XYLENE POWER LTD.

HISTORICAL ELECTRICITY RATES AND INTRODUCTION OF SMART METERS

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

HISTORICAL ELECTRICITY RATES:
Historically Ontario electricity rates have had four components.
1) A fixed monthly charge for administration;
2) A monthly charge proportional to the measured number of kWh (energy) consumed by the customer;
3) For customers with average monthly demands greater than 50 kW a monthly charge proportional to the measured monthly peak demand in kW or kVA.
4) In some cases for major buildings the charge per kWh was time and date dependent and/or the peak demand meter was automatically disabled at off-peak times.

HISTORY:
In the early 1960s Ontario Hydro recognized the importance to the electricity system of behind-the-meter energy storage and offered an electricity rate to developers and owners of major buildings that encouraged the construction and operation of behind the meter thermal energy storage.

This electricity rate relied on the combined use of kWh and monthly peak kW meters. This electricity rate was partially successful in achieving its objectives, but the degree of success was limited by the use of thermal demand meters. The practical difficulty was that once a brief monthly demand peak was established, the building owner had no financial incentive to reduce his demand on successive days in that billing month. The monthly demand peak was often established by random circumstances beyond the building owner's reasonable control. One of the most common of these circumstances was maintenance and repairs to the energy storage system itself, which consisted of a multiplicity of electric boilers, storage tanks, pumps, temperature controllers, motorized valves, pressure reducing valves, and isolation valves, as well as the feedwater system from the city of Toronto. There were further energy storage system shutdowns triggered by requirements for external electrical and plumbing maintenance. In summary, it was unrealistic for Ontario Hydro to expect that a complex load control and energy storage system that lacked redundant backup would work 100% of the time. The overall result would have been better if the expectation was for the system to work 90% of the time. However, the peak demand meters that were readily available in the 1960s were thermal-mechanical, not electronic and not capable of programmable daily peak demand measurements.

During the late 1980s and early 1990s Scarborough Hydro and Toronto Hydro experimented with block Time-Of-Use (TOU) electricity rates that involved disabling of the peak demand meters during shoulder and off-peak periods. However, an issue with TOU rates was that the measured peak demand during the off-peak period often exceeded the peak demand registed during the on-peak period. This excess off-peak demand has negative implications on local distribution. With such TOU rates there may also be a perception that other electricity customers subsidize the off-peak electricity use.
 

RATE PERFORMANCE:
During the 1960s and 1970s the aforementioned electricity rate structure worked well. At that time the cost of electricity to a major building owner with thermal energy storage was $0.01 / kWh plus $6.00 / peak monthly kW. At that time there was almost no behind the meter electricity generation, residential lighting was primarily resistive (incandescent) and electric heating was primarily resistive. There was no wind or solar generation. There were hundreds of municipal utilities in Ontario each of which had the flexibility to set its own retail electricity rates to minimize that utility's total wholesale electricity cost. For example, in Toronto and East York there were over 35,000 single family homes and highrise apartment suites that received electricity rate incentives for various forms of thermal energy storage and peak load control that allowed Toronto Hydro and East York Hydro to minimize their wholesale electricity costs. In the early 1990s Scarborough Hydro also offered a rate incentive for energy storage and peak demand control in large multiresidential complexes.

In the late 1970s Ontario Hydro built a large amount of coal fired electricity generation, including 4000 MW at Nanticoke.

From 1980 to 1994 the component of the Ontario Hydro wholesale electricity rate proportional to the number of kWh consumed increased more than 6 fold while the other rate components increased only modestly. The motivation for this rate change was that during this period Ontario Hydro chose to burn coal for much of its electricity generation. However, this electricity rate change triggered so much electricity to natural gas fuel substituion by consumers that by the mid 1990s Ontario Hydro was financially insolvent due to loss of electricity load.

