Giving credit where it’s due: Dalton McGuinty and TOU billing

It’s great to cheer for yourself when you’re right. It’s polite to congratulate your opponents when they are. But it’s most important to cheer your opponents when they are correct. Dalton McGuinty is known in Ontario as “Premier Dad”, for his controlling, nanny-state policies. He’s also known for implementing two important and forward-thinking policies. The first is the HST. The second, and the subject of this post, is the Time of Use Billing (TOU) arrangement that Ontario power companies must now provide.

In any industrial process, it is wasteful and costly to have excess capacity. Processes that have low variability are a dream. They’re easy to plan for, and easy to run. They’re also cheap. Processes that vary in resource utilization can be complex and costly. Imagine, for example, FedEx. They need to have enough capacity to deliver parcels in a timely manner before Christmas. They must also be profitable in July. This means FedEx’s facilities need to be designed with a mindset to handle Christmas traffic, even if for 11 months the excess goes unused, costing untold sums of money.

Power generation works the same way. Every day, power usage fluctuates up and down, on a relatively constant pattern. As the graph shows, in the winter, energy usage in Nova Scotia peaks at approximately 1750 megawatts between six and ten PM. After ten, it drops abruptly, before bottoming out at 1350 megawatts at 5 am, then reversing course and rising sharply. The curve changes with the seasons, thanks to electric heating and air conditioning, but the utility needs to pick a balance between cheap, high-capacity, slow-starting energy sources such as coal and nuclear power, and costly, low-output, but fast-startup sources like gas. Other sources, like hydro, wind, and solar, are also part of the mix, with hydro falling somewhere between coal and gas on the cheapness/ramp up scale, and wind and solar requiring backup generation due to their high volatility on current grid infrastructure.

During the peak hours, those gas turbines are chugging away to help you watch TV, do dishes, and read. At night, the coal plants are producing some 1600 MW of electricity (rated capacity). That means, in winter, about 300MW of electricity is being thrown out, a figure that rises to 500MW in the summer. Ignoring renewable sources, the cheapest, most energy-efficient way to produce electricity is large-scale power plants. The turbines are high-cost generators that are used for a very short amount of time each day.

This is where time-of-use billing comes into play. McGuinty recognized that by implementing this policy, he could actually lower the environmental impact of living in Ontario, without changing a single electricity source in the province. By billing consumers based on how much it actually costs to provide the service at the given time, he’s encouraging a shift to low-cost time. Rather than run the dishwasher right after supper, set it to run overnight. Rather than paying $0.10/kWh (it’s cheaper in Ontario, a topic for another day), the customer pays around $0.056. That’s a half-price load of dishes. Instead of using electricity at the peak, causing gas generators to do the work, you use the electricity that otherwise would have been dissipated at coal (or nuclear) sources.

This same logic can be applied to other daily activities: your hot water heater can run overnight, electric cars can be charged while you sleep, laundry can be done as you sleep, or on weekends, and consumers may think twice before turning on the A/C at supper time.

Where is Nova Scotia on TOU? I sent a tweet to Nova Scotia Power and they informed me that currently TOU is only offered to customers using electric thermal storage, akin to an electric furnace, which charges up overnight and releases heat during the day. I was told there are no plans that he’s aware of to implement TOU billing for all Nova Scotians.

TOU billing has been the norm in Europe for several years now. The adjustment can be tough, as consumers are used to a flat rate for power. Once consumers got in the groove, they modified their consumption habits, and spoke with their wallets. The same is currently happening in Ontario. Those who refuse to change are paying over 30% more to wash their laundry after supper than they did a year ago. Those who adapted are paying half price. Both the savings for consumers and immediate benefits for the environment with TOU billing are clear. I spoke with Hydro Ottawa, who sent me a study prepared for Newmarket Hydro, near Toronto, which found that TOU billing decreased on-peak demand by 2.80%, mid-peak by 1.39%, and increased weekend off-peak (Friday at 10PM through Monday at 7AM during the winter) by 2.13%. No statistically significant change was found for weekday off-peak consumption when tested at 95% confidence.

TOU rates are accomplishing what they have been designed to do. Although average changes in consumption during the on-peak and mid-peak periods may appear small, they are significant and correspond directionally to what the rate design intends.
-Newmarket Hydro study

The study also included a public opinion survey. They found that consumers were fearful of the change, and felt it would increase their power bills, which had already spiked in recent years. The consumers made it clear that they could not afford another cent on their electric bills. However, the study found that after a short adjustment period, there was a neutral or net positive (ie decrease) in the bills.

What public concern there is regarding increased electricity costs under TOU rates fades rapidly as customers adapt to the new rate design and perceive  that TOU rates have a neutral or slightly favourable impact on their electricity bill.

TOU requires a digital meter which knows the time of day, but most new meters have this ability. Older meters must be replaced, which costs a few hundred dollars, a saving that the utility will see in the long run, by reducing the need to install gas turbines, and generate wasted power.

While we wait for TOU billing to come to Halifax, we can make a conscious lifestyle change, despite the lack of financial benefit. If you have a dishwasher with a timer, run it in the middle of the night, starting as close to 4 am as possible. If there’s no timer, start it just before bed. The same goes for your washing machine, if you have one in your house or apartment. If you can, don’t use the dryer. It’s better for your clothes, and your wallet, but again, that’s the topic of another article. If you have control of your electric hot water heater, put it on a timer. Charge your electronics while you’re asleep too, and unplug them during the day.

We can dream big about one day deriving our electricity entirely from wind, solar, hydro, nuclear, and maybe even a machine that will draw static out of the air, but the reality is that those technologies take years to implement, and still aren’t as reliable as they need to be. Dalton McGuinty made the right move in Ontario, so as we build up the capacity for renewable energy, let’s switch to TOU billing to accelerate the reduction in impact on the environment.

The Newmarket Hydro study is available here: http://bit.ly/dSxqES