XYLENE POWER LTD.

EXISTING ELECTRICITY RATE PROBLEMS

By Charles Rhodes, P.Eng., Ph.D.

OBJECTIVE:
The objective of this web page is to identify existing electricity rate problems and their solutions.
 

THE MISCONCEPTION:
There is a public misconception, shared by most politicians, that the cost of dependable clean electricity delivered to a consumer during a year is proportional to the number of kWhe consumed during that year, whereas the actual cost of providing dependable clean electricity to a consumer during a year is actually approximately proportional to the consumer's annual peak electric power demand in kWe co-incident with the annual grid peak demand.

This misconception is widespread, is taught in high schools, is imbedded in provincial legislation and is encouraged by vested interests in the fossil fuel industry.

This misconception has huge consequences because it financially prevents use of surplus clean electricity for displacement of fossil fuels.
 

CONSEQUENCES:
In the public mind the logical consequences of this misconception are approximately as follows:
a) Electricity is a flow of electrical energy;
b) The cost of electricity is proportional to the amount of electrical energy consumed;
c) The cost of central electricity generation is proportional to the amount of electricity that it supplies;
d) Electrical energy conservation saves each consumer money, therefore electrical energy conservation reduces the cost of central electricity supply;
e) Allocation of electricity system costs to customers in proportion to their individual energy use is fair and proper;
f) Imbedding in legislation allocation of electricity system costs to customers in proportion to the energy that they draw from the grid was the right and proper thing for the government of Ontario to do;
g) Reducing the electrical energy drawn from the grid via use of behind the meter solar panels reduces central electricity system energy generation requirements and hence reduces the central electricity generation costs;
h) Insertion of surplus electricity from solar generation into the grid via net metering reduces central electricity generation requirements and hence reduces central electricity generation costs;
i) The marginal cost of electrical energy should be kept high to encourage electrical energy conservation;
j) Since electrical energy conservation reduces the amount of electrical energy that needs to be centrally generated electrical energy conservation is a good thing and should be subsidized by the electricity ratepayers;
k) By minimizing future electrical energy use we can minimize future energy related costs;
l) Nuclear power is expensive, hence any substitution of other sources of energy for nuclear generated electricity reduces electricity system costs;
m) Renewable generation that supplies intermittent non-fossil energy to the public electricity grid and hence reduces the the requirement for centrally generated electrical energy reduces electricity system costs ;
n) The various sources of intermittent renewable energy are statisticaly random;
o) Hydro-electric dams in Ontario can store energy which can be used to smooth out the statistical randomness of renewable generation.

The above 15 seemingly logical statements are all wrong because the Ontario electricity system is over 90% clean (non-fossil). The electricity costs are NOT proportional to the number of electrical kWh consumed.
 

BLENDED ELECTRICITY RATE:
The blended electricity rate is defined by:
Blended Electricity Rate
= (Total Electricity Bill Including All Applicable Taxes) / (Number of kWh Included in the Electricity Bill).

In Ontario in December 2016 the Blended Electricty Rate for rural residents rose to about $0.25 / kWh and the corresponding marginal electricity rate reached $0.27 / kWh. At these rates many major Ontario electricity consumers can potentially save money for themselves by behind the meter combined heat and power electricity generation using fossil fuels. There is potential for a rapid loss of grid load that could threaten the financial solvency of the Ontario electricity system. Such a loss of grid load would be accompanied by a large increase in fossil CO2 emissions. It is urgent that the Ontario retail electricity rate structure be changed to provide Ontario electricity consumers a lower blended rate per kWh and thus avoid major financial and fossil CO2 emission problems.
 

ONTARIO GOVERNMENT POLICY PROBLEMS:
The retail electricity rate problems in Ontario stem from multiple fundamentally wrong Ontario government policies. These policy failures have led to a blended electricity rate that is much higher than necessary. The solution to these policy failures is to sell many more clean kWh without incurring significantly more electricity system costs, so that the blended electricity rate decreases.

The first Ontario government policy failure was to encourage electrical energy conservation via a high per kWh electricity price. However, the actual consequences of that policy have been to cause end users to substitute fossil fuels for clean grid supplied electricity and to discourage storage of clean grid supplied energy. Energy storage is essential for efficient use of the electricity grid's shared generation, transmission and distribution resouces. Absent energy storage more generation, more transmission and more distribution are required which effectively increases rather than decreases the blended electricity rate.

