7-9pm: decreased demand or political posturing?

I was curious about the extent to which the relatively recent change in the 7-9pm period (in the time-of-use environment) from ‘mid-peak’ to ‘off-peak’ was justified.  In other words, to what extent did demand drop during this time, or, alternatively, to what extent was it a departure from efforts to represent some kind of ‘real-time market’ in electricity in the name of ‘good politics’?

To investigate further, I pulled out some recent data – namely, for the eight weeks from 2 July to 26 August 2011, I collected, from the IESO website, the non-holiday weekdays (all 39 of them), and examined average ‘spot market price’ (Hourly Ontario Energy Price) and average Ontario demand.  These results are presented in the two graphs below, with the two hours of interest (7-9pm, which are ‘hours ending 8pm and 9pm in IESO-speak) circled in each.

Visual observation of these graphs suggest that while there is some ‘drop-off’ from the late afternoon peaks, the values still seem ‘moderate’, suggesting that ‘mid-peak’ may well have been right.  To look at it another way, I took the average values for each of these 24 hours, colour-coded them (red for on-peak, yellow for mid-peak and green for off-peak) and then ranked them from ‘top’ to ‘bottom’.  That graph appears below.  That graph further suggests that the 7-9pm period – at least on the basis of this limited investigation – might more rightly be called a ‘mid-peak period’.

PC plan for smart meters: to unplug rather than to rip out

On 30 August, in the Barrie Advance, there was a response to an earlier article that I have blogged about. More specifically, in an article entitled ‘No PC Plan for Energy System’, Liberal candidate Karl Walsh lamented the PC’s position on smart meters.  I pick up on one quotation in particular.

In the article, Walsh states, ‘The PCs’ pledge to rip out new, modern smart meters and replace them with old, out-dated meters doesn’t make much sense.’  While there seems to be some ambiguity in the PC’s plans – I wrote earlier about this in the aforementioned posting – I have never seen a proposal to re-install conventional meters.  Instead, in the relevant part of the PC’s platform, states that: ‘We will end mandatory time-of-use pricing. We will stop forcing families to be showered and ready for school and work before 7am or compelling seniors to do laundry late into the night. The smart meters forced on our homes – at a cost of more than $1 billion – have become nothing but government- sponsored tax machines. We will let you decide whether your family wants to use the time-of-use pricing system.’  The ‘ripping out’ of these meters is not mentioned.  Indeed, there is lots of mention of ‘unplugging’, but that is meant metaphorically rather than literally.

Different 'fuels' at different times

An article entitled ‘We can all do little things for the environment’ appeared in The Kitchener-Waterloo Record on 23 August 2011.  Though the theme was broadly environmental, there was a paragraph’s focus upon electricity issues. Notwithstanding the issue I would take with the comment that ‘On summer weekdays, hydro costs almost double between 7 a.m. and 7p.m.’ (see my earlier posting), the phrase that I will come back on is the following:  ‘In Ontario, if we all run our air conditioning units during the peak time it means Ontario has to start up high polluting coal-fired plants, or buy electricity from American coal plants. Very dirty!’  I thought it would be worthwhile to dig into this.

To do this, I went to the site of a small company called Sygration – harvesting data from the Independent Electricity System Operator in Ontario, these are usefully put into interesting form there.  I pulled out ‘yesterday’ (23 August 2011), as well as 21 July 2011 – a day on which the University of Waterloo weather station says that the temperature reached 37.6°C!  (I was fortunate enough to be in a lake on that day! :>)  Not surprisingly, peak output by Ontario’s power plants was 19,135 MW (hour ending 5pm EDT) on 23 August, but 25,692 MW (same hour) on 21 July – some 34% higher!  In terms of energy, generation on that hot day – across all 24 hours – was 33% higher.  So, across all hours of the day, power plants across the province had to be ‘geared up’ that much more.

That invites a discussion about ‘dispatching’.  Electricity cannot be easily (cheaply) stored.  As such, it needs to be generated when it is needed.  Choices are thus made by system operators as to which plants to ‘call’.  Cheap ones are obviously preferred first, but consideration must also be given to those that are easily (or not easily) ‘ramped up or down’ --  that is, responsive to changes in dispatch instructions from the system operators.  Of the major contributors in Ontario, nuclear is usually run ‘all of the time’; hydropower is generally cheap and ‘rampable’, and thus used often and/or strategically.  The fossil fuels (coal, gas and gas/oil) are not only dirtier, but also often more expensive; they can be, however, responsive to changes in system-wide demand.

