Cover Story: Time of Use, Market Rate, Fixed Rate - What Electricity Deal is Best for you?
Monday, October 5, 2009
Concerns are growing that the introduction of time-of-use charges and smart meters will raise farm electricity bills.
But fixed rate contracts with electrical marketers have proved no panacea and cost savings are proving elusive
by MARY BAXTER
In 2006, when Wellington County farmer David Parker signed an electrical contract with Universal Power, there wasn't much doubt the cost of electricity would sky-rocket. The 2003 blackout along the continent's northeastern seaboard demonstrated that Ontario's aging electrical infrastructure couldn't meet the province's growing power needs.
Rising concerns about power generation's impact on the environment had resulted in political promises to close all the provinces coal-fired generators.
To top it off, in 2005 Hurricane Katrina showed just how vulnerable North Americanoil and gas supplies could be to the whims of Mother Nature.
Parker, who runs a mixed farm operation, including broiler chickens, on 400 acres, signed a five-year, fixed-price contract, believing it would save him thousands of dollars.
But electrical prices never climbed as anticipated and by January, 2009, as he entered the contract's third year, Parker had spent nearly $4,000 more for electricity than it would have cost had he remained on the Ontario Energy Board's regulated price plan.
Next year, Hydro One Networks Inc., which delivers power to 91,100 farm properties in Ontario, will begin to introduce time-of-use charges and worry that the new billing approach could inflate electrical rates is growing. How much of a concern is this new billing practice for farmers and do past experiences shed any light on future options?
Time of use refers to the practice of charging different rates for different times of the day. The smart meter, which can provide exact details about electrical consumption for any given moment and be read remotely, is the technology which makes time of use possible for low-volume consumers (those who use less than 50 kilowatts or 250,000 kWh a year). The utility aims to have the shift to time of use from the present tiered-use system completed by June 2011.
A May 14 news release from the Ontario Ministry of Energy and Infrastructure, touts the time of use program as a way for Ontario residents to conserve energy and save costs by shifting energy intensive activities to periods when the overall demand for electricity is at its lowest and rates are cheap. On its website, the ministry states, if most consumers don't change their behaviour, they will pay about the same price for electricity that they did under the current tiered (regulated price plan) pricing model.
No one seems to know how much of an impact time of use will have on farm operations. Pilots conducted by Hydro One Networks and other energy providers don't give much of an indication because the majority of their test subjects were urban or residential users. While about one million of Hydro One Networks' 1.3 million customers have smart meters, only about half of the utility's farm customers have them installed.
In a presentation to the Ontario Energy Board, the Canadian Federation of Independent Business expressed "grave concerns" about the impact of the system on small and medium-sized businesses after a survey it conducted in 2003 indicated more than 60 per cent of its membership could not shift electricity usage to take advantage of lower, off-peak rates.
The Christian Farmers Federation of Ontario is so concerned the new system will drive up costs for livestock producers that it has asked the province to offset the financial impact by supporting on-farm renewable energy projects, a training program for farmers in energy efficiency and an agriculture-specific cost-share program to introduce energy efficiency improvements.
Setting a power threshold
Ted Cowan, a researcher with the Ontario Federation of Agriculture's Farm Policy Research Group, says that conserving power by rationing electricity use with price so people shift loads from one time of a day to another "makes a whale of lot of sense" – in principle. But "when you know that 70 per cent of all your customers can't help you with that . . . it makes no sense at all." For this reason, the Federation has asked the government to buffer the effects of time of use by introducing the billing practice only after a customer has exceeded a power threshold of roughly 10,000 kWh a year. No such threshold currently exists for time of use.
Dave Watts, Hydro One's smart meter communications lead, says that benefits of time of use will depend on usage characteristics. Switching some energy-draining tasks, such as grinding feed, drying grain and pumping water, to off-peak hours could help save money, he argues.
Cowan agrees that there could be savings, but concedes they may involve spending money on new equipment or renovations. That shouldn't deter farmers, he says, pointing out that the cash outlay will produce savings over several power bills. "There are things we as farmers can do and we should be thinking about doing them." Signing a fixed price contract, however, isn't one of them: "They're going to be paying a premium so that they can ignore peak pricing."
As for David Parker, he won't ever sign one again. Not only are the Universal Power rates high, but he also says his bills have rarely – if ever – reflected the fixed rate of 9.29 cents per kWh quoted to him on his contract. From 2007 to 2008, they have ranged from 8.9 cents to 10.3 cents per kWh.
"I signed the contract and I'm prepared to live up to it," he says.
"I expect them to live up to their bit too, and they're not."
Universal Power is a brand of Universal Energy Corporation, which was recently bought by Just Energy Income Fund (formerly Energy Savings Income Fund which operated Ontario Energy Savings LP). Gord Potter, Just Energy's executive vice-president of regulatory and legal affairs, says that although the base commodity rate is fixed, if consumers use more or less energy than they anticipated based on their historic consumption patterns from their utility, it's settled at the spot market price, the hourly price for electricity. According to the Universal contract's fine print, the annual total can fluctuate up to 10 per cent from that generated by the fixed rate.
