Public Power - May 2008 - (Page 22)

Mandatory Time-of-Use Pricing “There will be people who end up pay-ing more and maybe they’ll call to complain, but they’re going to be paying the right price and it will be up to them to manage it.” Your Total IT Solution At Associated Systems Incorporated (ASI), we know that system efficiency is vital to success. So, we provide utilities with innovative, versatile solutions to best meet their individualized needs. From accounting and finance to billing and customer service, ASI provides value by allowing you to service your customers better. For more information, visit www.assocsys.com or call 888-232-1239. Milton Hydro and Newmarket Hydro will be the first two utilities in Ontario to require mandatory time-of-use pricing for all of its customers, well ahead of the 2010 goal for the rest of the utilities in Ontario. Seeing that mandatory time-of-use pricing was coming, Milton decided to require all customers with smart meters to be on time-of-use pricing beginning October 2005. The utility started an extensive rollout of smart meters to existing homes and small businesses in 2007 and plans to have 20,000 low-volume customers on time-of-use pricing by this summer. Milton was the fastest growing community in Ontario from 2001 to 2008. The number of electricity customers went from 10, 500 in 2001 to a projected 24,000 in 2008. Newmarket plans to have smart meters installed for all of its 28,000 customers by the end of 2008 and have these customers on time-of-use pricing, said Ferguson. Both Corkum and Ferguson said time-ofusing pricing does not present any significant problems with metering or billing. There are occasional gaps in the data but these, Corkum said, “can be corrected fairly quickly and are relatively small issues.” Ferguson noted, however, that the enormous volume of data generated by time-of-use pricing sometimes makes him feel as though the utility has installed a telecommunications system in which it receives 28,000 calls every hour from customers. As for customer acceptance, Corkum and Ferguson said some customers have expressed reluctance and concern, but opposition has been limited. For every one concern Corkum hears, she says five or six customers ask when will they be on timeof-use pricing. “Educating customers alleviates their concerns,” she says. “You can’t talk about it enough,” at public utility meetings and in other local forums, says Ferguson. The more customers understand what time-use-pricing is and why, the greater the acceptance. Despite bubbling advocacy for load management, demand response, and smart meters, mandatory TOU pricing is not even on the radar screen in the United States. Though utilities have spent millions of dollars on smart meters and designing TOU pricing plans, they have resisted moving to mandatory TOU pricing. In its 2004 proposal, the Ontario Energy Board said one of the policy objectives of its pricing plan is “that customers … pay the ‘true cost of electricity.’” From both economic and common sense perspectives, the objective seems sensible at worst and compelling at best. The true cost of electricity is not reflected in traditional average-cost pricing of electricity. Although average prices were kept in line with average costs, both were higher because of inefficient price structures that did not reflect time-of-use costs. And traditional pricing has a major equity problem to boot—it almost always entails one group of customers subsidizing another. There is one important caveat, however: It is necessary to distinguish between TOU pricing properly implemented and marketbased pricing. TOU pricing produces a structure of prices that more closely tracks the structure of economic costs. Such a structure also would occur with marketbased pricing, but if markets lack a sufficient number of competitors, then the opportunity for dominant suppliers to exercise market power is a major concern. For example, the exercise of market power would result in an upward shift in time-of-use prices and average prices higher than necessary. In the case of Ontario, this possibility appears to be precluded. The average price is a blend of regulated, contract and market prices, based on time of use. The Ontario experience shows that mandatory TOU pricing can be undertaken in a regulated or public ownership setting where average prices are kept in line with average costs. It also demonstrates that serious efforts to educate customers about the true costs of electricity can boost customer acceptance of TOU pricing. ■ John Kelly is director of Economics and Research for the American Public Power Association. This article is based on information gleaned from several Ontario Energy Board reports: Board Proposal, Regulated Price Plan for Electricity Consumers, Dec. 7, 2004; Smart Price Pilot, Final Report, July 2007; Regulated Price Plan Report, Oct. 12, 2007; and the Regulated Price Plan Manual, Oct. 26, 2007. These and other reports relating to Ontario’s mandatory TOU pricing initiatives can be found on its Web site at: www.oeb.gov.on.ca. 22 MAY 2008 PUBLIC POWER http://www.phase-a-matic.com http://www.assocsys.com http://www.oeb.gov.on.ca

Table of Contents Feed for the Digital Edition of Public Power - May 2008

Public Power - May 2008 Contents Perspective LEEDing the Way Ontario Moves to Mandatory Time-of-Use Pricing Journey to the Smart Grid Right-Sizing Transformers Energy Audits for Large Industries Economic Development Community Broadband Reliability Hometown Connections Parting Shot

Public Power - May 2008

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