So that is meant to help explain the chart below – where the relative contributions of Ontario generators on these two days are listed.  On the ‘lower demand day’ (23 August), nuclear and hydro predominate, and fossil fuels contribute less than 15%.  On the ‘higher demand day’ (21 July), fossil fuels – including the need to operate the Lennox ‘oil/gas plant’ – contribute almost one-third. 

fuel	percentage share to total daily energy on 21 July 2011	Percentage share to total daily energy on 23 August 2011
Nuclear	46.6	65.3
Hydro	18.1	18.9
Wind	2.5	2.0
Woodwaste	0.3	0.3
Coal	11.8	2.2
Gas and gas/oil	20.7	11.3

It might also be useful to think about how the fuels are used during different time-periods – namely, Ontario’s three (summertime) ‘bands’.  I present this in a couple of visuals below – plotting MW generation against time (EST), and then shading the off- (green), mid- (yellow) and on-(red) peak periods.  On 21 July, gas/oil, in particular, plays a relatively predominant role during the on-peak period; the fossil fuels certainly ‘ramp up’ in the morning, but take a while to ‘tail off’ in the evening.  In 23 August, all of those fuels are ‘near the bottom’, given how much nuclear meets all of the needs.

The bottom line? – carbon intensity varies with time, and it is, for the most part, higher during the high-demand/‘on-peak’ periods.

Consumer choice of time-of-use or flat-rate

A 23 August 2011 article, entitled ‘PC candidate says smart meters bad for business’, appeared in The Barrie Advance.  In it, the PC Party’s plan for moving away from obligatory time-of-use rates was noted.  The relevant part of the article is as follows:  ‘[PC candidate Rod] Jackson said families and business should be able to choose what works for them – and opt out of smart meters. He couldn’t say, however, what rate they’d pay – an off-peak, mid-peak or on-peak rate. “It’s a good question. It’s up to the Ontario Energy Board. It won’t be as much as for a smart meter,” he said.’

I am left to wonder how prices can really go down when consumers are left with a choice of time-of-use rates or, say, some kind of flat-rate.  The revenues from the customers need, of course, to cover the costs of providing the electricity, so without a change in the cost of supply (which, admittedly, may be part of the broader PC platform), the money coming in has to be the same.

To give this further substance, I laid out the following simplistic example. (And noting my earlier comments in this blog, I recognize my own problem for concentrating upon ‘commodity costs’, but the point does not depend on that.)

Imagine customer A and customer B with load profiles as below.  If both are paying in a time-of-use environment, then the total revenue is 141.4 cents.  If both were paying in a flat-rate environment, the total revenue would be 140.0 cents.

Now if each was given the choice, customer A would stay on time-of-use rates (a heavy off-peak user) and customer B would choose the flat-rate tariff. Total revenue is now 136.8 cents.  Would it not be that the missing revenue would have to be made up by increasing the relative costs (say to 6.1/9.1/10.9 and 7.2 – that is, increases of about 3%), which would then generate revenue of 140.8 cents?

Customer	kWh use during off-peak (5.9 cents/kWh)	kWh use during mid-peak (8.9 cents/kWh)	kWh use during on-peak (10.7 cents/kWh)	Total cost under time of use (cents)	Total cost under flat-rate (assuming 7.0 cents/kWh à blending 6.8 and 7.9 cents/kWh prices)
A	8	1	1	66.8	70
B	6	2	2	74.6	70

It will be interesting to see if these options that will be available to customers will be more fully elaborated during the campaign.

Time-of-use times and system-wide demand

With continued attention upon time-of-use pricing in the press (see, for instance, recent articles entitled ‘Business owners shocked by electricity bills’, from the 19 August 2011 edition of The Toronto Star and ‘PCs slam smart meters, Liberal MPP defends them’, from the 19 August 2011 edition of The Guelph Mercury), I was prompted to reflect further upon the different use of electricity – system-wide in Ontario – at differen times.  Before data about that, some additional context is appropriate.

