rich from using as much power as they want. In fact as you consume less energy your average unit cost actually increases due to the nature of the charges; some are fixed, some are variable. [For the fixed portion the less consumed the higher the impact of the fixed charges].

I support using electricity more efficiently but enough is enough! We need to better understand how to reduce consumption without dramatically reducing our standard of living.  Prices are out of control and many folks are feeling the pain.