Government Regulation Allows Businesses To Save Big On Electricity

TORONTO - July 30, 2013 - PRLog -- In Ontario, most businesses are paying their electricity bills through the ‘Regulated Price Plan’ (RPP). This plan provides electricity consumers with stable and predictable electricity prices, however it can more be costly than other options or alternatives. Consumers currently pay 7.8 cents per kWhup to a certain threshold each month and 9.1 centsper kWh for electricity over this amount. However, these prices are increasing by 7.9% every year (Ontario Energy Board, 2013). You can find this information on the ‘Electricity’ line of your bill.

Another form of RPP is the time-of-use prices (TOU). There are three TOU pricing periods. Off-peak, when demand for electricity is lowest, 6.7¢/kWh, Mid-peak, when demand for electricity is moderate, 10.4¢/kWh andOn-peak, when demand is highest, 12.4¢/kWh.

Independent Electricity System Operator (IESO) has stated the reason for having three different types of prices in one day as follows. “Time-of-use prices reflect the fact that the cost to provide electricity changes throughout the day. When demand is low, less expensive sources of electricity are used. When demand rises, more expensive forms of electricity production are called upon, making prices higher”. The chart on the left depicts the Time-of-use cycle.

RPP encourages conservation and ensures that prices paid by consumers better reflect the prices paid to generators. The time-of-use form encourages consumers to use power when rates are cheapest. Although this may be good for residential consumers, businesses may not stand to benefit as most of their consumption takes places during on-peak hours.

The alternative, and possibly less expensive method of paying your electricity bill, is with the wholesale market rates or spot market pricing. In this method, businesses can buy electricity at the actual wholesale market price which changes every hour of the day. So rather than paying government regulated prices for electricity, you now pay prices as determined by the market.

When businesses switch from RPP to wholesale market rates, they receive a RPP settlement.  The RPP settlement will grant them a one-time credit for leaving the RPP and opting into the wholesale market rates. The rate for resettlement credit is 0.44¢/kWh per year (OEB, 2013). So if for example a company consumes million kWh per year, they would receive an instant $4,400 cash credit.

Businesses can only receive the settlement under one of the following three circumstances:

1.      Signing a contract with an electricity retailer;

2.      Cancelling your account and moving outside of Ontario; or

3.      No longer remain eligible for the Regulated Price Plan as set out in Government regulation.

Besides the direct charges for electricity usage, both methods compose of various other pricing components. For RPP, those other charges include regulatory, delivery, debt retirement and HST. For wholesale market rates, the charges are regulatory, delivery, distribution, global adjustment, transmition network, wholesale market service and HST. Even though wholesale market pricing may have more components, on average, historical trends have shown wholesale market rates to be cheaper than RPP.  

Electricity supply in Ontario is extremely volatile and subject to various factors such as reliability of generation, power outages and extreme weather all resulting in either under or over supply. It may be surprising that Ontario regularly produces electricity that exceeds demand and sells the excess to neighbouring regions at a loss. As a result, the government aims to maintain some level of cash reserve in order to meet the changing market conditions. Businesses on the RPP plan, are in essence paying additional costs to subsidize the government’s reserve fund.  

Switching from RPP to wholesale market rates can provide businesses with a number of advantages.  In addition to businesses earning a resettlement credit (0.44¢/kWh per year), your cost of electricity will be reduced monthly by 20-25% by opting to not pay into the reserve. To avoid these additional costs and skip the middleman, one may want to consider switching from RPP to wholesale market rates.

Contact:

Sean Myers, P.Eng

Impact Energy Services Inc.

Toronto, Ontario.

1.800.496.8698          

www.impactenergy.ca