Ontario Residential Smart Metering (Update 2016)

It has been more than ten years since the Ontario government mandated provincial wide adoption of smart metering technology and for all consumers to have them by December 31st 2010.

It was December 7th 2004 that I published my initial blog Smart Metering for Residential Consumers and a lot has happened since then.

Ontario Commodity Price of Electricity for Retail & Small Commercial Consumers

In the beginning there was a government regulated fixed price for retail electricity supply; 
4.3 c/kWh from December 9, 2002 through February 29th, 2004. 

On April 1st, 2004 Ontario began a two-tiered pricing system. The lower price was charged up to a monthly maximum quantity; thereafter any quantity consumed was at the higher price. Initially the lower tier monthly maximum was set at 750 kWh but was changed November 1st 2005 to a seasonal quantity;

• November 1st to April 30th the lower tier monthly maximum was 1,000 kWh 
• May 1st to October 31st the lower tier monthly maximum was 600 kWh

Once the government decided to roll-out smart meters Time of Use (TOU) rates needed to be developed for the province. The Ontario Energy Board was given the responsibility for developing and setting TOU rates under the direction/guidance of the Ontario Government.

Based on Historical Electricity Prices; TOU prices first appeared on May 1st 2006. These were initially used in research for the Ontario Smart Price Pilot. The Board used the pilot to better understand the degree to which Ontario consumers changed their electricity consumption behavior with smart meters and "time-of-use" (TOU) prices in advance of the province's plan for wide-spread implementation by 2010.

My smart meter was installed more than a year in advance of my local distribution company making the shift to TOU rates. In fact my first bill using TOU rates came in April 2012 well after the mandated 2010 deadline. Some Ontario consumers migrated to TOU rates before me while many others afterwards and there are still a few that are billed under the old two-tiered pricing mechanism.
 

TOU Pricing 

 

TOU Rates May 1 2016

The OEB established three distinct periods and prices for electricity in Ontario that retail and small commercial customers are charged. The chart above illustrates this graphically for the current period of May 1st to October 31st.

Winter Hours

The peak and mid-peak hours flip flop during the winter period to better reflect the change in the seasonal demand profile.During the year approximately 64% of the hours are off-peak, 18% mid-peak and 18% peak.

The current spread (November 2016) between off-peak and peak power is 9.3c/kWh! This provides consumers with a significant incentive to shift consumption into the off-peak hours; i.e. after 7 pm on business days and anytime on weekends and holidays.


My own experience bares this out. In the latest 12-month period (October 2015 through August 2016) our total annual cost of power was $2,089.34 which included savings of $131.81 (after tax) for load shifting; a (5.9)% reduction in what we would have otherwise paid.

This level of load shifting is much higher than I anticipated. Obviously the price differential is a significant factor. Another is we stay up much later than most so it is not a terrible inconvenience for us to prepare dinner or wash clothes and dishes after 7 pm during the week.  

What Changed since my 2004 Blog?

 

Ontario has a competitive wholesale power market where the Hourly Ontario Energy Price (HOEP)is determined by the Independent Electricity System Operator In 2004 HOEP was the primary component for determining the commodity portion of electricity cost; i.e. it is the market clearing price and reflects the marginal cost of power. As my blog pointed out at the time the difference between peak and off peak HOEP power prices was (and continues to be) very small. The assumption was TOU rates would track HOEP and if it had, the incentive to load shift might only have been a few cents per kWh.

However the Ontario power market changed sometime after the Liberals won election in October 2003. All generators were put under contract. Some generators receive a prescribed rate (regulated by the OEB) while others would have contracts with the IESO that ensure they receive a minimum monthly revenue sufficient to cover their costs and earn a profit. Some of these contracts were signed by the Ontario Government and others by the Ontario Power Authority (OPA) prior to its merger with the IESO, January 1st 2015.

While Ontario had an energy market it did not have a capacity market; one in which contracted charges could be allocated and recovered. It therefore became necessary to develop a mechanism to capture the variances between what generators received from the wholesale market and what they were entitled to under their respective contracts. The Global Adjustment became that mechanism starting in January 2005.

The Global Adjustment (the early years)

The graph from the December 2006 IESO Monthly Market Report provides a perspective on the early months with the GA. When HOEP peaked in the summer of 2005 ($80-100/MWh) the GA was a credit to consumers - that is generators over earned and repaid the surplus. That was short-lived however and by Q4 2006 the GA was firmly entrenched as a charge to consumers reflecting the step-change lower in HOEP ($35 to 50/MWh).

There have been a lot of changes to the GA over the years as more generation has been added and other charges put into the account to cover the costs for provincial-wide conservation spending and payments to participants of the OPA demand response programs. Also the GA charge is different for different classes of customers; larger consumers with flatter load profiles tend to pay a lot less than residential consumers. According to the Ontario Energy Report for Q2 2016 class B consumers (residential and small commercial) paid HOEP of $1.2/MWh (weight average basis) and a GA of $101.40/MWh where as class A consumers (large commercial and industrial) paid $1.10/ MWh (arithmetic average) and $5.65/MWh for the GA in the first half of 2016

When setting residential TOU rates the OEB incorporates the GA charge directly into the rate whereas it is a separate line item for larger consumers. According to The Regulated Price Plan Price Report; the various components of the GA costs are allocated to TOU consumption periods based on the type of costs. For instance nuclear generation costs are allocated uniformly across all hours of consumption whereas gas-fired generation costs are allocated only to peak hours even though this type of generation does operate outside of peak hours.

