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Hydro-Québec is not closing the door on the idea.

Electricity: do variable tariffs work?

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Ontario Energy Minister Todd Smith (to the right of Doug Ford) maintains that variable pricing encourages subscribers to reduce their electricity consumption during peak periods. (Archive photo)

  • Michel Bolduc (View profile)Michel Bolduc

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Ontario's time-of-day residential electricity rate program will be 20 years old next year. The initiative has led to a “modest” drop in demand, the Energy Commission says, while the savings for subscribers are a few dollars per month, at most. Here's why.

I would give [the government] a B for the idea, but a C or a D for implementing the program, says economics professor Ross McKitrick of the University of Guelph. p>

He agrees with the report released by former Ontario Auditor General Bonnie Lysyk in 2014.

According to her, the previous Liberal government overestimated the benefits of variable pricing launched in 2004, in addition to spending $400 million more than planned (total: $1.4 billion) to install the smart meters needed to to measure electricity consumption in real time.

The principle of variable tariffs is simple: the subscriber pays a higher price during peak periods, the objective being to encourage them to reduce their consumption during these hours.

The catch: Households cannot shift their electricity consumption so easily, Professor McKitrick points out.

People are not going to get up at 3 a.m. to do laundry and watch TV.

A quote from Ross McKitrick, professor specializing in environmental economics

That's not to mention appliances, like the refrigerator and hot water tank, which consume electricity all day long.

City Average price (¢/kWh)
Montreal 7.59< /td>
Winnipeg 10.24
Vancouver 11.39
Ottawa 12.94
St-Jean (T-N-L) 13.76
Toronto 13.88
Regina 16.51< /td>
Calgary 19.94< /td>
New York 36.03
San Francisco 41.29

Source: Hydro-Québec

By default, subscribers in Ontario pay a rate that varies according to three periods (these times and rates change in summer).

The former government Liberal Ontario had set a target of reducing peak demand by 1,350 MW by 2007, followed by additional reductions of 1,350 MW by 2010 and 3,600 MW by 2025.

The Ontario network is particularly busy in summer because of air conditioning.

However, noted former auditor Lysyk in her report in 2014, the installation of smart meters was not completed in 2007, and , in 2010, not all subscribers had switched to variable pricing.

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Former Liberal Energy Minister Dwight Duncan continues to defend the variable pricing program he launched in 2004. (File photo)

Former Liberal Energy Minister Dwight Duncan nevertheless continues to defend his initiative.

1% [conservation], it may seem small, but it's a lot. At the time, we were going by a thread of load shedding and intermittent outages.

A quote from Dwight Duncan, former Minister of Energy

We were 10 to 15 years ahead of our time, he adds, accusing former auditor Lysyk of having had a grudge against his government.

Variable pricing has, according to him, given more flexibility to the province, as it sought to improve natural gas electricity production , notably. He emphasizes that Ontario cannot count on vast hydroelectric resources with low production costs like in Quebec.

The former minister, however, admits this: We have not explained well to people [how variable pricing works].

Ontario remains the most advanced province in the country in terms of variable pricing.

Will Quebec follow suit? Hydro-Québec responds that any modification relating to rates should be ratified by the Régie de l'énergie du Québec, adding that the company has introduced dynamic pricing options in recent years.

Quebec should first help households more so that they can make their homes more energy efficient, according to Jean-François Blain, independent analyst at the Institute for Socioeconomic Research and Information (IRIS). ). We must start by solving the problem of old homes, he said. Otherwise we will cause significant financial harm to households who are already at the limit of their spending capacity with inflation.

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Fees related to electricity consumption generally represent only half of the charges on a residential subscriber's electricity bill in Ontario.

Report after report, the Ontario Energy Board notes that many subscribers struggle to understand their electricity bill.

During pilot projects carried out by the Commission in 2018-2019, many participants also complained that the savings obtained in exchange for their conservation efforts were minimal.