John Cruden, who signed a fixed contract with Universal in October 2006, has also experienced his share of woes. Since 2008, he has received calls from two collection agencies claiming he owes Universal more than $2,000.
The calls began after Hydro One Networks, which delivers electricity to Cruden's property, removed the meter at his house while repairing his electrical service.
The Universal contract applied to Cruden's house and farm. The company kept track of how much power was used through the meters. When Hydro One removed the meter, the house's consumption was tracked by his farm meter.
Nothing really changed, Cruden says of the total amount of power consumed on his property.
But officials at Universal thought he had cancelled the service. He received a letter dated Jan. 18, 2008 from Nino C. Silvestri, the companys chief operating officer ordering him to contact the company by Jan. 31, 2008 or be prepared to pay $2,224.39 in early termination charges and $600 in legal and administrative fees.
Cruden can't recall whether he responded within the company's time frame. He is, however, certain that he subsequently explained the situation several times to the two collection agencies.
Potter states in an email that the attempt to collect the money from Cruden "was an error on our (Universal's) part." The company only received notice that the account was terminating, "which triggered the actions which followed," he explains.
"I believe the customer should have received better service regarding the handling of his account."
The company removed its claim on Cruden in July and reduced his fixed contract rate. At roughly eight cents per kWh, it's still above the higher tier rate of the regulated price plan, but Cruden, whose business is hard-hit by the crisis in the pork industry, says he appreciates the adjustment.
Elusive benefit
Fixed-rate contract holders with Firefly Energy, which is endorsed by the Ontario Federation of Agriculture, have also seen their electrical costs surge.
Marilyn Moore, who runs a dairy and beef operation with her husband Douglas near Eganville in Renfrew County, says she signed a one-year market rate contract with the company in 2005 for their home farm where the dairy is located. There were savings, so she signed a four-year contract in 2006, this time opting for a fixed rate. Although the rate was 8.99 cents a kWh, Firefly's promotion of the program describes how a provincial benefit and a quarterly Ontario Power Generation rebate would reduce the rate to below the regulated price plan's higher tier price for the first two years.
The benefit is an adjustment to wholesale electrical prices that the provincial government makes to reflect the difference between market prices and the amount it pays to contract electricity from various sources. The rebate, in effect from 2006 to April 2009, was the consumer's share of excess payments to Ontario Power Generation for its power output. Consumers on the provincially regulated price plan are not eligible for these (the benefit adjustment is worked into the regulated price plan rates).
Once she signed the four-year contract, Moore, rarely – if ever – saw a provincial benefit credited to her account. Instead, it became an expense that compounded the already high rate she was paying. She did receive the OPG rebate.
Michelle Vieira, Firefly's sales and member relations manager, says that the term "provincial benefit" is a misnomer. Since 2006, the benefit has mostly been a charge. (Firefly's promotional material for the contract offers a disclaimer in fine print about its benefit and rebate rate projections).
Firefly is a division of Ag Energy Co-operative, originally formed by greenhouse operators to try to obtain better prices for natural gas. The co-operative has about 300 members and in 2008 "we returned $1.7 million to our members," says Vieira. Payouts are based on the members' natural gas consumption.
Firefly distances itself from the practices of other electrical energy retailers. The vast majority of its 1,500 customers are agriculture producers or processors, Vieira says. The company advises those who consume less than 50,000 kWh a year to avoid contracts and stick with the regulated price plan. That's because a cost analysis the company conducted in 2003 showed that amount as being the first point at which a consumer might see any savings.
It has also ceased offering long-term, fixed price contracts and now only offers market rate contracts "Until we feel comfortable that markets are at a spot or a time when it makes sense, or until we find a way to buy the power cheaper ourselves long-term, we weren't going to offer that long-term pricing."
According to a study by EnergyShop.com, an industry source that offers price comparisons for Ontario's licensed energy retailers (there were 56 listed on the Ontario Energy Board's website in July), consumers have never once, since 2005, obtained savings by signing fixed rate contracts. The study used energy prices based on residential customers in the Toronto Hydro Electric System area.
Ontario Energy Board spokesperson Vanda Wall says that if consumers have concerns about their utility or their retailer, they should call the company.
If the issue can't be resolved, they can complain to the board. In 2008, the board fielded nearly 6,000 calls about energy retailers and marketers' contracts, agent conduct and customer service.
Since 2006, it has only issued administrative penalties to two companies selling electricity — Universal Energy and Summitt Energy Management —for false, misleading or deceptive statements to consumers.
"There isn't necessarily a correlation between the number of calls we receive and the number of disciplinary actions taken," Wall states in an e-mail. "Each call is reviewed on its own merit."
Asked if the Board is concerned about the lack of savings to consumers with fixed price electrical contracts, she responds that the Board "wants to ensure consumers have the information they need to make the choice that is right for them" and has developed "information pieces" as well as a website offering advice in different languages on what consumers should think about when considering a contract.
Market-rate option
Not all of those with fixed price agreements, however, are disillusioned with the idea of electrical contracts.
