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)
Tuesday, August 23, 2011
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?
It will be interesting to see if these options that will be available to customers will be more fully elaborated during the campaign.