You should know that the electricity used represents only half of the charges generally on a subscriber's bill. The cost of power distribution (delivery) is often higher.

A subscriber who, for example, reduces their electricity consumption by 30% during peak periods would only be entitled to a saving of around $5 per month, notes the consulting firm Guidehouse in a report prepared for the Energy Commission in 2020.

How much of effort will a subscriber make to save less money per month than the price of a coffee [at Starbucks]?

A quote from Guidehouse, a consulting firm (report for the Commission energy)

The provincial government is also offering a 19.3% discount on electricity bills. This measure aims to reduce the burden on households, but taxpayers are thus indirectly subsidizing those who consume the most electricity, underlines Jean-Thomas Bernard, professor of economics at the University of Ottawa. .

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Residential electricity rates are higher in general in Ontario than in Quebec and Manitoba, in particular. (File photo)

For Professor Jean-Thomas Bernard, the intention of the variable tariff program is good, but according to him, there should be a greater gap between the peak price and that in off-peak periods to encourage more subscribers to change their habits.

For him, the difference should double to a price 3 to 4 times higher during peak periods.

If the [price] difference is greater, we will wait until bedtime to press the button on the dishwasher [and pay the lower price].

A quote by Jean-Thomas Bernard, specialist in energy issues

Former minister Duncan admits that the question deserves to be evaluated in more depth.

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Jean-Thomas Bernard, professor of economics at the University of Ottawa, thinks that the gap should be greater between the peak rate and the off-peak rate.

For his part, Professor McKitrick believes that we must avoid penalizing subscribers who consume electricity when they need it during the day. According to him, the objective of any pricing should be to cover the cost of producing electricity, not to make profits.

Former Auditor Lysyk and the Energy Commission identify another issue in their reports: the off-peak rate begins at 7 p.m., while energy demand is always high at that time. Before 2011, the peak period was until 9 p.m.

Keith Brooks, program director for Environmental Defense, says the government would penalize households going about their normal business if it returned to 9 p.m.

According to him, variable pricing remains useful to encourage, for example, subscribers to limit the use of air conditioning during peak periods in summer. He would also like to see the province invest more in energy conservation.

Ontario should, he thinks, offer more money to subscribers who, for example, have their homes insulated or who have a heat pump installed, which is more energy efficient than their furnace. The more economical it is for people [to do these renovations], the more households will do it, he explains.

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Ontario Energy Minister Todd Smith did not want to grant us an interview.

Without answering our questions directly on variable rates, his press secretary Michael Dodsworth says by email that the Ford government has given Ontarians back control of their electricity bill by letting them choose the rate plan that works best for them.

Since 2020, subscribers can indeed opt for a fixed electricity rate, but they must request it from their electricity distributor. Currently, about 8% of subscribers have done so (the rate is 10.3 cents/kWh for the first 1000 kWh, then 12.5 cents).

Separately, the province launched a “very low” nighttime rate this year at 2.8 cents/kWh (11 p.m. to 7 a.m.), particularly targeting electric vehicle owners who want to charge them overnight.

In addition to making life more affordable, variable rates and very low night rates encourage families to shift their electricity consumption outside of peak hours or during the night.

A quote from Michael Dodsworth, spokesperson for the Department of Energy

< p class="StyledBodyHtmlParagraph-sc-48221190-4 hnvfyV">Fewer than 3,400 subscribers opted for the new night rate plan, while the Energy Commission predicted a range of 23,000 to 318,000 participants.

The Commission emphasizes that the initiative is still new, but the fact that the peak price for this plan is 28.6 cents/kWh (4 p.m. to 9 p.m.) may also deter subscribers, according to Professor McKitrick.

For its part, the NDP is urging the Ford government to provide free heat pumps to all households, in addition to offering them interest-free loans for energy-efficient renovations to their homes.

Smart and effective policies like this would help reduce the burden on subscribers, while helping to fight climate change, says New Democratic Leader Marit Stiles in a recent press release.

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