Louis Roesch, who maintains a hog operation and a meat shop on his farm near Chatham, is another of the 8,250 Hydro One farm customers who have opted for a contract. He signed the fixed price agreement with Firefly about three years ago. Even though it has meant paying more than under the regulated price plan he says that, at the time, the price projections it offered weren't "that far out of whack," given the widespread anticipation hydro rates would jump.
When the contract expires, he'll consider a market rate contract with Firefly. He is interested in the contract because he's concerned his hydro bill "could literally as much as triple" under time of use. He has conserved energy where he can, but can't shift his electrical load to off-peak hours. He says he has considered generating his own power but it's not feasible now.
The market contract rates are based on a monthly average market price and fluctuate. Vieira says customers have benefitted from Firefly's market rate pricing, citing savings of between 0.5 to 1.5 cents per kilowatt hour for those consuming 50,000 kWh per year.
However, farmers don't have to enroll in such a contract to take advantage of market pricing. Once smart meters are installed, they can opt to go on the spot market through their utility, regardless of how much power they consume. The prices fluctuate more than time-of-use rates because they're based on supply and demand of generation.
Vieira encourages those with smart meters to consider buying on the spot market rather than remaining with the regulated price plan. She points out that the average weighted hourly price set by the Independent Electricity System Operator in 2009 is 3.56 cents – substantially lower than the 5.7 and 6.6 cents currently charged under the regulated price plan. "You can see where the savings start to come in." She says Firefly's market-rate contract helps those not yet on interval or smart meters take advantage of market prices.
But Marilyn Moore won't be one of those considering such a contract – market-rate or fixed anytime soon.
With only a few months remaining in her contract, she wonders why the OFA supported Firefly's efforts to sign up customers for fixed rate contracts. She's disappointed that the general farm organization, which she asked to look into the terms of her contract, wasn't able to help her to cancel it, as she believed may have been possible under provincial legislation. The legislation allows users to cancel their contract within one year if it does not meet the requirements referred to in the Ontario Energy Board Act.
She says she called Firefly "a couple of times" within the first year to find out why the provincial benefit had changed from the co-operative's projection of 1.5 cents per kWh credit in the first two years of the contract, but no one called her back.
She then called the OFA to find out why the benefit had changed and, subsequently, to seek assistance in cancelling the contract before the one-year anniversary. Although she spoke to her local member services representative numerous times, she says she never received a definitive answer about whether the change in provincial benefit meant Firefly had failed to meet the terms of the contract.
Vieira says she plans to contact the Moores to explain about the benefit. The contract could be cancelled, but the Moores would have to pay to do so, she adds. The co-operative buys its supply of electricity as customers sign fixed-price contracts "so that we always have a guaranteed supply, a guaranteed price to match what the customer's looking for." For this reason, there's a cost to terminate and the amount can sometimes be "fairly substantial."
Brian Hamilton, the OFA's member services representative for Arnprior, Lanark, Ottawa and Renfrew, remembers Moore asking for clarification about the benefit but doesn't recall her asking for help to cancel the contract. For her part, OFA president Bette Jean Crews, says that if Moore could not obtain a response from Firefly about cancelling her contract and had contacted the OFA for assistance, the Federation should have helped.
Firefly's contract, however, was made in good faith, she says. The change in the provincial benefit was unexpected. People "would have actually saved had the government not come in with the rebate that no one ever expected because that had not ever happened before." That energy rates remained the same rather than increasing was also unexpected.
She notes that the OFA did receive some compensation for the administration of the Firefly advertising but says no profit sharing took place. The OFA endorsed the offer because it was believed to be beneficial to members. Firefly was offering energy as cheaply as it could, she says.
With members' benefits, there's always the risk of it not working for one individual, Crews adds, observing that in the case of Firefly's fixed rate contracts, the number of people affected was because of the government rebate over which no one had any control. I can understand Mrs. Moore's disappointment. But it was a contract." BF
Sidebar: One farm that stands to benefit from time of use
Brothers Paul and Fritz Klaesi, dairy farmers in the Ottawa Valley, operate one of Ontario's first biodigester-powered generators (it generates 10 megawatts a day, enough to power 250 houses, and about eight per cent of that amount is used for their farm).
Paul Klaesi anticipates time of use may mean some big boosts to the prices they receive for the energy they produce, provided their facility is deemed eligible under the recently-introduced feed-in tariff program. For energy produced during the peak hours (11 a.m. to 7 p.m. on business days), the program, introduced as part of this year's Ontario Green Energy Act, promises to pay prices 35 per cent higher than the programs regular renewable energy rate of 44.3 cents and 10 per cent lower than the regular rate during off-peak hours. Currently, the brothers participate under the province's standard offer contract and receive prices 35 per cent higher and lower than the regular renewable energy source rate for energy produced during peak and off-peak periods, respectively.
The change would mean they could pay off their investment in the energy-generating venture in six to seven years, Paul says.
Generating their own has an added benefit when they need to acquire power from the grid, he adds. While they must pay for the power they use, because they generate it, the wholesale price applies and they are not charged for its delivery. BF