A second Ontario government policy failure has been the misallocation of the Global Adjustment. The Global Adjustment is a financial adder which is used to make the total electricity system revenue equal the total electricity system expenses. The Global Adjustment is presently by legislation allocated to electricity customers in proportion to their energy consumption, which aggravates the first policy problem. The Global Adjustment should be allocated to customers in proportion to their monthly peak demand. To enable proper allocation of the Global Adjustment all electricity customers should be billed for monthly peak demand with a 2 hour exponential time constant. That billing could easily be done using existing smart electricity meters but has not occurred due to Ontario government policy failure.

A third Ontario government policy failure has been primary metering of tenants in major buildings. While that metering encourages electrical energy conservation it financially discourages load management. In a clean electricity system peak demand minimization and total fossil fuel consumption minimization should be the primary goals. In a clean electricity system the marginal cost of off-peak energy is trivial. The dominant cost is for financing, operating and maintaining all the equipment necessary to meet the annual peak demand, so a charge for peak demand should be the main component of a monthly electricity bill.

A fourth Ontario government policy failure is constraining clean generation or exporting clean generation at about $0.01 / kWh instead of selling the surplus clean energy in Ontario as interruptible power for displacement of fossil fuels, for electrolytic hydrogen production and for charging energy storage.

A fifth Ontario government policy failure is over subsidization of wind and solar generation in preference to nuclear generation. This over subsidization mainly occurred because the cost of energy storage, transmission and distribution per dependable delivered kWh for wind and solar generation is many times the corresponding cost of energy storage, transmission and distribution per dependable delivered kWh for nuclear generation.

A sixth Ontario government policy failure is that the government of Ontario is often paying intermittent renewable generators to not generate. From the electricity ratepayer's perspective this policy makes no sense whatsoever. If due to contract terms a non-fossil generator has to be paid anyway, the available surplus electricity should be sold in Ontario for fossil fuel displacement, electrolytic hydrogen production and energy storage charging. In order to sell that electicity the government must offer an Interruptible Electricity Service (IES) rate.

A seventh Ontario government policy failure is that since 2002 the government of Ontario has failed to invest in more nuclear power. Today there is no hope of meeting the fossil fuel displacement requirements in the fossil fueled heating, transportation and behind the meter generation sectors for lack of sufficient nuclear power. This problem will become much worse on shutdown of the Pickering NGS.

A eighth Ontario government policy failure is that since 2012 the government of Ontario has failed to invest in Fast Neutron Reactor (FNR) development. A direct consequence of that failure is that in the coming years Ontario must purchase more natural uranium and will be swimming in excess nuclear waste.

A nineth Ontario government policy failure is that the government failed to plan for a direct fossil carbon emissions tax to fossil fuels used for electricity generation. The result was an overbuild natural gas fueled generation. Taking that natural gas fueled generation out of service will result in billions more dollars of stranded debt.
 

ONTARIO ELECTRICITY SYSTEM:
by Paul Acchione June 28, 2021

Texas is experiencing a problem today similar to that which Ontario experienced in 2002.

The Ontario deregulated electricity market (energy only) was not building new capacity from 1997 to 2002 as the economy grew. Eventually Ontario ran short of dependable capacity. By 2002 we had emergency generators being rented and connected at various locations to try to keep the lights on.

After the 2003 north-east blackout the Ontario government caved in and got rid of the energy only market and introduced a centrally planned process that contracts for sufficient dependable capacity to ensure reliability targets are met. The fixed contractual costs that could not be recovered in the energy market were uplifted to domestic retail rates using a “global adjustment” mechanism. Ontario hasn't had a shortage of capacity since. Originally a new organization known as the Ontario Power Authority was created to plan and contract for disptchable capacity. However a few years ago the government realized it would be more efficient to have the IESO (Ontario’s ISO) do that function in addition to operating the electricity market. That is how electricity supply is organized today. Ontario effectively has a hybrid market - an electrrical energy only market for dispatching and has a global adjustment surcharge to pay for additional dependable capacity to ensure reliability.

Because of this hybrid arrangement, all bidders offer electrical energy at their marginal cost of production at all times in order to maximize their production. A change was made in 2013 and fine-tuned in 2016 to ensure dependable nuclear generation is not forced to shut down by intermittent generation with lower marginal prices than nuclear. The change included establishing “floor prices” on bids for intermittent generation that are higher than the marginal cost of production for nuclear. This change resulted in both lower electricity costs and lower emissions. The reason is that when a CANDU nuclear plant is shut down it can’t come back on for about three days. If the intermittent generation also disappears as it often does during those three days, then natural gas backup generation at higher fuel cost and higher emissions must be used until the nuclear units come back on line.

