Hudak Aims at Wrong Targets: Time Of Use Rates and Smart Meters

Tim Hudak, contending to be Ontario’s next premier, has focused much of his attention during the election campaign attacking Time Of Use (TOU) rates and smart meters. Like his promises to shift more electricity costs from ratepayers to taxpayers, Mr. Hudak’s attack on TOU and smart meters is shooting at the wrong targets.I have already commented many times on the public record that “unplugging smart meters” — a phrase Mr. Hudak repeats often — would be illegal, expose you to the risk of electrocution, and would leave you blacked out.

Some conservative commentators have supported Hudak’s message. Today’s National Post contains a column, “Why Dalton’s electricity cash grab stinks” by Kelly McParland recycling Mr. Hudak’s main arguments.

Here is a letter to the editor I sent to the National Post today:

re. “Why Dalton’s electricity cash grab stinks”

Mr. McParland attacked Ontario’s Time Of Use (TOU) power pricing system without understanding that the TOU prices recover the same pool of costs as the Regulated Price Plan (RPP) TOU replaces. Reverting from TOU back to RPP will not save one penny for households and small businesses collectively.

TOU serves consumers better than RPP by signalling consumers to conserve more diligently during high demand periods and is also more fair. RPP contains a cross-subsidy that hits the relatively large users captured by the rate. Small business, households with many occupants, and folks still stuck with electric heat, many of whom are low income, paid more than their share under the old RPP that Mr. McParland prefers.

Premier McGuinty’s overall electricity policies are driving underlying power costs up at about 10% per year and aspects of his policies deserve severe criticism, but the TOU program is a modest step in the right direction, not a “cash grab”.



  1. Tom, this is simply retail politics. Even if not technically correct, it is not a stretch that the typical voter would associate smart meters and time-of-use with their rising electricity bill.

    It may not be an effective election strategy, but that is the strategy. At least, they don’t have the smart meter lobby funding ad campaigns against them.

  2. Some people hearing the phrase “unplug your smart meter” are going to think they will be getting free power. If Hudak gets elected, some folks will be angry that free power didn’t arrive.

    Hudak is creating a long list of promises that he won’t be able to keep if he is elected. The stock market seems to be telling us that we are in for an extended period of very heavy weather. All the parties are promising to ramp up spending on the costly health and education programs, but their financial projections are all based on scenarios that see robust growth over the next term of government. The deficit is hardly being discussed in this election campaign but it is going to be the #1 issue starting October 7. The HST and DRC relief Hudak is now promising will be albatrosses around his neck if he is premier.

  3. What annoys me about the smart meter program is that the periods do not reflect actual demand.

    In the summer, the peak period is 11am-5pm, even though peak demand tends to occur from 3pm-7pm. Worse yet, the off peak period begins at 7pm when demand is usually fairly high – well over 20 000 MW.

    In the winter, the first peak period is between 7am and 11am even though demand tends to rise in the morning and STAY FLAT until late in the afternoon. 7am-5pm should be “mid peak.”

    TOU needs to be fixed but not eliminated.

    • I agree with all of your critiques of TOU. I agree that TOU should be fixed to align better, but I also think that ordinary consumers should have the choice of going to real-time pricing.

  4. Wouldn’t real-time pricing be very difficult to implement and result in very unpredictable costs?

    I don’t understand why the utilities don’t apply adjustments to compensate for any discrepancy between then RPP rates and the average weighted cost of generating electricity.

    Natural gas suppliers do it all the time.

    • The smart meters were designed to facilitate real-time prices. Limiting them to doing TOU is like using your computer only as a calculator or never driving your car faster than 20 kph.

      The rate that household consumers pay today directly drives off the floating hourly price. The rate is made to appear stable by means of averaging the forecasted hourly price that corresponds to the load shape of the entire rate class. In each 6 month rate period, the OEB also includes a correction factor for errors in the previous period. All of this blending turns the price signal into mush. Consumers who might have adjusted their consumption either up or down had they know what they were actually being charged, could not take advantage of those opportunities. As a result, we are all left a little poorer by averaged prices.

  5. The contracts signed by the OPA for wind and solar should match the same TOU prices. If wind is delivering power when its not needed it should be paid the lowest price. By fixing the price no matter when power is delived turns the laws of supply/demand on it’s head. You don’t apply sunscreen in the middle of the night because you are going to be outside in the dark. I am OK with TOU if they alter the contracts to reflect that!

    On the issue of smart meters I would note that they are not presently very smart and their capabilities are confined to being able to bill ratepayers on a TOU basis only. My little area in Toronto experiences numerous outages which are not detected by the smart meters as has been confirmed by Toronto Hydro personnel whenever I phone in to report the outage. So to turn your analogy on its head why are the LDCs using these “computers” for nothing more then simple “calculators”? Conversations with other LDC employees confirm the foregoing. So have we spent over $2 billion for new calculators when we should have bought computers?

