Electricity costs for smaller and larger households

Regular economics commentator Frances Woolley turns her sights to electricity in a recent posting (‘http://www.theglobeandmail.com/report-on-business/economy/economy-lab/frances-woolley/why-ontarians-arent-saving-money-with-smart-meters/article2190147/’, The Globe and Mail, 4 October 2011).  I enjoyed much of her argument, but I will ‘dig into’ one aspect – and by doing so, return to a theme I have picked up in the past in this blog.

More specifically, she writes:  ‘ … Ontario’s old regulated price plans favoured small households over larger families. Consumers paid a higher price for power if they used more than a certain amount each month. So, for example, a one-person household consuming 400 kWh per month paid 6.8 ¢/kWh under the May 2011 rate schedule, while a four-person household consuming 300 kWh per person paid, on average, 8 per cent more, or 7.35 ¢/kWh.’  I agree with the specific statements, but take issue with some of the details.

She is comparing a ‘summer’ consumption of 400 kWh (one-person household) in a month with one of 1,200 kWh in a month (four-person household).  And, yes, under the two-tier system, the difference in the ‘commodity cost’ would be as she writes:  for the smaller household, all 400 kWh would be under the ‘summer threshold’ of 600 kWh and thus 6.8 cents/kWh; while the first half (600 kWh) of the larger household’s electricity consumption would be at 6.8 cents/kWh, and the second half (600 kWh) at 7.9 cents/kWh, to give an average of 7.35 cents/kWh.  My issue, however, is that these are not the ‘costs’ to the consumer – or the price that would be paid.  Instead, one must look at the total charges.

Using Hydro Ottawa as the service territory in the Ontario Energy Board’s bill calculator (Prof. Woolley is at Carleton University), I put in the consumption patterns, and got numbers as follows:

Charge	One-person household	Four-person household
Consumption in a summer month	400 kWh	1,200 kWh
Commodity charges	$28.14	$91.46
Delivery	$22.81	$48.15
Regulatory charges	$3.09	$8.78
Debt retirement charge	$2.76	$8.28
Sub-total	$56.80	$156.67
HST	$7.38	$20.37
Sub-total	$64.18	$177.03
Clean Energy Benefit	($6.42)	($17.70)
TOTAL	$57.76	$159.33
Cost/kWh	14.44 cents	13.28 cents

Two points to be taken from this.  First, it is important to flag that ‘commodity charges’ – though important – are not the ‘cost’ to the consumer.  And second, differences in commodity charges will not necessarily translate (‘exactly’) into differences in these final costs to the consumer.  Indeed, in the example above, the difference in the ‘per kWh’ cost to the consumer is not ‘8%’ (the 7.35 over 6.8), but instead is really ‘MINUS 9%’ (8.7% results from 14.44 over 13.28) -- that is, the larger household actually has the smaller unit cost for electricity.  Given that 'fixed charges' (reflected in delivery charges) are relatively large, and many of them fixed, regardless of one's consumption, these can overwhelm 'per kWh' calculations.  Therefore, while Woolley’s attention to distributional impacts is most welcomed -- and the ways in which smaller households and larger households will be affected by a move to time-of-use pricing is worth investigating further -- we should reflect further upon whether the difference in commodity costs for smaller and larger households in the conventional 'two-tier' system really told us the full story. 

Kitchen table chats

The image of Tim Hudak speaking to a couple about their electricity bills in their kitchen – in a Toronto Sun article from 3 October 2011 entitled ‘Retired couple gives PC’s a boost’ – brought back memories of past photo-ops in Ontario electricity policy campaigning.  It would be interesting to compare and contrast such kitchen-table chatter.  The one that I wanted to pull out – but which I could not find ‘copyright-cleared’ on the web – was of Premier Ernie Eves doing something similar.  Though not during an election campaign, his visit to the home of Keshab Hardett and family in Mississauga – to announce his price freeze – is an image that is still in my mind almost ten years later.  When I went back and looked at Ontario newspapers on 12 November 2002 – and saw it on the front page of many – I can more fully understand why it is so ingrained.  In the next election, perhaps a pool could be formed to guess the first time such a moment might occur!  :>

Large users' prices

On the website of the North Bay Nugget (though, as far as I can tell, not necessarily in the newspaper) was an article entitled ‘Energy Crisis Official with Smart Meter TOU rates - Ontario families feeling crisis to wrestle peak times/price hikes’ (30 September 2011).  A number of familiar themes can be found therein, but the passage I would like to explore is the following:  ‘Residential customers and small businesses are considered low volume users yet we’re targeted as the major cause of the energy problem and integral part of the solution. What about major corporations with multiple locations; Wal-Mart, Toyota Canada, et al. According to the FAQ page on the Ministry of Energy website, TOU rates only apply to low volume users.’