The end result is that we now have very low average wholesale energy prices (typically about 1.5 cents CAD/kWhe). However the global adjustment now covers most of the fixed costs of capacity. Because Ontario’s system is very low emission (about 20 grams CO2/kWhe) its fixed cost for the generation is relatively high (about 7x or 8x higher than the energy price). The final retail price of electricity is Ontario (generation + transmission + distribution + regulatory charges) is now about 18 cents CAD/kWh or about 14 cents USD/kWh and we meet or exceed NERC reliability requirements.
 

SUMMARY:
The fundamental electricity rate problems in Ontario are that in the retail electricity rates the peak demand charge per kW or per kVA is either non-existent or far too low, the energy charge per kWh or per kVAh is far too high and there is no provision for economic sale of intermittent surplus clean electrical energy for fossil fuel displacement, electrolytic hydrogen production or for charging energy storage. The high marginal rate per electric kWh has caused extensive use of fossil fuels for displacement of high priced electricity and has caused previously existing energy storage systems to be taken out of service and no new energy storage systems to be built.

The lack of energy storage has led to widespread economic waste within the electricity system. The costs of this waste are a component of the high blended electricity rate.

In a non-fossil electricity system the total electricity system costs are nearly independent of the amount of energy actually supplied to consumers. These costs are approximately proportional to the capacity of the electricity system to meet the annual grid peak load. Hence reducing energy consumption without reducing annual peak demand simply raises the blended cost of energy for all consumers and achieves no overall electricity system cost saving. The blended electricity rate in Ontario is now far above the range where Ontario primary industries can be internationally competitive. The blended electricity rate could be substantially reduced by selling at a discount in Ontario surplus non-fossil electrical energy for fossil fuel displacement, for electrolytic hydrogen production, for charging energy storage and for time independent electrolytic chemical processing.

Ontario has a time-of-use (TOU) rate component in the retail energy charge but the differential between the on-peak and off-peak rates per kWh is not sufficient to financially enable behind the meter energy storage. In terms of affecting the provincial load profile, the TOU rate is a complete failure. The grid load factor now is much worse than it was in 1982. Further, the unpredictability of wind generation makes TOU electricity rates completely ineffective.

Solving these problems requires a fundamental shift from a predominantly energy based retail electricity rate to a predominantly peak demand based retail electricity rate for both large and small electricity customers. There must also be a means of automatically bypassing selected peak demand meters at times when the Independent Electricity System Operator (IESO) signals that it has a surplus of non-fossil electricity.
 

HYDRO ONE NETWORKS INC.:
An issue of concern is that in late 2015 the Ontario Energy Board approved residential electricity rates which incorporate a fixed delivery charge per month per consumer. In order for Ontario to economically shift away from fossil fuels Ontario consumers must be financially incented to improve their load factors via hybrid heating fuel switching, energy storage and load control. The fixed delivery charge approved by the Ontario Energy Board in late 2015 partially eliminates the electricity rate based financial incentive that can be conveyed to consumers for load factor improvement.

On its November 2015 bills Hydro One confirmed that about 10% of its customers still do not have functional interval (smart) meters. The smart meter problems are primarily related to the smart meter data gathering system communications. Hydro One should fix its communications rather than rely on a flat electricity rate approved by the Ontario Energy Board. Absent functional comunications it is impossible to control displacement of fossil fuels with surplus non-fossil electricity.
 

MAIN PROBLEM:
The main problem with the present electricity rate structure in Ontario is that the retail cost of a marginal kWhe is too high as compared to the cost of a fossil fuel kWht. The Independent Electricity System Operator (IESO) contracts on behalf of the Province of Ontario primarily for electricity generation capacity (kW) but sells electrical energy (kWhe). The selling price per kWhe is too high in part because the selling price per kWhe contains the Global Adjustment, which is presently the same for all kWhe sold. As a result a lot of available non-fossil energy is not sold in Ontario and is either constrained (wasted) or is exported at a very low price (~ $0.02 / kWh). As a result generation, transmission and distribution are all inefficiently used. The high marginal electricity rate per kWhe in Ontario, including the Global Adjustment, presently drives conversion from electricity to fossil fuels, not the reverse.

