Do you understand your hydro bill?

If you're like most Ontarians, probably not. There's a good chance you've never really studied the list of all ten factors- plus tax- that convert your meter reading into that nasty-looking number labelled "Please Pay". And there's a good chance you don't really want to. (If you do, of course, here are the gory details on delivery and supply, courtesy of Hydro One and the Ontario Energy Board.)

What really matters to the consumer is the price per kilowatt hour. What fraction of that price is "debt retirement charge" versus "transmission connection charge" or "supply" doesn't really matter to the end user. When you combine all those numbers into a simple price per unit energy used, you get this:

Whoa, what's up with that?

Well, the "delivery" section of a Hydro One bill (and those of most municipal utilities) includes a pretty hefty fixed charge per month. That fixed charge varies from $19.50 for a residential customer in a high density area, to $40.42 for a small business in the boonies. The "regulatory" section also includes a fixed charge- a mere 25 cents a month across the board, but it's there.

The presence of fixed charges means that the cost per kilowatt hour depends quite dramatically on the amount of electricity used. If your monthly usage goes up, those fixed charges are spread out over more kilowatt hours of energy. The cost per kilowatt hour, therefore, comes down. Owners of seasonal cottages and cabins are well aware of this effect. Their electrical demand might be near zero for six months of the year, but they'll never see the bill go below $38.

This has important implications for conservation initiatives. If a business somehow manages to cut its usage from 10,000 kWh to 5000 kWh per month, its hydro bill will drop by half (well, by 49% in low density regions). But if a residential customer cuts their consumption from, say, 1000 to 500 kWh per month, they won't see their bill cut in half. It'll only drop by about 40%. More efficient customers have even less incentive to reduce their usage; cutting from 300 to 200 kWh per month means that consumption is down to 67% of what it was, but the bill is 78% of what it was at 300 kWh/month: a difference of perhaps $13 for a one-third reduction in consumption on a $60-$70 (plus tax) bill.

Is this really a problem? Perhaps not, but it needs to be considered when discussing conservation initiatives. Changes in the supply rate, notably the time-of-use pricing scheme that was recently introduced in Ontario, make a substantial difference to heavy consumers but have less effect on a family in a small townhouse or apartment, who are likely using only 300 to 500 kWh per month (unless they have electric heat, which is a whole other can of worms). If you want businesses to cut their power demand, playing with supply prices might have the desired effect. But when you're a farm or small business paying $1500 a month for hydro, and need to power the motors, welders, computers and other equipment that keeps your operation running, there's a good chance you're already planning or implementing all the conservation measures you can afford, and will find more frustration than incentive in price changes.

On the other hand, if you're trying to get residential consumers to make the connection between their habits and their bill, shifting that "distribution service charge" from a flat rate per month to a price per kilowatt hour would be very effective- and, with a bit of very simple math, could easily be made revenue neutral for Hydro One. Flat rates (or flat components in the current price structure) are an incentive to use more electricity than necessary; rates that are closely tied to actual usage are a strong incentive for enhanced conservation measures.