The electricity system is one that moves a commodity – namely, electrons – that cannot easily (cheaply) be stored.  In other words, they have to be ‘delivered’ when generated; alternatively, they have to be ‘generated’ when demanded.  Thus, the logic behind time-of-use rates is that we try to lessen demand during those ‘peak demand periods’, so that we – over time – smooth out the system-wide load.  Why do we want to do this?  Well, remember that we have to make the electricity system work for that one time during the year in which system-wide demand is at its peak; at all other times, part of the capacity of the electricity system (the ‘grid’) sits idle.  All else being equal, then, we would like a system with flat load – using the same amount of electricity at every hour of the day, so that we are using the capital infrastructure as ‘fully’ as possible.

How are we doing in Ontario?  I have pulled out Ontario system-wide demand for the months of January and July 2011.    I have, for each month, constructed what is called a ‘load duration curve’ – for the 744 hours in each month, I have lined them up, highest to lowest (in terms of demand in MW) from left to right.  For each of these two months (which are, of course, the ‘heart’ of winter and the ‘heart’ of summer), I have prepared two graphs – one with the full 744 hours on it, and the other focusing upon the top 1% (or seven hours).  They now follow.

Load Duration Curve – all 744 hours in January 2011 (with 1% or 7.44 hour divisions along the x-axis)

Load Duration Curve – top seven hours in January 2011

Load Duration Curve – all 744 hours in July 2011 (with 1% or 7.44 hour divisions along the x-axis)

Load Duration Curve – top seven hours in July 2011

Interestingly, most – but not all – of those ‘top hours’ occurred during ‘peak periods’.  In the January case, four of the seven were during ‘on-peak periods’ – in particular, Monday evenings (17 January from 6-7pm, 24 January from 5-7pm and 31 January from 6-7pm).  One of them occurred during the mid-peak period (Monday, 24 January from 4-5pm) and two occurred during the off-peak period (Monday, 24 January from 7-8pm … note that this was formerly an ‘on-peak period’ and Sunday, 23 January from 6-7pm). In the July case, five of the seven were during ‘on-peak periods’ – from noon-5pm on Thursday, 21 July, with the other two (Thursday, 21 July from 5pm-7pm) during the ’mid-peak period’.

This led me to think about where the hours ‘fall’ vis-à-vis their assigned ‘time-period’ (on-peak, mid-peak or off-peak).  In response, I put together the tables below.

January demand hours	on-peak	mid-peak	off-peak
top quarter	72	43	71
2nd quarter	47	70	69
3rd quarter	1	7	178
bottom quarter	0	0	186
July demand hours	on-peak	mid-peak	off-peak
top quarter	72	45	69
2nd quarter	48	36	102
3rd quarter	0	39	147
bottom quarter	0	0	186

In these, I ranked the demand hours from ‘top’ (and ‘top quarter’) through down to bottom (and ‘bottom quarter’). If our province-wide demand periods followed ‘time-of-use times’ perfectly, we would expect the 120 hours for on-peak times (16% of the 744 hours in the month) to all fall in the ‘top quarter’; the 120 hours for the mid-peak times to fall largely in the top quarter, with some in the second quarter, and the other 504 hours (68% of the time) to fall in some of the second quarter, and fully in the bottom two quarters.  They seem pretty close, though the mid-peak hours in summer seem particularly problematic (at least relatively).  We can return to this in due course.

For now, however, the point remains that there is different system-wide demand at different times – thus, the motivation for time-of-use prices.

Residential price increases since 2003

A longer story involving the early-morning electricity-user (noted in my posting below) also appeared on 15 August 2011 – this time on InsideToronto.com in an article entitled ‘Tim Hudak vows to slash hydro rates if elected’.  Two passages are worth noting.