Many primary industries in Ontario that required a low average cost per kWhe have been forced out of business. Other primary industries are generating their own electricity by combustion of natural gas. As a result the total number of kWhe supplied by the grid is reduced. Since the electricity system costs are nearly fixed such independent generation increases the blended electricity rate for all other electricity consumers. The blended electricity rate is now far too high because the fixed electricity system costs are spread over too few kWh. Furthermore, there is no political recognition by the government of the consequences of the present rate structure on the energy storage, or the transmission and distribution requirements of intermittent renewable generation.

This rate situation is largely the result of an erroneous government policy aimed at minimizing electrical kWhe consumption and avoiding construction of new nuclear reactor capacity instead of at minimizing peak kVA and minimizing overall fossil fuel consumption. This erroneous government policy is in part the result of misguided governmental policy encouraged by the natural gas industry.

For lack of an Interruptible Electricity Service rate offering, the Province of Ontario is losing over $1 billion per year in foregone electricity revenue and Ontario rate payers are losing another $2 billion per year in extra fossil fuel purchase costs.

Fully correcting the problems in the Ontario electricity system requires customer owned energy storage and load control equipment, directional interval metering and peak demand or peak kVA based electricity rates. As of November 2015 about 10% of Hydro One customers still did not have functional smart metering. Hydro One still has no financial incentive to fix this metering fiasco.
 

GOVERNMENT INTERVENTION IN THE ELECTRICITY RATE SETTING PROCESS:
One of the main problems in Ontario has been well intentioned but poorly informed government intervention in the electricity rate setting process. In the mid 1990s this intervention had the effect of reducing electricity rate revenue below the level that was necessary to maintain Ontario Hydro solvency. The result was Ontario Hydro insolvency and a series of consequential problems, some of which remain with us to this day. One of the remaining problems is lack of rational long term electricity system planning, particularly for high voltage transmission corridors and for nuclear reactor siting, design and construction.

The government of Ontario claims that it is going to meet various fossil CO2 emission reduction targets but the government has failed to implement the most basic electricity system planning necessary to meet those targets. The law of conservation of energy demands a massive increase in nuclear power generation capacity and supporting transmission, but the government simply refuses to face that reality. Disposal of nuclear waste demands a shift from CANDU reactors to Fast Neutron Reactors, but again the government refuses to face that reality.

Since the year 2002 the Ontario government has repeatedly delayed construction of new nuclear reactors and has instead invested in wind generation with no understanding of the consequences of grid connected wind generation on the Ontario electricity transmission/distribution system, on Ontario fossil fuel emissions or on Ontario blended electricity rates.

At the root of the Ontario government energy policy problems is lack of understanding of integrated energy systems by government decision makers and their repeated rejection of informed technical advice. Following the insolvency of Ontario Hydro key decisions relating to the Ontario Electricity System were made by a succession of technically incompetent Ministers of Energy. These government ministers totally failed to appreciate the key roles of nuclear electricity generation, thermal energy storage and electricity rate based load factor incentives. There was also no governmental appreciation of the practical complexities and consequences of individual suite metering in high rise buildings.
 

RATE PROBLEM:
Most of the grid distributed electricity in Ontario is purchased from reliable generators on the basis of capacity (kVA or kW) contracts but is sold to end users on the basis of energy (kWhe) delivered. The energy price per kWhe reflects average system cost per kWhe but does not convey a useful message to the end user as how to change his behaviour to reduce his average cost per kWhe. Currently high load factor (base load) electricity is over priced and low load factor peak load co-incident electricity is under priced. Many commercial-industrial parties are gaming the system by behind the meter generation of part of their own electricity, which further increases the cost per kWh for other electricity customers and which increases provincial CO2 emissions.

The time-of-use (TOU) rate differential is not sufficient to financially enable construction, operation and maintenance of either central or behind the meter energy storage. Moreover, construction of unpredictable intermittent wind generation has made TOU electricity rates completely ineffective.

A major part of the electricity rate problem is mis-allocation of the Global Adjustment which is presently applied to all grid supplied kWh sold in Ontario instead of being applied to all grid supplied peak kVA in each billing period.

Another part of the electricity rate problem has been failure to recognize the extraordinarily high costs of transmission and energy storage required by intermittent solar and wind generation.

There is no solution to this rate structure problem other than to face it and fix it. In a world of non-fossil generation the end user's cost for Uninterruptible Electricity Service (UES) electricity should be primarily proportional to the end users peak kVA during the billing period, not the end users kWh consumption during the billing period. In order to sell surplus kWh selected peak demand meters must be automatically bypassed at times when there are surplus non-fossil kVA available.