  6. What interests me the most about electricity prices in Ontario is their impact on low-income persons since I am one of them. Many of us have a limited capability for load shifting. Frankly I’ve about reached my limit. Can or should the provincial income tax system be used to subsidize low-income households to protect them from the often severe impact of rising electricity prices whether Time Of Use or generally?

    • Many low income/low assets folks are also relatively large users. Some reasons include difficulty in covering the cost of getting off electric heat, the high penetration of electric heat in social housing (although the current government has wisely been addressing this problem), more people per dwelling, and poor insulation in many rental properties. Power rates in Ontario are designed on the assumption that low income people use a small amount of electricity, although to my knowledge the relationship between income and usage intensity has never been documented in Ontario.

      If you are an average user in terms of your total volume consumed and temporal pattern of usage, moving from flat rates to TOU will not impact your bill by one cent. If you are a relatively small volume user, moving from flat rates to TOU will increase your average rate, because TOU does not cross-subsidize small users as does the current flat rate with its discounted initial block.

      Regarding my personal view of income protection for poor folks, I strongly prefer a system of general income relief like a negative income tax over some manipulation of utility rates. In the U.S., social assistance is often delivered through utility rates, whereas in Canada until recently this approach was rare. The Ontario Energy Board recently initiated a change toward U.S. style social assistance, a decision that is very low on my ranking of the OEB’s decisions.

  7. yeah … rich folks have gas furnaces, gas water heaters and gas stoves…
    Those won’t go up 50% due to the attempt to curtail CO2 emissions.

    TOU rates are set politically because they couldn’t conceivably be set any other way.
    Variable rates are there to mimic a market mechanism of the supply and demand relationship setting a price.
    Price is set by scarcity.

    Who’s for scarcity?

    • The TOU time periods were set politically, but the TOU rate level is driven off a formula that collects a total amount sufficient to cover the forecasted energy usage of the TOU rate class, plus a correction factor for forecast errors in previous periods.

      I’m solidly in support of scarcity based pricing. When scarcity happens and costs are high, it is wrong to give consumers prices that pretend the scarcity doesn’t exist. Covering up scarcity through averaged prices — including the TOU rate scheme in Ontario — is directly harmful to the economic interests of consumers.

  8. RPP TOU rates are artificially skewed towards the mid- and on-peak periods, by loading Global Adjustment (“GA”) costs into those two periods. This is not necessarily “wrong”, as it does provide an enhanced price signal. If customers who’d otherwise be on the RPP were not, their commodity price would be comprised of the spot price for energy plus a uniform (each month) unit rate for the GA. Given that most people have consumption skewed towards the mid- and on-peak periods, they are worse off with the RPP TOU arrangement.

  9. Tom, you are correct, quite literally.
    But we are using rates to cover up abundance, not scarcity.
    The rate algorithm is obviously nonsensical – Bruce Sharp would seem to be noting why. The HOEP averages about 1.2 cents/kWh difference between off and on peak this year, and the spread hasn’t been above 2 cents since 2008.
    There’s also the matter that the GA is designed to create abundance – and the TOU scheme therefore designed to mimic scarcity while funding abundance.

    • The privacy issues associated with smart electricity meters are real and important. Privacy concerns are not limited to the meters themselves but include all the systems of the utility and its service providers that have with access to your data.

      Although smart meter data privacy issues should be a concern, they are not more of a concern than the privacy issues associated with home phones, mobile phones, banking records, or tax records. Even smart water meters create a privacy concern. The solution to these issues is not to revert to primitive technology like the watt-hour meter that creates high cost, low quality data but to require utilities to maintain high standards of data management and to hold them strictly accountable for breaches.

      With smart meter privacy, as with so many other aspects of utility performance, there is no alternative to effective public utility regulation.

      I often comment on this blog and other public fora about developments that I see as undermining effective public utility regulation and the integrity of administrative law generally in Canada. Examples include analysis of the firing of Linda Keen, the replacement of the heads of energy agencies in Ontario with people who lack independence, and the anti-regulatory foundations of the Green Energy Act. Perhaps I should have developed more detailed discussions of government interventions interfering with the independence of utility regulators in Alberta and BC. Much has been written by others more knowledgeable about the recent degradation of the CRTC’s independence through the decisions on Globalive and usage-based billing for Internet access.

      The foundations of independent, expert regulation are under attack. Meanwhile, as our world gets vastly more complex — one example being the move from watt-hour to smart meters — the need for effective regulation is expanding.

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