First, there is a reference to one resident’s electricity consumption:  ‘"I get up in the middle of the night to do my cooking and to wash my clothes. I never use the dryer, I hang things outside to dry. I try and economize however I can, but it doesn't make a difference," she said Monday, pulling out her March electricity and heating bill totalling $1,698.85 - including $211 in Harmonized Sales Tax (HST) and $175 worth of Debt Retirement Charges. "I believe that's unreasonably high. It's a lot of money and a change would certainly be welcome."’   What was striking in this is that $175 in Debt Retirement Charges (DRC) suggests incredibly-large electricity usage!  The DRC is $7 per 1000 kWh.  Therefore, this cost suggests a consumption – in the month of March (?) – of 25,000 kWh.  Yes, it appears that she has electric heating as well, but it should be noted that, as a monthly consumption, this is large.  (The provincial average is about 800 kWh.)  Indeed, in work that we did recently, we looked at 1,020 households  and we found that, from this random sample, the largest user consumed 31,412 kWh IN ALL OF 2008 (average of 2,618 kWh a month).  This resident’s experience is unusual.  (Another interesting note is that we found – tentatively – that large users are ‘better off’ under time-of-use rates, as compared with the conventional two-tier rates.)

And, second, it was noted that:  ‘According to Hudak, hydro rates in Ontario have increased eight times by a total of 84 per cent since 2003, …’.  In a recent posting, I noted that my experience was an increase of about 30 per cent.  I wondered where the figure of 84 per cent came from?  I went to the historical prices in Ontario – solely for commodity (electricity) charges – and found that if you compare the higher tier price after 1 May 2011 (7.9 cents per kWh) with the government rate after 9 December 2002 (which was then the price throughout 2003) (4.3 cents per kWh), then you get a figure of 83.7%.  I think that that must be the source.  It is, therefore, a misleading comparison for at least two reasons:

1)      This is only the commodity charge, and the other (delivery, etc.) charges should be included to reflect the ‘final price’ to consumers.

2)      The ‘new cost’ (2011) only applies to those units of electricity consumed after the lowe-user threshold has been reached (600 kWh in the summer and 1,000 kWh in the winter).  Perhaps a blended value would be more correct.

And, of course, prices, as I noted earlier, were much higher in 2002 before parts of the market were closed.

When are those time-of-use rates, anyway?

I wonder how much confusion there is regarding ‘time-of-use rates’.  I ask, because of a passage I saw in an article entitled ‘Hudak steers clear of hydro price promises’  (Toronto Star, 15 August 2011).  The passage is:  ‘At the campaign-style stop, Hudak was met by local senior Li Zern who was complaining about her hydro bills.  Despite the fact that peak hydro rates end in the early evening, Zern said she is getting up “between two and three” in the morning to cook and clean to try to keep her electricity bills under control. “They’re going up considering that I’m economizing. I’m getting up in the middle of the night to do my work, even my vacuuming,” Zern, a Conservative party member, told reporters.’

Off-peak rates exist between 7am and 7pm, year-round, and all day on weekends and holidays.  I wonder the extent to which these kinds of reports – the ‘need’ to get up in the middle of the night to do ‘electrical jobs’ – become ‘urban myths’.  If they do, efforts to have an informed discussion about electricity policy may be hindered. 

NDP policy on smart meters

An article in the 11 August 2011 Waterloo Region Record caught my eye today.  Entitled ‘Horwath Hopes to Ride the Wave’, the last two sentences are noteworthy:   ‘Some of the [NDP] leader’s plans to do just that include removing the HST from hydro, gas and heating bills and eliminating the smart meter program that she said “isn’t very smart.” Horwath said, “We don’t believe people should be punished into environmental sustainability.”’  What caught my eye was the phrase ‘eliminating the smart meter program’ – more specifically, I wondered what this meant (in more detailed terms).

For information, I went to the NDP’s election platform, but I could not find any mention of smart meters whatsoever.

I then did a bit of rudimentary googling, to see if I could see this explained more fully.  The only information of relevance I found came from about five months ago.  This passage, from the Waterloo Region Record (in an article entitled, ‘Critics Charge Smart Hydro Meters Cost Consumers More’), is representative of many published at that time:  ‘Horwath called the smart meters “cruel and unusual punishment,” but said the NDP hasn’t yet decided if it would go as far as Hudak and agree to let consumers opt out and return to the old pricing plan.  “We definitely think it’s a program that is not going to get the results we need to get,” said Horwath.’

Thus, the more recent quotation continues to intrigue me, and I will keep alert to elaborations of the NDP’s platform in this area.

Will Peak Pricing Create New Peak Periods?