The present system of apportioning Global Adjustment costs by kWh usage incents customers to substitute fossil fuels for electricity rather than the reverse. The resulting reduction in grid supplied kWh results in higher average per kWh costs which increases the per kWh electricity rate which drives industry and jobs out of the province of Ontario, makes ordinary life unaffordable for persons living in poverty and increases Ontario's fossil CO2 emissions.

Apportioning electricity system costs by kWh usage results in a low load factor, which further increases the cost of electricity per kWh delivered to the end user. The present average load factor in Ontario is too small. On average half of the grid connected generation is not used. As a minimum all non-fossil kWh surplus to Uninterruptible Electricity Service (UES) requirements should be sold in Ontario as Interruptible Electricity" for displacement of fossil fuels or electrolytic hydrogen production, not constrained or exported at only $0.01 / kWh.

Now, as a result of the Paris Agreement of December 12, 2015, Ontario is faced with having to completely displace fossil fuels with electrolytic hydrogen, nuclear heat or electricity.

In order to displace fossil fuels, the energy supply and delivery capacity of the Ontario electricity system must be increased 3 to 5 fold. To mitigate the cost of electricity system expansion it is essential that electricity customers make efficient use of both non-fossil generation and supporting transmission and distribution. Every electricity customer must be given a strong financial incentive to effectively use or store non-fossil electricity when it is surplus and to minimize consumption of grid supplied electricity when non-fossil electricity is in short supply. Where possible heat rejected by nuclear power generation should be used for district heating.

Thus the effective electricity cost per kWh must automatically vary over a wide range in a manner that tracks the availability of non-fossil electricity. Reliable non-fossil electricity generators sell kVA capacity, not energy. Most of the consumer's electricity bill should mirror the grid's per kVA purchase cost. The remaining portion of the consumers electricity bill should reflect the free market value of electricity kWhe supplied by intermittent renewable generation. That value is largely determined by the cost of competitive fossil fuels.

Electricity system costs should be allocated to consumers in proportion to each consumer's peak kVA usage at times when there is no non-fossil electricity surplus. Such times usually occur while the grid load is near its maximum.

The choice by the Ontario government to fund the Global Adjustment via a charge per kWh was a huge mistake. The Global Adjustment should instead be funded by a charge per peak kVA in a billing period. That Global Adjustment funding methodology would reduce the average cost of electricity per kWh to high load factor customers and would promote much more efficient use of available electricity generation, transmission, distribution and storage capacity by low load factor electricity customers.
 

RATE STRUCTURE:
In 2019 Ontario still has essentially the same fossil fuel based end user rate structure as was in effect in 1998 to accommodate large amounts of coal fired electricity generation. The Ontario Energy Board (OEB), which is now dominated by lawyers, lacks the technical expertise to understand that Ontario urgently needs an electricity rate structure that will financially incent conversion from fossil fuels to high efficiency electric heating.

During the period 2005 to 2013 Ontario met its interim generation requirements via a series of Ontario Power Authority (OPA) managed contracts at prices far above the prevailing electricity spot price. As a result the Global Adjustment, which funds the difference between the generation contract price and the electricity spot price, now dominates the energy portion of a consumer's electricity bill. There are no price signals in the rates paid by electricity consumers that properly inform consumers how they should modify their behavior to reduce future electricity costs. The present electricity rate encourages switching from electricity to fossil fuels, not vice versa.

The present electricity price model is focused on electrical energy conservation instead of on minimization of total fossil fuel consumption both inside and outside the electricity system. The present electricity rate structure financially encourages use of CO2 emitting fossil fuels in place of surplus low emission renewable and nuclear energy.

Time-Of-Use (TOU) electricity rates are inappropriate. The ratio of the marginal on-peak electricity price to the marginal off-peak electricity price must be at least 3:1 to enable investment in energy storage which is essential for efficient use of intermittent generation. For lack of suitable energy storage currently much of the non-fossil generation capacity is constrained off rather than being sold. The consequent on-going financial losses are collectively over $3 billion per year.

There needs to be a new electricity rate that is initially voluntary. This new rate must provide off-peak and interuptible non-fossil electricity kWhe at less than the marginal cost of a kWht from fossil fuel.

