OEB Considering Changes to Commercial and Industrial Customers’ Rate Design
April 25, 2016
The Ontario Energy Board (OEB) has published a staff discussion paper, Rate Design for Commercial and Industrial Electricity Customers: Aligning the Interests of Customers and Distributors (Staff Discussion Paper), in which it considers a new rate design that will affect all commercial and industrial customers who receive electricity from a distribution company.
Although commercial and industrial customers only account for 10 per cent of the total number of customers in Ontario, they use nearly 66 per cent of Ontario’s electricity load and account for 38 per cent of the distribution revenue earned by distribution companies.
Although the new rate design is not intended to increase the total amount of revenue collected by distributors, the amount of distribution costs incurred by individual businesses may be significantly impacted depending on each business’s pattern of electricity use. The OEB’s general policy for distribution rate design is to increase the amount of revenue collected through the fixed rate and reduce the amount of revenue collected through the usage rate, as the OEB expects that this will increase the link between how customers use the system and how they pay for it.
The Staff Discussion Paper solicits stakeholder input on potential rate designs. Comments can be submitted to the OEB by May 27, 2016.
CURRENT RATE DESIGN
The current distribution rate designs are not fully linked to the cost drivers for distribution systems. One of the main cost drivers is the total level of peak demand of all of a distributor’s customers. As a result of historical limits on metering technology, the current rate design has rarely resulted in business customers being charged based on their individual level of demand when the total demand of all of a distributor’s customers is the highest for the month. Customers have been charged based on their assumed contribution to their distributor’s peak demand according to the customer’s individual peak electricity consumption, regardless of whether the customer’s peak consumption was coincident (i.e. occurred at the same time) with the peak demand on the distributor’s system.
CHANGES LINKED TO SMART AND INTERVAL METERING
Data from smart and interval meters can now be used to design rates that link to cost drivers more closely, particularly rates that vary by time of day. The OEB is requiring interval meters (that typically measure energy use on a 15 minute basis) to be installed by August 21, 2020 for all business customers forecast to have a monthly average peak demand during a calendar year of over 50 kilowatts (kW).
The OEB’s goal is to equip customers with the information that they need to make informed choices about how they use energy and enable them to leverage new technologies, manage their bills through conservation and understand the value of electricity services.
RATE DESIGN OPTIONS
The Staff Discussion Paper includes a discussion of general issues concerning rate design and presents several rate design options with a discussion of the potential advantages of each rate design and an illustration of how they might be structured with accompanying rate impacts.
Six basic design options are proposed:
- Fully-fixed monthly charge: This is the simplest option. It promotes an understanding of the fixed nature of distributor assets.
- Time of Use: This option values peak capacity in a simple way that customers will already be familiar with from time of use commodity pricing. This option bases the variable charge on the energy used in peak and off-peak periods. A higher rate will apply to peak kilowatt hour (kWh) than off-peak kWh, and should encourage load shifting to off-peak times.
- Energy usage blocks (like a cell phone plan): This option brings a level of contract pricing to smaller volume customers. It fixes the distribution charge for each customer while valuing peak capacity. Customers would contract for a specific number of peak kWh based on their past and expected usage, but there would be a high variable charge if the customer goes over its self-selected demand threshold.
- Minimum bill: This option uses a 100 per cent variable rate, with a monthly minimum amount. This option would encourage conservation by keeping a high variable charge while providing the distributor with a fixed revenue stream.
- Three part demand rates: The first part of the charge is a fixed monthly service charge to reflect the direct customer costs. The second part is a variable rate based on the ‘anytime’ demand or non-coincident peak demand to represent the cost of the design demand. The third part is a variable rate based on on-peak demand or coincident peak demand to represent the customer’s contribution to peak capacity requirements. This option values connection demand and aggregate demand separately, and it is expected to be fairer and provide more revenue stability than peak and off-peak alone.
- Time of Use demand rates: This option is similar to ‘Three part demand rates’ except that there is a peak charge and an off-peak charge instead of a peak charge and an anytime charge. This option values peak capacity.
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