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By C. Rhodes

The objective of this web page is to set out the essential elements of a practical strategy for maximizing economic electricity conservation by load customers in Ontario.

The proposed electricity conservation strategy rests on the following general principles:
1. The object of electricity conservation is to reduce the cost of electricity to the conserving load customer without increasing costs to other load customers;
2. Electricity conservation is encouraged by structuring electricity rates for all grid customers such that they are reflective of actual electricity system costs. Customers that consume more energy than others pay more. Customers that utilize more transmission/distribution resources than others pay more.
3. The most efficient way for a load customer to use generation is to draw energy at a constant rate;
4. The most efficient way for a load customer to use the transmission/distribution system is to draw energy at a constant rate;
5. A measure of daily load variation is the daily Load Factor Lf, which is defined by:
Lf = (Daily average power) / (Daily peak power)
= (Er2 - Er1) / (24 hours X Pm)

Pm = daily peak power demand as indicated by an interval kWh meter
Er1 = cumulative energy registered at time T1
Er2 = cumulative energy registered at time T2 = T1 + 24 hours
6. The electricity rate structure should provide that:
a) Load customers that draw energy at a constant rate are charged the lowest average rate per kWh and
b) For all customers increasing electricity energy consumption while maintaining the same Load Factor Lf increases the total cost of the electricity consumed.
7. As shown in the section titled Congestion Factor for load customers with high power factors the daily electricity cost should simplify to a function of the form:
C = [(Cr + Cd)(Er2 - Er1)]exp(-K(Lf - Lfa)) + Ca
C = daily electricity cost
Cr = unadjusted rate per kWh for received energy
Cd = unadjusted rate per kWh allocated to transmission/distribution
(Er2 - Er1) = daily received energy
K = constant (Typically K = 1.0)
Lf = actual daily load factor
Lfa = daily load factor of an average customer
8. Electricity conservation has two important components, energy conservation and load factor improvement;
9. Energy conservation entails reducing the quantity (Er2 - Er1);
10. Load factor improvement entails maximizing the load factor Lf.
11. The key issue in maximizing daily load factor Lf is minimizing the daily peak power demand Pm;
12. The daily peak demand Pm is minimized by a combination of: load shifting, load scheduling, load shedding and implementing energy storage and controls such that the net rate at which electricity is drawn from the grid is as constant as possible.

During the summer of the year 2009 the Hydro One normal density residential electricity rate, including GST, provided a marginal rate of $.162 / kWh. This rate provided a strong incentive for energy conservation but zero incentive for load factor improvement.

Currently the Province of Ontario is starting to encourage electricity conservation via implementation of Time-Of-Use (TOU) electricity rates. During the late 1980s and early 1990s Ontario Hydro and various municipal LDCs offered various TOU electricity rates for larger customers. These rates were later abandoned.

There is no doubt that TOU electricity rates are effective at reducing electricity consumption at on-peak times and at increasing electricity consumption at off-peak times. TOU electricity rates have the advantage that they are simple for the load customer to understand and they provide the load customer certainty of cost savings as a result of implementing a particular electricity conservation measure. However, TOU rates are not without their problems.

1. TOU electricity rates increase electricity costs during normal business hours, which may affect the competitiveness of Ontario business with respect to neighbouring jurisdictions.
2. TOU electicity rates have on-peak, shoulder and off-peak rate categories. The changes in rate categories occur at particular times. The more load customers that adopt controllers to take advantage of these rates, the more difficult is the electricity system to regulate at the transition times from one rate category to the next. This problem is particularly acute at the beginning of the off-peak rate period at which time large amounts of rural electric heating may turn on within a very short time span to displace consumption of fuel oil.
3. TOU electricity rates are generally chosen to optimize the total provincial electricity load. However, what is good for the province as a whole may not be good for particular LDCs. One of the affected LDCs is Hydro One. About 5% of the total heating load in Ontario is currently met with fuel oil. The cost of oil heating will likely exceed the cost of electric resistance heating during the off-peak period. That price relationship will trigger a large winter off-peak load on Hydro One local distribution. Much of that off-peak heating load will be by small customers who have no peak demand electricity rate. Hence a fundamental rate change, similar to that described above, will be required to prevent large peak demands on LDCs during the off-peak period.
4. Customers that purchase electric vehicles will impose large off-peak loads. They will also need smaller amounts of electicity during the day to top-up their battery charge. It would not make sense to charge these customers a high rate for on-peak electricity if in fact spare electricity is available during the on-peak period. Availability of this spare electricity depends not only on the net provincial reserve generation. It also depends on the LDC distribution capability. A better measure of surplus electricity availability is whether or not discretionary electicity can be supplied without increasing a customer's load factor. This decision is easily made by a customer's peak load controller, instead of requiring a very complex smart grid communication system.
5. TOU rates encourage the development of a new group of customers that draw electricity only during the off-peak periods. The problem is that to financially enable energy storage the off-peak electricity rate must be less than the average electricity cost per kWh, so the effect of this new group of customers is to raise the average electricity rate per kWh for other customers.
6. TOU rates are inherently unstable. The more customers change their load usage pattern in response to a TOU rate, the more the rate needs periodic adjustment to compensate. If instead all load customers are simply encouraged to use electricity at a constant rate, the electricity system becomes more stable instead of less stable.
7. The basic message of TOU rates is wrong. Presently the message is "shift as much electricity load to the off-peak period as possible". The message should be: "shift sufficient electricity load to the off-peak period that each customer's rate of consumption is nearly constant 24 hours per day." That strategy will minimize generation and transmission/distribution costs.

The province of Ontario is currently implementing installation of smart meters. These are kWh meters that for each customer report the kWh consumption during each metering interval. With suitable central software modifications the outputs from this metering system can be reprocessed to provide data for congestion factor based electricity pricing. However, a considerable amount of public education will be required to explain the benefits of congestion factor pricing over TOU electricity pricing.

One of the benefits of congestion factor pricing is that a customer cannot obtain low cost electricity unless that customer also purchases a balanced amount of higher cost electricity. Thus, unlike TOU rates, there is no transfer of costs to other customers.

For larger customers and net metering customers it is advantageous to replace simple smart meters with smarter meters that record both received and transmitted energy during each metering interval. Then the electricity billing system can provide a financial reward for high power factor, good load quality and appropriate use of self generation.

This web page last updated October 26, 2009.

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