Tuesday, September 20, 2011

PC elaboration of new residential pricing plans

There was quite a lot of coverage of Tim Hudak’s elaboration of how he would give residential customers ‘the choice’ with respect to time-of-use or flat rates.  The Toronto Sun, in an article entitled ‘Meters outsmart power users:  Hudak’ and dated 19 September 2011, reported it as follows:  ‘But Monday he elaborated on how prices would be different under a PC government: There would be a flat rate for the first 1,000 kilowatt hours and a higher rate for use after that.  “The flat rate is simply set as an average of the other (time of use) rates,” Hudak said.’  A check of the PC website could not provide confirmation and/or elaboration of this on a posting that explored the smart meter issue.  The Liberals, in their own subsequent press release, suggested that Hudak’s campaign team had issued a press release in clarification, but I could not find it.
But the Liberals were quick to jump on the issue, with a press release coming out saying that this would be a dramatic increase in costs to consumers.  The Liberal argument is that the PCs are talking about an ‘average’ of the three time-of-use rates – averaging 5.9, 8.9 and 10.7 gives you 8.5 cents per kWh.  Alternatively – and probably the case – if the average was in fact weighted to ‘time-of-use’, then the calculation would be a weighted average of 5.9 (64% weighted), 8.9 (18% weighted) and 10.5 (18% weighted), which is 7.268, or 7.3, cents per kWh.  This is higher than the present ‘lower-tier’ price of 6.8 cents per kWh, though lower than the ‘higher-tier’ price of 7.9 cents per kWh (which occurs across the summer threshold of 600 kWh). 
It will be interested to see how this is elaborated by the PCs.  ToU and two-tier are meant to be ‘impact-neutral’ to the average customer, and that is why you will find the 7.3 between the 6.8 and the 7.9.  As I have argued elsewhere in this blog, if you allow customers to choose whether they are on ToU or two-tier, then the rates for each would have to be higher than if everyone were on one or the other (because consumers will choose the ‘better one’ for them).   Another interesting elaboration will be with respect to the threshold – 1,000 kWh (mentioned by Hudak) is the winter threshold, but, as noted above, the summer one is lower.
This article also had interesting points about the impact of ToU upon peak consumption -- namely, a claim by Brad Duguid (Liberal MPP) that 'smart meters ... have already shaved 4% off demand during the peak consumption period' -- and I have addressed that in a previous posting.


Mike said...

Your contention that commodity rates would have to increase under the PC plan is interesting but I don't agree.

For 80% of users the difference would be +/-5% correct? Assuming the bottom 10% of users move back to two-tier and the top 10% stay with ToU, the rest will hardly see a difference.

By your own logic; they should not switch.

It seems more likely, to me, that the choice will be driven by emotion rather than commodity prices. Therefore the effect of will be unpredictable and likely yield no net difference.

Ian Rowlands said...


Thanks for the comment, and for your interesting point.

Yes, if ‘emotion’ rules the day, and people end up ‘opting out’ of time-of-use rates because they ‘have a gut feeling’, ‘want to express their political/ideological/other positions through their tariff-choice’, or some other reason, then we may well have many choosing the ‘least logical’ option for them. So, if I understand you correctly, given this – and given that the difference in cost in many instances is relatively modest anyway (with which I agree) – then these various ‘middle choices’ may well cancel each other out. A counter-argument, of course, is that everyone will soon have some smart meter data about themselves, so they will be able to figure out for themselves which tariff is ‘better’ (though there may be differences between winter and summer that they have yet to ‘go through’).

In any case, however, even if those two tails of 10% each ‘get it right’, I would contend that my logic still holds. Yes, the required price increase to cover larger system costs would be more modest than if everyone ‘got it right’, but it would still be required.

Nevertheless, thanks for contributing your comment.