Time-of-use electric pricing: Nothing to panic about

Ontarians are addicted to cheap electricity. It's about time for us to break that addiction, before it turns around to bite us.

Time-of-use pricing, one of the tools that's been put in play to wean us off subsidized grid power, has been hotly debated by various media outlets. The confluence of several factors- the harmonization of excise taxes, the switch to time-of-use metering, and the continuing deterioration of the power grid- has led to significant increases in hydro bills across the province this year. The question the media seem focused on is this: are these rate hikes necessary, or is this just tax-and-spend politics in action?

Simply put, yes they are necessary. Everyone in Ontario who has seen a hydro bill in the last decade knows about that little "debt retirement charge" of 0.7 cents per kilowatt hour. That's part of our penance for assuming, throughout the latter half of the twentieth century, that we could build a world-class energy system on artificially low rates and \$38 billion in debt- \$14 billion of which is currently stranded, and is the reason for that annoying debt retirement charge that could be around until 2018. The rest of the punishment? That's a power grid that is increasingly being strained to its limits, failing at inopportune moments, occasionally leaving thousands in the dark for extended periods, and posing ever-greater headaches for hydro engineers and their strained budgets.

I'll leave the HST out of this discussion, since it's a primarily political matter and not really connected to the issue at hand- the state of the power grid, and the frenzy over smart meters. And it's that frenzy that has me writing on this issue today, because the switch to time-of-use pricing really won't make much of a difference.

The electricity cost, to which time-of-use applies, is only a fraction of the typical hydro bill. The old price is 6.4 c/kWh for the first thousand kilowatt hours (600 in summer) and 7.4 c/kWh for usage beyond that. The new prices are 5.1 c/kWh at night and on weekends, 8.1 c/kWh during mid-peak times, and 9.9 c/kWh during time periods when the grid tends to be highly stressed- around noon in summer, dawn and dusk in winter. To that we add distribution charges, which for a residential customer typically total about 4 c/kWh, and admin fees (about 1.26 c/kWh). There's usually a fixed component to the distribution charge as well, and for a residence in a high-density area, this is currently \$21.19 per month. The total bill, then, is roughly \$21.19 + 12.7 * (factored usage) on the lower fixed rate. That 12.7 changes to 11.4 off peak, 14.4 at mid-peak times and 16.2 c/kWh during peak hours.

If we convert the fixed fees to a per kilowatt hour rate, the change is even less striking. Someone using 300 kWh per month will see the unit cost go from 24 cents to somewhere between 22 and 28 cents (including tax)- or in bottom-line terms, what was a \$71 bill could be as low as \$66 or as high as \$84. In practice, it'll likely come in roughly in the middle, around \$75. On a 1000 kWh bill, what was an 18 c/kWh rate is now varying between 16 and 22 cents; a \$180 bill has been replaced by a \$164 to \$223 (most likely around \$195) bill. (More on how to make sense of such a bill, c/o Hydro One.)

While I know a few people who might worry about an extra \$15 per month, it really isn't going to cause financial hardship to most electricity users. The point is to get people thinking- to get them to ask "can I wait until rates are cheaper (ie. the grid is less stressed) to do my laundry?". A 1000 kWh per month user could, theoretically, see a difference of up to \$59 per month if they use all their power during peak times verus off-peak times. In practice, we'll still use electricity for lamps, computers and stoves when we need it, so the difference won't be so big- but the thought of it just might be enough to shift usage patterns enough that we can coax some more life out of our existing generating plants and transmission lines. If we can do that, we won't need to pour quite as much money into new nuclear stations and high-voltage transmission capacity- and that, my friends, would bring rate hikes you most certainly would notice.

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