Factually, this is correct – namely, that time-of-use rates (TOU rates) only apply to low-volume users.  But it is not that larger users are on some kind of ‘flat rate’ or ‘two-tier system’, but instead they are on a system that is ‘truer’ to real-cost pricing than is time-of-use.  More specifically, large users pay the spot market price (the ‘Hourly Ontario Energy Price’ or HOEP), which is a function of supply of, and demand for, electricity in real time. (This is those who consume more than 250,000 kWh a year; these customers account for just under half of all electricity used in the province.)

To add further texture to this debate, I thought that I would pull out yesterday’s HOEP and show how it varies with time.  I did the former, but that does not necessarily show the latter.  Looking at the graph below – which is, in fact, HOEP from Friday, 30 September 2011 – one is struck by how flat it, indeed, is.  I have overlaid the ToU times and prices.  While these HOEP figures do not show ‘global adjustment charges’ (and which would thus push the whole graph upwards), they are remarkable for how constant they are.  Perhaps that is a function of being in the ‘shoulder’ season – between, that is, the peaking seasons of winter and summer.

Regardless, the relationship between ToU (prices and periods) and real-time pricing is an interesting one – one that I have explored previously in this blog and will probably do so again in the future.

I am a ratepayer, and I am a taxpayer

A useful article appeared in 25 September’s Ottawa Citizen, entitled ‘Ontario votes: Wanted! an adult conversation on power — hydro, that is’.  Of the various themes presented therein, the one that I would like to pick up upon is with regard to the ‘transfer of costs’ among Ontario taxpayers and ratepayers.

With the assistance of analyst Tom Adams, the point is made that all three major political parties have policies to shift the cost of electricity from the ‘ratepayer’ to the ‘taxpayer’.  More specifically, the Liberals’ ‘Clean Energy Benefit’ takes 10 per cent off what are supposed to be the costs (at least in one set of calculations) of supplying electricity, the NDP would remove the HST from electricity, and the PC would remove the HST and the Debt Retirement Charge from power bills.

While politically-understandable – if not necessarily defendable – the desirability of such an approach should be questioned.  Rather than encouraging us to take ‘responsibility for our actions’ – ‘you use more electricity (in certain ways), you pay more’ – the burden is moved to the tax base, which is independent of your electricity actions.  To put more simply, the motivations to ‘do the right thing’ in the power space are reduced, and prospects for sustainability diminish.

Remember that all of these resources flow from various government pots of money.  In Ontario, government revenues are of the order of $106.7 billion (2010-11).  Personal income tax (22%), sales tax (18%) and corporations tax (8%) are the largest contributors to this overall revenue stream.   Given much continued public ownership in the electricity sector, if you reduce revenue to one bit, then either revenue must be increased somewhere else, or services must be cut.  There is not a free lunch.

I am a ratepayer, and I am a taxpayer.  I think it best to keep those domains more separate than some are proposing.

Kitchener panel

An article in The Kitchener-Waterloo Record on 22 September – entitled ‘Survey gives Ontario Liberals the edge on green policies’ – reported upon a community event/discussion in which I was pleased to participate.  Organised by Sustainable Waterloo Region, approximately 150 people gathered at The Tannery in Kitchener to receive a newly-launched report and to explore the province’s energy issues with four panelists and a moderator.

I was grateful to be asked to participate, and this newspaper article picked up upon three themes about which I spoke there and about which I have written here in the past – namely, the changes in residential electricity costs over time, the impact of time-of-use billing and the consequences for seniors of the same.  Fuller information about these issues (and others) may be found there.