The Ontario Energy Board (OEB) process for electricity rate modification has become so cumbersome and so expensive that making structural electricity rate changes not initiated by the government or the OEB is close to impossible. The OEB has no mechanism for financially compensating any other party for the multi-million dollar costs that are involved in initiating, promoting and implementing the required electricity rate changes.

The entire culture at the OEB needs to be changed. The OEB members should be chosen primarily for their overall electricity system technical expertise and should foster an environment where formal legal representation of participating parties is not necessary. Furthermore, participant funding should be restricted to parties that have relevant expertise in energy and electricity related matters. The present policy of funding only parties with no relevant technical expertise leads to politically driven rather than technically and economically sound OEB decisions.

The legal costs of an OEB intervention have become so high that even the largest LDCs, such as Toronto Hydro, attempt to follow a minimum legal cost path rather than a technically sound decision path.
 

OTHER ELECTRICITY RATE PROBLEMS:
1) The electricity rates are set by a process that has been and continues to be the subject of political abuse. Political tampering is costing Ontario electricity rate payers billions of dollars per year. The economic consequences on Ontario primary industries are even larger.

2) Due to political tampering new generation was mislocated and then relocated during construction at enormous costs to the electricity rate payers.(eg gas plant scandle) Monies were spent on wind, solar and natural gas generation that would have been better spent on additonal nuclear capacity.

3) The electricity rate determination system does not include a fossil fuel prohibitive fossil carbon emissions tax.

4) The electricity rate determination process does not require generators to pay for transmission and distribution at the same rates retail customers.

5) The present generation compensation process does not adequately compensate reliable summer peak load coincident generation and greatly over pays unreliable intermittent generation.

6) The electricity rate determination process does not financially enable behind the meter energy storage which is essential to give more value to existing intermittent renewable generation.

7) There is no rate for interruptible electricity. It is wasted rather than sold for its intrinsic value.

8) The two billion dollar smart metering system is not effectively used and about 10% of the rural meters are not able to communicate.

9) Ontario constrains or exports much of its non-fossil generation. This emission free generation should be sold for displacement of fossil fuels in Ontario. This issue substantially affects rural consumers who are not served by the natural gas system and who heat with oil or propane and contributes to provincial fossil CO2 emissions.

10) There is no governmental realization that the present electricity rate structure makes behind the meter energy storage financially unfeasible and that absent such energy storage much of the existing wind and solar generation is unusable.

11) Due to inappropriate electricity rates opportunities for energy storage and load management by customers, especially in multi-residential buildings, are not exploited.

12) Due to inappropriate generator compensation rates much of the existing transmission/distribution capacity is not used.

13) Another problem with existing electricity rates is the implicit assumption that all electricity kWh are worth the same, regardless of when or where they are consumed. Efficient displacement of fossil fuels requires energy storage. In order to financially enable energy storage the value of an on-peak kWh supplied from energy storage must be at least three times the value of an off-peak kWh used to charge energy storage. The present improper valuation of electrical energy leads to fossil fuels being used in place of electrical energy, even while non-fossil electrical energy is being discarded.

14) The electricity rates presently approved by the Ontario Energy Board (OEB) lead to "gaming" of the electricity rates by parties that are able to generate their own electricity.

15) The electricity rates presently approved by the Ontario Energy Board (OEB) do not discourage inefficient use of the transmission/distribution system by either renewable generators or load customers.
 

PEAK kVA AND PEAK kW METERING:
Presently for customers with monthly peak demands greater than 50 kW electricity utilities in Ontario bill transmission/distribution costs in proportion to measured monthly peak kW or monthly peak kVA. The measurement interval is typically 15 minutes to 1.0 hours.

There are several fundamental problems with use of simple 15 minute average monthly peak kW or peak kVA for apportionment of transmission/distribution costs.

1. Use of measured monthly peak kW or peak kVA is often counter productive in terms of encouraging energy management, energy storage and behind the meter power generation. Simple monthly peak kW or peak kVA measurements do not recognize the reality that load customer owned energy management systems, energy storage systems and behind the meter generators usually lack redundancy and must be briefly shut down from time to time to allow electronic/electrical/mechanical/plumbing/water maintenance and repair. With monthly peak kW or peak kVA metering the cost impact of short random maintenance and repair shutdowns to the electricity cost savings stream that is required to finance the energy management, energy storage or behind the meter generation equipment is frequently unacceptable for a major building owner. This cost impact often leads to customer owned energy management equipment not being used at all.