When TOU rates were initially developed the ratio between peak and off-peak was 3:1 While the OEB acknowledges that a higher ratio "strengthens the incentive for electricity consumers to shift their consumption away from on-peak hours" the impact of the GA allocation has been to reduce the ratio to 2.1:1 in 2016.


 Auditor General Report on Smart Metering 


Perhaps the one area of concern that was spot on from my original blog was the lack of a cost/benefit study justifying the initiative. In fact in 2014 the Ontario Auditor General wrote a scathing report of the Ontario power market witha chapter dedicated to smart meteringin which a number of issues were raised.

Perhaps the most important of the conclusions reached in the audit undertaken between October 2013 and May 2014 were as follows:

• The Smart Metering program was rolled out with aggressive targets and tight timelines without sufficient planning and monitoring by the Ministry of Energy.
• The decision to mandate Smart Metering was not supported by an appropriate cost-benefit study. After the announcement to proceed a study was undertaken and submitted to cabinet in 2005 projecting $600 million of benefits over 15 years. That study was flawed and the real benefits only $66 million.
• The auditor's report noted that a German cost/benefit study published in 2013 concluded "smart meters were not cost effective for small ratepayers because they would cost more to buy and install and operate for average households than the potential savings." As a result the German government did not follow the EU plan to install smart meters for 80% of rate payers by 2020. Instead they recommended a roll-out tailored to different ratepayer groups based on how much they consumed.
• The cost estimate of $1 billion for implementation has been exceeded and is more likely going to come in at $2 billion or more.
• In most other jurisdictions mass implementation of smart metering was undertaken by only a few distribution companies or even just one whereas in Ontario 73 distribution companies scrambled to meet the government implementation timelines.
• The audit found the cost per meter varied greatly between distribution companies from as little as $88 to as much as $544 per meter.
• The initial savings of 1,300 MW in peak demand by 2007 was irrelevant as full scale smart metering implementation was not expected until 2010. Subsequent targets of 1,300 MW by 2010 and 3,600 MW by 2025 were cast into doubt as peak demand actually rose in 2010.
• The auditor general noted that the initial TOU rates in 2006 had an on-peak rate 3 times higher than the off peak rate. Over time the rising impact of the GA on rates has resulted in a much smaller differential (currently 2.1 times in 2016) and a lower incentive for load-shifting.
• In a 2013 study released by the OPA and the OEB the impact of TOU on reducing peak demand was estimated at only (3)%. Of about 1.8 million ratepayers on TOU rates only 35% of residential and 19% of small businesses reduced their consumption during On-Peak hours. Another 77,000 ratepayers on smart meters had fixed price contracts with marketers and did not have TOU pricing. 
• The IESO maintains a $249 million provincial data centre and now charges $0.79/month per meter which was not included in the initial cost estimate. Of the 4.8 million smart meters installed (May 2014) 812,000 have not as yet transmitted data to the centre yet are being billed for the cost.   

Conclusions

1. TOU rates in conjunction used with smart meters can provide a powerful signal and incentive to consumers to move their energy consumption from peak to off-peak hours.
2.  Residential customers can easily calculate how much load shifting they are doing relative to the standard provincial consumption average of 64% off-peak, 18% mid-peak and 18% peak. 
3. In our experience we have shifted an average of (15.1)% of our mid-peak and (20.0)% of our peak consumption into off-peak hours since we started on TOU rates in February 2012. This has saved us $246.60 on the commodity portion of the bill (before tax) or 3.4%. However, when the total bill including tax is taken into account the $278.66 saved represents only a 2.7% reduction in what we would have paid otherwise.
4. The original OEB implementation plan suggested a $3.50/month cost for smart metering. Our share of the cost to implement smart metering would have been (56 months x $3.50/month) or $196 leaving us with about $50 in net savings; less than $1/month!
5. Based on the auditor general report that cost could easily be twice that amount or $7/month. If we assume the costs being twice the original $1 billion estimate I would be a net $(146) worse off with smart metering. The provincial-wide implementation in a shorten time frame was a likely reason for a large portion of the cost overrun.
6. Regardless of the actual costs they are now sunk; our savings are real versus the alternative of doing nothing.
7. Based on the studies done in 2013 my experience with load-shifting would seem to be much better than the vast majority of Ontario ratepayers. It would seem that the expected savings in peak demand will not be achieved without significant changes to rates along with more customer education around the benefits of load-shifting. 
8. My original blog pointed out that we were not against smart metering and load-shifting. What we would have rather seen was a phased in approach where those with higher consumption and an interest in using TOU rates be given the opportunity first. The 2013 OPA/OEB study results bears this out. If just 35% of consumers have reduced their peak demand it would seem that 65% of the installations were a waste of money in the short run. In addition the cost/benefit study undertaken in Germany came to a somewhat similar conclusion.
9. Learn to walk before you run.