On Wednesday, 10 August, an article by local radio commentator Brian Bourke, entitled ‘Confessions of a Hydro Tyrant’, appeared in The Waterloo Chronicle.  What jumped out at me was a theme that seems to be appearing repeatedly in the press – namely, that large shifts by users (in a time-of-use environment) will cause the on-/mid-/off-peak rates to be meaningless (or at least no longer matched with system-wide demand).   The quotation from the article is as follows: ‘Although, my theory says if everyone moves to the off-peak time, doesn’t that make it the peak time?’

A number of questions are raised by this.  One is – and I will approach it in a subsequent entry – ‘to what extent do the pricing periods match broader demand (and/or broader market prices)?  In other words, are we being charged ‘peak prices’ at the ‘toughest times’ and so on?  Again, I will look at that one in the near future.

For now, let me consider, more closely, an issue I have already touched upon in this blog – namely, the extent to which customers will shift their loads because of the changes in prices.  My ‘gut feeling’ is that the shifts in loads will be relatively small – or at least not big enough to have on- and off-peak periods exchange places – for two reasons.  First, the differences in costs are relatively modest.  As my entry entitled ‘On-peak and off-peak residential pricing’ lays out, the difference in cost from having the oven on for one hour at 6pm in the winter versus 8pm in the winter is 15 cents.  For the most part, other household dynamics will be key determinants in deciding when dinner is.  And second, not all electrical services in the household are time-flexible – you cannot, for instance, turn on and off your refrigerator, nor can you run your dishwasher before you have your meal.  Indeed, back in August 2004, I had an article entitled ‘Real-Time Pricing for Electricity:  What Difference Could it Make to Ontario Households?’ in Municipal World.  There, I published a hypothetical household’s monthly electricity consumption (1,000 kWh … the figure would be lower today), and highlighted the fact that different electrical services had different levels of time-flexibility.  That figure looked like this:

Used all the time	Used with some flexibility (regarding time of use)	Used virtually any time
Refrigerator (100 kWh) Chest freezer (100 kWh) Clocks (10 kWh)	Furnace fan or central air conditioning (300 kWh) Oven (100 kWh) Lighting (90 kWh) Dehumidifier or heat exchanger or heat-recovery ventilator (100 kWh) TV, microwave, coffee maker, computers, etc. (85 kWh)	Washing machine and dryer (90 kWh) Dishwasher (15 kWh)

Some of the values can be challenged, but it remains the case that not all electrical services can be used at whatever time.

More academically, a number have examined the so-called ‘price elasticity of demand’ with respect to electricity – that is, for every percentage increase in costs, what is the percentage decrease in use?  In the short-term, it is often argued that – in households – that value is something of the order of -0.2 or -0.3.  In other words, for every 10% increase in prices, consumption falls by 2% or 3%.  In the longer-term, as householders make investment choices to reflect new pricing realities (for instance), that value may be up towards -0.7, -0.8 or -0.9.  Recent investigations may be found a recent article in The Electricity Journal (‘Residential and Regional Electricity Consumption in the U.S. and EU: How Much Will Higher Prices Reduce CO2 Emissions?’, by Inês M. Lima Azevedo, M. Granger Morgan and Lester Lave, 24(1), January 2011) and in a recent CD Howe Institute Backgrounder (here (pp. 4-5)).  There is also a debate about the extent to which customers respond to (and understand) marginal costs (what they are paying for that ‘last unit’ – for instance, in a time-of-use environment) or average costs.

Some of the most comprehensive work on this issue has been done by Ahmad Faruqui in the United States.  His findings – see, for example, a recent summary article he co-authored in Public Utilities Fortnightly (January 2010), entitled ‘Rethinking Prices’ – suggest that our situation, with its relatively low on-/off-peak pricing ratio in a time-of-use environment, might yield a 10% reduction in on-peak consumption.   With the average household consuming 18% of its monthly 800 kWh during peak periods (or 144 kWh), then reductions will be of the order of 14.4 kWh a month – equivalent (to keep with an earlier example) to moving dinner once a week from 6pm to 8pm (in the wintertime) or not running the air-conditioner between 12 noon and 4pm once a month (in the summertime … that calculation from the IESO’s 10 Smart Meter Lane).  Research – some which we here at the University of Waterloo hope to undertake – will reveal what people actually end up doing.