2. Simple monthly peak kVA and peak kW measurements do not recognize the statistical independence of temporary maintenance and repair shutdowns in energy management systems, energy storage systems and behind the meter electricity generation systems. An electricity utility LDC generally has a large number of load customers. The maintenance and repair related electricity demand peaks of the customers are statistically independent. However, on any one customer's metered connection to the LDC there is usually only a single energy management system, a single energy storage system, a single generator, a single electricity feed and a single fresh water feed. When the equipment is operating normally it minimizes the connection kVA. However, within a one month billing period this equipment may need to be briefly shut down for maintenance or for numerous reasons outside the owners reasonable control such as water main service, gas main service, electricity supply interruption, pressure vessel inspections/tests required by safety regulations, etc. During such periods the building will often experience a short electricity monthly demand peak. Hence, the practical effect of monthly peak KW or peak kVA metering is to unduely transfer costs to customers with behind the meter energy management systems, energy storage systems or generators when this equipment is briefly shut down for any reason. Thus, existing monthly peak kW and peak kVA metering is a significant obstacle to economic application of energy management, energy storage and distributed generation. A new billing system should compute peak demand over at least 4.3 hours to mitigate this problem.

3. Major generators usually have multiple generation units at each generation site. At any instant in time, one of these units may be shut down for maintenance or repair. However, load customers usually do not have redundant equipment and should not be unduly penalized for short term statistically independent equipment shutdowns for maintenance and repair. If transmission/distribution rates unduly penalize owners of small behind the meter generators, energy storage systems and energy management systems for random short maintenance and repair shutdowns, these behind the meter generators, energy storage systems and energy management systems simply will not exist.

4. Distributed generators that are not behind load customer meters are presently not paying for transmission / distribution usage as are electricity consumers. These distributed generators presently have no financial incentive to adopt energy storage for more efficient use the transmission / distribution system. There is no price incentive for high generator capacity and power factors. This improper generator compensation leads to inefficient use of the transmission/distribution system and is a financial obstacle to application of distributed energy storage.

In order to remedy these problems the grid should be viewed as a medium for power exchange between connected parties. All parties connected to a distribution system should pay the same electricity rate for its use, regardless of the direction of the instantaneous power flow. Hence the transmission / distribution rate per kVA should be the same for all parties within that local distribution system.

When generators pay half of the total transmission/distribution costs related to power that they export to the grid they are able to influence transmission/distribution planning and construction to ensure that transmission/distribution is promptly built when and where it is needed.

5. Use of simple thermal peak kVA or peak kW meters acts as a disincentive for on-going optimal peak demand control because of lack of equipment redundancy behind the meter. There are many causes of monthly demand peaks, such as recovery from utility interruptions, that are beyond the reasonable control of the load customer. This author recommends use of an electronic meter with a 4.3 hour 90% step response for the peak kVA determination and a billing period of one week or two weeks instead of one month. A shorter billing period than one month would reduce the cost impact of demand peaks that are beyond the consumer's control while improving consumer motivation for peak demand minimization.

A viable alternative methodology is to bill consumers for the average of their daily peak demands.

It is also essential that the peak demand calculation be bypasssed in response to an IESO issued control signal.

6. One of the reasons that electricity distribution utilities adopted simple thermal peak kVA and peak kW metering is historical. Prior to the internet and availability of microprocessor based smart meters, monthly peak kVA and peak kW metering was implemented using a mechanical ratchet advanced by the thermal kVA or kW meter needle. The ratchet was manually reset monthly by a human meter reader.
 

TIME-OF-USE ELECTRICITY RATES:
During the late 1980s and early 1990s Ontario Hydro and some municipal LDCs offered TOU electricity rates for larger customers. These rates were later abandoned during LDC amalgamation and other government interventions in the electricity rate setting process.

Currently the Province of Ontario still has Time-Of-Use (TOU) electricity rates. These TOU rates are ineffective for solving existing electricity system problems due in part to the higher fraction of wind and solar generation which do not operate in accordance with a fixed time schedule and due in part to political reluctance to make the TOU rate sufficiently dynamic to motivate consumer behavior change.
 

SOLUTION:
The province of Ontario currently uses smart meters. These are meters that for each customer report the kWh consumption during each metering interval. The outputs from this metering system can easily be reprocessed to provide peak kW data for proper electricity pricing and financial rewards for energy storage and high load factor.