During the early 1990s incandescent to fluoresent lighting conversions in premises with natural gas space heating and electric to natural gas hot water heating conversions caused huge amounts of electricity to natural gas fuel switching. There was further loss of electricity load due to widespread adoption of cold water laundry detergents and due to conversion of outdoor lighting from incandescent to fluorescent, mercury vapor or sodium vapor.

From 1995 to 2005 the province of Ontario sought to minimize the taxpayer's financial exposure to Ontario Hydro stranded debt by shutting down nuclear generation capacity and by encouraging electrical energy conservation. However, in practice most of the electricity kWh saved were replaced by equivalent thermal kWh of natural gas. During the period 2007 to 2014 central coal fired generation was gradually replaced by natural gas and restored nuclear generation which reduced the CO2 emissions from electricity generation but which did nothing to reduce the CO2 emissions from natural gas and oil fueled space and domestic hot water heating appliances.

Today in 2016 the direction of fuel substitution must be completely reversed to reduce Ontario provincial CO2 emissions from the space and domestic hot water heating appliance sector. It is also necessary to displace central natural gas fueled electricity generation. A lot more reliable nuclear power generation capacity is required to meet these loads.

To minimize electricity system expansion costs there must be a complete change in Ontario government thinking away from energy conservation and toward energy storage and peak demand reduction.
 

METERING TODAY:
Today in 2016 there are electronic interval kWh meters that easily allow calculation of peak demand with a specified step response. Use of such meters allows adoption of an electricity rate that encourages building owners to maximize the effectiveness of their electricity systems. Directional electronic interval kWh meters can be used to further incent high power factor, which increases electricity system efficiency. Interval kWh meters also allow implementation of a low marginal energy rate per kWh that can be provided to all non-dispatched electricity customers, large or small.
 

METER DEFINITIONS:
1) An "individual meter" is an electricity meter that measures the electricity consumption by a particular suite in a major building;
2) A "smart meter" is an individual meter that automatically and periodically reports its readings to a central computer;
3) An "individual primary meter" or "primary meter" is an individual meter that is used by the Local Distribution Corporation (LDC) to directly bill a suite occupant;
4) An "individual submeter" or "submeter" is an individual meter that is used by a landlord or condominium corporation to allocate a fraction of the cost of a bulk electricity bill to an individual suite.
 

ELECTRICITY BILL APPORTIONMENT AND INTRODUCTION OF SMART METERS:
It is illuminating to understand how Ontario came to adopt its present crazy electricity rate structure. From about 1960 to 2000 there were many large buildings built in Ontario that were bulk metered. The bulk meter was generally a sophisticated electro-mechanical meter that measured both kWh and peak kW and sometimes also measured peak kVA. This meter was manually read monthly by an employee of the Local Distribution Company (LDC). The building owner would pay the total electricity bill to the LDC and in net-net leases would apportion the amount of the electricity bill over the building tenants, usually in proportion to the floor area occupied by each tenant.

With the increasing cost per kWh in the 1980s there were a number of cases where electricity bill apportionment by floor area was clearly unfair. For example, a restaurant or a frozen food store would often use far more electrical energy per square foot than an office. Legal Metrology (now Measurement Canada) established a policy that landlords could apportion the dollar amount of a bulk electricity bill that included a combination of kWh, peak kW and peak kVA charges, in proportion to the kWh used by each tenant. This process was known as tenant submetering.

In the 1990s a number of companies developed kWh based submetering systems suitable for retrofit installation into existing highrise buildings. A common feature of these systems was that the individual submeters could be read remotely by a central computer. These meters became known as "smart meters".

