time-of-use electricity rates

Time-of-use electricity rates spark debate

Multifamily sector currently pays less than Ontario NDP's proposed flat price
Tuesday, May 22, 2018
By Barbara Carss

Ontario’s time-of-use electricity rates for residential and other small-scale customers inspire diverse criticism. Energy efficiency proponents suggest the three price gradients are too indistinct to effectively influence consumer behaviour, while some candidates in the upcoming provincial election argue the tiered rate structure hasn’t delivered envisioned reductions in peak demand and has unduly penalized some consumers.

A promise to immediately eliminate mandatory time-of-use (TOU) rates and move instead to a flat commodity charge of 10.3 cents per kilowatt-hour (kWh) is central to the NDP’s claims that it could cut average residential electricity bills by 17 per cent if elected to government on June 7. The party’s plan would focus efforts to manage peak demand more narrowly on the Industrial Conservation Initiative and voluntary residential programs enabled through smart grid technology.

“Anecdotally, TOU billing is a source of stress for Ontarians,” it states. “Ending mandatory time-of-use will take significant stress off families and save money for people unable to shift demand to off-peak hours.”

On the flipside, households would lose the option of scheduling chores to coincide with the cheaper rates between 7 p.m. and 7 a.m. For the period from May to November 2018, the off-peak price is 6.5 cents/kWh versus 13.2 cents/kWh in the peak hours between 11 a.m. and 5 p.m. During the six hours from 7 a.m. to 11 a.m. and 5 p.m. to 7 p.m. mid-peak prices of 9.4 cents/kWh apply.

“This would absolutely remove one large way to save, apart from reducing consumption,” says Rob Detta Colli, manager of energy and sustainability with Crossbridge Condominium Services. “Although that argument does put you in a tough spot because it can be interpreted as being against seniors and stay-at-home parents — and there is no winning that.”

Indeed, the NDP policy document highlights those two groups. It estimates that seniors reliant on service providers to do their laundry and dishes during peak and mid-peak hours could realize a 10 per cent decrease in electricity costs with the return to a single rate.

Implications for operating costs

A single, comprehensively applied price would also have implications for multifamily landlords and condominium corporations subject to the two-tier rate scheme for common areas or where buildings are still bulk-metered. The current split — 7.7 cents/kWh for the first 600 kWh of monthly consumption and 8.9 cents/kWh for what’s likely to be the far greater remainder — is lower than the 10.3 cents/kWh the NDP contemplates.

Current rates recognize, in part, that landlords and condo corporations must comply with a myriad of regulations that directly influence energy consumption — stipulations related to lighting in stairwells and garages, heating, cooling, elevator service, etc.

“Our largest electricity loads are at periods of peak demand. Something like the electricity load in the elevator is very difficult to control. If everybody leaves to go to work around 8 a.m., you can’t shift that load,” explains Adam Krehm, principal with O’Shanter Development Company. “But what you can do, when it’s time to replace them, is install the most energy-efficient system. That’s what we’ve been doing where we’ve had the opportunity.”

Conservation advocates credit TOU rates for spurring this kind of energy-saving consciousness.

“Letting consumers know there is a difference between on and off peak drives a behaviour to eliminate portions of energy consumption, perhaps more so than actually shifting the load,” maintains Andrew Pride, an engineer and energy management consultant who oversaw provincial conservation initiatives prior to the Ontario Power Authority’s merge with the Independent Electricity System Operator (IESO). “For a simple example, combining two smaller loads of laundry into one to wash on the weekend eliminates one cycle of energy use.”

Complex and misunderstood balancing act

Peak prices are devised to target the time of day when system-wide power demand is highest and costlier types of supply are required. The province’s base load is largely produced at nuclear and hydroelectric generating facilities, but wind, solar and natural-gas fired power also flow into the grid as available and/or needed.

Meanwhile, nuclear plants can’t be simply turned on and off. If demand drops low enough, they will be generating more power than the system needs.

“The entire electrical infrastructure and the steps to balance it throughout the day are incredibly complex,” Detta Colli observes. “The general public just hears that we sell power to the U.S. at a loss and says: That’s dumb.”

The NDP policy document notes that an achieved 55 megawatts (MW) of peak demand reduction in the residential sector falls significantly short of the Ontario government’s stated 308 MW target, and contends that’s evidence time-of-use electricity rates are not working. Others identify hindrances that should be relatively easy to address.

“In some cases, TOU goes against rules put in place to control noise in condos,” Detta Colli reports. “For example, some buildings have a rule that doesn’t allow running dishwashers past 9 p.m. so setting your dishwasher to run at midnight to take advantage of low TOU rates would put you in contravention of the building rules.”

Proponents of the rate structure also contend that imprecise pricing contributes to the lacklustre results. Perhaps most notably, the mid-peak hours from 5 p.m. to 7 p.m. are not reflective of actual consumption patterns.

In both 2016-17 and 2017-18, two of the five hours with the highest total system demand occurred from 5 to 6 p.m. During June, July and August — the months in which the highest system-wide peak demand is typically recorded — the IESO measures the peak from 1 to 7 p.m..

“This time period is ‘invisible’ to consumers who only see the Ontario Energy Board TOU periods,” states the same independent report from which the NDP policy document selectively quotes to make a case against TOU rates.

Capitalizing on the smart grid

Nor are TOU rates only aimed at easing demand during peak hours. Overall electricity system costs could be lower if surplus production doesn’t have to be exported at a loss. The Environmental Commissioner of Ontario, Dianne Saxe, is among the voices calling for more finely tuned prices.

“In theory, a pricing plan offering surplus off-peak electricity at lower rates would impose no additional costs on other ratepayers and could increase system revenue,” she reasons in her 2018 progress report on achieving Ontario’s energy conservation targets. “The program can, and must, be designed not to increase demand during peak hours, when gas-fired generation is running.”

Accordingly, the Ontario Energy Board has authorized 13 pilot projects to test and monitor the results of various combinations of prices. This includes “a single price charged in all hours throughout the year, priced at a premium to the expected revenue-neutral price.” However, Commissioner Saxe appears more intrigued with approaches that could capitalize on smart grid technology.

“The investment in smart meters in Ontario is complete so we may as well take full advantage of them,” Pride concurs.

“There are now more subtle ways of dealing with critical peaks through programmable home energy management systems that require less hands-on management by homeowners or tenants, which has always been a bit doubtful,” advises Mark Winfield, co-chair of the Sustainable Energy Initiative at York University’s Faculty of Environmental Studies. “That said, time-of-use rates can still influence how people program their systems.”

Barbara Carss is editor-in-chief of Canadian Property Management.

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