Impacts upon seniors' and low-income households

To be honest, it is an article that I would not have expected to read in The National Post.  Entitled ‘Ontario’s Electric Circus’, and from 21 September 2011, interesting points about the relatively-modest differences in costs – to operate individual electric appliances in the home – are made.  These are similar to a blog posting of mine from last month.

The point to pick up on in this posting, however, follows from the article’s comment that:  ‘But there's little concrete evidence that time-of-use electricity rates disproportionately impact low-income families, seniors or otherwise at-risk groups - Mr. Hudak certainly hasn't offered any - and where such evidence can be found, it can be mitigated.’  I had the opportunity to supervise a Master’s student at the University of Waterloo a couple of years ago who investigated this issue.  In short (and the reader is directed to her thesis for full details), she found that seniors and low-income households (at least her sample in Milton, and at least as the on-, mid- and off-peak pricing existed before they were changed more recently) were a bit worse off under time-of-use rates (as compared to the traditional two-tier approach) in summer and a bit better off under time-of-use rates in the winter.  And, important to recognize, is that any differences were relatively modest.

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.

The Cost of Wind

On 16 September, an article entitled ‘Environment issues top green debate’ appeared in the Oakville Beaver.  In that, ‘Halton incumbent MPP Ted Chudleigh, of the Tories, said he and his party are not opposed to alternative energy, but believe it has its time and its place.  “The windmills are becoming more and more efficient, more and more economically feasible. The big ones are down to 20 cents per kilowatt hour or less, which is great,” he said.’ … The statement is remarkable on at least two levels:  first, 20 cents per kWh is not particularly ‘great’ (compare to the average price of electricity, as a commodity, recently in Ontario here); and second, although it depends upon the wind resource, a number of sources cite the fact that wind power’s cost is often of the order of 2.5-3.5 cents kWh (e.g., this report from the NREL).

There are other passages in the article – issues of rising costs with smart meters, etc. – but I have addressed that issue in other parts of this blog.

August consumption and hot weather

The article entitled, ‘Hydro bills feeling the heat’ (Toronto Sun, 6 September 2011), inspired me to look at my own consumption through August.  Courtesy of my local utility’s webportal (Waterloo North Hydro), I was able to download what I concluded were ‘hourly-DST’ data.  Here, I give some results, and make some comparisons.

Below, in the table, are some core results.

time period	consumption (kWh)	percentage of total consumption	commodity cost ($)	percentage of total commodity cost
on-peak	210.03	18.5	22.47	27.1
mid-peak	199.47	17.6	17.75	21.4
off-peak	723.74	63.9	42.70	51.5
total	1,133.24	100	82.92	100

So, though we were often ‘at home’ during this period, our use ended up being very close to the standard 18/18/64 division that the Ontario Energy Board cites as ‘usual’ with regard to distribution of electricity across the three time periods.

Indeed, when I compare our ‘commodity costs’ to what they would have been if we were not on time-of-use rates (but were on the traditional, ‘two-tier system’), I find it striking – and I report it in the table below – that the difference is one cent.

consumption bracket	consumption (kWh)	commodity cost ($)
below threshold (6.8 cents per kWh)	600	40.80
above threshold (7.9 cents per kWh)	533.24	42.13
total	1,133.24	82.93

Our consumption was high in August – indeed, a little bit higher than usual.  (For some historical data, see an earlier blog posting.)

In any case, I was interested to see how consumption correlated with temperature.  To explore this, I retrieved temperature data from the University of Waterloo weather station, and compared them with my hourly consumption data in three ways:  plotting daily average temperature versus daily consumption; plotting daily maximum temperature versus daily consumption; and plotting hourly temperature versus hourly consumption.  Results are below.

Average daily temperature versus daily electricity consumption,

single home in Waterloo, ON,

August 2011

Maximum daily temp. versus daily electricity consumption,

single home in Waterloo, ON,

August 2011

Hourly temperature versus hourly electricity consumption,

single home in Waterloo, ON,

August 2011

Though the visual suggests that the relationship is not completely ‘direct’ (that is, higher temperature, higher consumption), but the trend is there.  Indeed, in these three graphs, there are positive correlations, with values of 0.277, 0.120 and 0.378, respectively.  Hot weather, not surprisingly, leads to greater consumption.

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.