Comparing Costs

On 5 August 2011, an article entitled ‘Time-of-use Coming to Parry Sound in September’ appeared in Cottage Country Now (a website representing a number of newspapers in the Muskoka/Parry Sound and surrounding area).   Within the article, it is noted that: ‘Running one load of dirty dishes through the dishwasher during off-peak hours will cost approximately 18 cents, while using the same amount of electricity during on-peak hours rings in at 36 cents.’  Following an earlier post on this blog, I would suggest that the ‘100% difference’ is more like a ‘50% difference’.

Interestingly, the calculations were taken from the IESO’s ’10 Smart Meter Lane’ website, where sample costs of typical household activities are presented under the three different ‘pricing periods’ in Ontario.  Noteworthy, however, is that it is just – as the IESO acknowledges – ‘commodity’ costs that are represented here.  While potentially useful as an educational tool, it does nevertheless serve to understate the total cost of the electricity service to the householder as well as overstate the relative difference between, say, on-peak and off-peak delivery of these same electricity services.  Non-commodity costs are different across the province, but they should be accounted for, least confusion increase once the ‘bills come through the door’.

Comparing Billing Regimes

In The Guelph Mercury on Thursday, 4 August 2011, an article appeared entitled ‘Guelph Hydro Residents Must Call for Time-of-Use Rate Start Dates’.   The quotation to consider is the one from one of the city’s residents, who notes that, by moving on to time-of-use rates:  ‘…not changing his consumption habits could cost him “between $25 and $30” every bimonthly bill.’

Going to the OEB website, one can pull up a cost tool for Guelph Hydro.  Assuming that this customer is an average consumer (800 kWh), with that consumption ‘spread across time’ in a typical way (64:18:18 between off-:mid-:on-peak periods), then the move from ‘two-tiered rates’ (conventional rates) to ‘time-of-use rates’ would change the monthly bill from $109.08 to $110.74 – a change of $3.32 over two months.  Now, consider a ‘large’ user – perhaps 1,600 kWh a month, with consumption more concentrated in peak periods (50:25:25 between the aforementioned times).  Their monthly bill would go from $209.56 to $215.42 – a change of $11.72 over two months.  To get a change of $25 over two months, I put in a ‘very large user’ (1,800 kWh), and then made the ratio 40:32:28 (that is, a disproportionate share of use during peak periods).

Of course, many are comparing present bills (on time-of-use) with past bills (on the tiered system) – rather than present bills (on the tiered system).  As an exercise, I took out some past bills (I am in the Waterloo North Hydro service territory), and put them into the same OEB bill calculator.  (Note that I assumed a 60:20:20 distribution of consumption across the different time periods.) The results are as follows:

Year	Consumption (two months, in kWh)	Bill (at the time of consumption, for two months)	Hypothetical bill (under present time-of-use rules, for two months)	Total percentage increase	Average annual percentage increase
2010	1,637	218.82	226.98	3.73	3.7
2009	1,850	214.34	252.28	17.7	8.9
2008	2,067	218.16	278.06	27.5	9.2
2007	2,046	226.30	275.56	21.8	5.4
2006	2,170	249.73	290.30	16.2	3.2
2005	2,250	241.02	299.80	24.4	4.1
2004	1,980	207.76	267.72	28.9	4.1
2003	910	108.69	140.64	29.4	3.7
2002	1,368	192.04	195.04	1.56	0.17
2001	1,047	119.95	156.90	30.8	3.1
2000	1,113	111.25	164.74	48.1	4.4
1999	806	87.93	128.28	45.9	3.8

Notes to the table:

1) The period investigated is July to September in each year, with the period either being the middle of the month to the middle of the month (1999-2000, 2005-2010) or towards the end of the month to towards the end of the month (2001-2004).

2) Calculations were completed as follows:  Half of the bimonthly was inserted into the bill calculator, and the resultant value was doubled.

And two final observations about these data:

1)      If we did not have the ‘Clean Energy Benefit’, the difference would be higher.  Nevertheless, for me, I could say that my electricity bill has gone up by just under 4% from last year.

2)      I calculated the 2002 value repeatedly.  I then recalled that that was the period in which the market was open (May to November 2002), and when prices rose dramatically for Premier Eves.  I found it striking that prices now are similar to what they were nine years ago.