About 2006, in an attempt to implement electrical energy conservation via the user pay principle, the Liberal government of Ontario mandated that every tenanted unit in Ontario should have its own primary electricity meter. This mandate was made by persons who might have been well intended but who had no understanding of the technology and its practical implications. Worse, they refused to listen to well informed engineering advice, including relevant advice from this author and from the Ontario Power Authority. Some of the issues and their consequences are:
1) The individual meters that were previously installed in high rise buildings were intended as submeters, not as primary meters for direct billing by the LDC. When submeters become or are replaced by primary meters the building owner or the condominium corporation no longer has a financial incentive to do load management with the building's central domestic hot water and central or common area heating. As long as a building is heated with natural gas that is not a major problem. However, when the building has to convert from natural gas to electric heating this use of primary metering instead of submetering effectively adds an otherwise unnecessary 1.0 kW per suite per month onto each residential building's peak demand. The capital cost of meeting that extra peak demand with reliable nuclear power is about $12,000 / kW or $12,000 / suite. With over one million affected high rise residential suites in Ontario the capital cost to the electricity ratepayers of this metering policy error will exceed $12 billion;

2) The individual meters that were designed for periodic remote reading became known as smart meters. The meter related data traffic was minimized by having the meters store cumulative readings at programmable time intervals (eg 15 minutes or one hour) and report stored data daily to a central computer. This arrangement allows suite occupants to view their past consumption profiles via the internet but the ongoing cost of operating and maintaining the meter data gathering and reporting system is high and does little to reduce total electricity system costs;

3) In taxpayer subsidized public housing neither submeters nor individual primary meters make economic sense because in such housing the occupant is seldom responsible for paying the electricity bill;

4) In highrise buildings with ceiling cord electric radiant heating a large fraction of the energy consumed by one suite actually heats` the suite above. Apparent energy saving by a lower floor suite cause excessive energy consumption in the suite above;

5) In many real life situations there are a hodge-podge of branch circuits each of which serve multiple tenants. The costs of properly electrically isolating each tenant are prohibitive. In buildings with moveable partitions these branch circuit isolation costs repeat with each tenancy change;

6) In many real life situations each tenant is served by multiple circuts with different voltages and different phases. Hence each tenant needs multiple electricity meters;

7) It can be very difficult and expensive to gain access to residential tenant suites to identify, locate and fix electrical wiring problems that may affect kWh meter measurements;

8) There are many ways that one tenant can be improperly billed for another tenant's electricity use. Proving that a particular electricity meter measures only electricity used by a particular tenant is a significant task. Any errors lead to complex billing disputes and lawsuits;

9) In order to enable load management the occupants' electricity rate per kWh must exceed the published LDC rate because the chosen individual meter technology only responds to kWh, not kVA. Such per kWh rate increases were specifically excluded by government legislation;

10) Often the building owner must guarantee to the LDC that the tenants electricity bills will be paid. This requirement adds administrative and legal costs onto both the building owner and the LDC.

11) Due to incompetence or lack of political will the government of Ontario failed to allocate the Global Adjustment to kW or kVA instead of kWh. The result is electricity rates that are not sufficiently dynamic to change consumer behavior. Hence the smart meters provide little or no financial benefit;

12) Both individual submetering and individual primary metering can lead to large power swings relating to heating in high rise buildings. In the winter these power swings will significantly increase the building peak demand and can exceed the capacity of existing transformers and switchgear;

13) In much of rural Ontario the smart meters installed by Hydro One simply do not work because due to trees, hills and distance the smart meters are unable to reliably communicate with their corresponding central data gathering computer(s). The result is that these meters are still manually read and there is no real time meter data;

14) Even when the existing smart meters do work they measure kWh rather than peak kVA. They do not communicate to the public an awareness that in Ontario the non-fossil electricity system problems are dominated by issues relating to peak kVA, not a shortage of kWh;

15) As of late 2016 the blended retail electricity cost per kWh in Ontario is over $0.25 / kWh and there is no end in sight to the projected rapid electricity rate increases. Fixing the electricity rate structure will require legislative action with respect to the Global Adjustment. Fixing the smart metering system will likely require more billions of dollars. The technical issues involved are far beyond the competency of elected politicians. Authority for decisions relating to electricity services and individual metering in major buildings must be returned to the electrical engineers who are directly responsible for those buildings. In some buildings installation of individual electricity meters increases the building's monthly peak kVA.
 

This web page last updated December 5, 2016.