One of the benefits of kW or kVA based electricity pricing is that a customer cannot obtain low cost electricity unless that customer also purchases a balanced amount of higher cost electricity. Hence, costs are not transfered to other customers.

For larger customers it is advantageous to replace simple smart meters with smarter meters that record both received and transmitted energy during each metering interval. Then the electricity billing system can provide an additional financial reward for high power factor.
 

ENERGY RATE PROBLEMS:
The electricity energy rate determination system, as presently implemented in Ontario, has a number of serious problems:
1) The rates are set by a process that has been and continues to be the subject of political abuse;

2) There is no direct fossil carbon tax. High load factor electricity users are using natural gas to generate their own electricity and are thus avoiding paying their share of the global adjustment and are emitting fossil CO2. This behavor increases costs for all other electricity customers and degrades the environment.

3) The generator compensation formulae do not provide financial incentives for distributed generators to contribute to grid voltage stabilization;

4) The electricity rate structure does not adequately communicate to either generators or load customers the need for better utilization of the existing generation and transmission/distribution resources.

5) There is no adequate process for valuing new generation, manoeuvrable generation and energy storage. As a result, there is an insufficient supply of summer peak coincident generation, fossil fuel makes up about 10% of the total annual electricity generation and there is insufficient behind the meter energy storage to reasonably limit spot electricity price swings.

All of these problems are a consequence of an electricity rate structure that does not properly reflect actual costs and a long term electricity plan that does not take into account the need to use electricity to displace fossil fuels in the heating and transportation sectors.
 

REMEDIAL ACTION:
In order to financially enable non-fossil generation and balancing energy storage financed by the private sector, in addition to fixing the electricity rates it is necessary for the province of Ontario to implement a fossil carbon emissions tax.

In order to implement wind and solar generation on a large scale it is essential to implement energy storage both near generation sites and at load sites. For this energy storage to be economically viable for its owners there must be suitable electricity rates.

In order to permit reasonable maintenance of distributed electricity generation and distributed energy storage equipment existing peak kVA meters and peak kW meters must be replaced by smarter meters that can be used to incent use of surplus non-fossil electricity when it is available.

In order to put all grid customers on a level playing field the new electricity rate for load customers must be primarily based on measured peak kVA during a billing period to reflect actual costs. All grid connected load customers must pay this rate. The calculation of peak kVA at loads must be bypassed at times when the IESO signals to the load an energy surplus.

Non-dispatched generator compensation must be primarily based on measured minimum kVA during a billing period. This measurement must be done at times when the IESO is signalling an energy shortage requiring use of dispatched generation. The measurement of minimum kVA at non-dispatched generators should be bypased at times when the IESO signals an energy surplus.
 

ONTARIO ELECTRICITY RATE STRUCTURE SOLUTIONS:
Various parties have advocated that Ontario adopt a distributed electricity generation system with private sector owned generation to minimize risk for the ratepayers. However, the electricity rates presently approved by the Ontario Energy Board (OEB) are often not consistent with the return-on-investment required by new privately owned generators, do not penalize fossil carbon emissions and do not discourage inefficient use of the transmission/distribution system by renewable generators and do not promote the economic sale of intermittent non-fossil energy surpluses.

Correcting the problems in the Ontario electricity system requires a price on fossil carbon emissions, energy storage equipment, suitable electricity rates and suitable metering.
 

ENERGY STORAGE:
A major problem with the existing electricity rate structure is that it does not sufficiently reward generators for generation that reliably contributes to meeting the provincial peak electricity demand and the electricity rate structure does not sufficiently reward consumers for reliably reducing load coincident with the provincial peak electricity demand.

In order to reliably provide energy coincident with the provincial peak electricity demand wind and solar generators require energy storage facilities. Such energy storage facilities will not be built unless there is a financial benefit to the storage owner that is sufficient to fund the energy storage system.

Similarly in order to reliably reduce load coincident with the provincial peak electricity demand load customers require energy storage facilities. Such energy storage facilities will not be built unless there is a financial benefit to the storage owner that is sufficient to fund the energy storage system.

In order to minimize transmission requirements all generators must be billed for transmission/distribution use in proportion to transmision capacity dedicated to the generator. Experience with wind turbines indicates that the average hourly wind turbine output can easily vary over a 25:1 range through a month. A compensation rate proportional to the wind generator capacity factor would provide a strong incentive for wind generators to use nearby energy storage to achieve more efficient use of transmission/distribution.
 

This web page last updated Dec. 2, 2021.