Electricity pricing in Nova Scotia: Time for change

Larry Hughes

Energy costs are rising. In some Nova Scotian households, the combined cost of electricity and heating exceeds 8% to 10% of household income, pushing them into energy poverty. Rising electricity costs have grabbed the attention of both the media and members of the Nova Scotia legislature. The ensuing debate has centered on topics such as Nova Scotia’s tax on electricity consumption, Muskrat Falls, renewables, and coal. Inevitably, attention turns to Nova Scotia Power and its parent, Emera.

Perhaps what is most surprising about this debate is the lack of discussion about NSP’s Domestic Service Tariff. Under it almost all Nova Scotian households pay 13.336 cents/kWh, regardless of when the electricity is consumed. However, the actual cost of electricity produced by NSP varies throughout the day; for example, during the on-peak periods (typically early morning and early evening) a variety of high-cost energy sources are used, whereas during the overnight off-peak (about 11pm to 7am), electricity is generated from less-expensive sources.

The Domestic Service Tariff, like all flat-rate tariffs, has a number of shortcomings; for example, households using off-peak electricity can subsidize those using on-peak electricity. Similarly, households are unable to benefit from shifting their demand to periods of lower-cost generation.

The root of the problem is that the Domestic Service Tariff employs an induction meter to record the total amount of electricity a household uses during a billing period, giving no indication of when it was consumed. The cost of electricity to the household is simply the product of the amount consumed and the hourly rate.

A simple, low-cost alternative to flat-rate billing is the inverted-block rate, which still uses an induction meter, but electricity is charged “by block”, where each block specifies a number of kilowatt-hours and their price; each additional block becomes increasingly expensive. The inverted-block rate’s principal advantage is that is offers households some degree of savings if they use less electricity; however, it makes no distinction between on- and off-peak consumption.

In order to determine electricity usage more accurately, some jurisdictions require their electricity suppliers to replace induction meters with interval meters that record consumption over short intervals (typically one hour). This information, coupled with the electricity-supplier’s hourly production costs, allows for the implementation of time-of-use billing, which can reflect the actual cost of the electricity consumed. With time-of-use billing, a household wanting to reduce its electricity costs can change its consumption patterns from, for example, the evening on-peak to the overnight off-peak.

Time-of-use billing and interval meters are not new, they have been available for decades, offering customers the opportunity to take advantage of lower-cost electricity. Today, a growing number of “smart” appliances are available to operate during periods of low-cost or clean electricity. “Smart-grid” technologies are being designed allow appliances to be turned on or off at certain price points.

It is reasonable to ask why NSP hasn’t moved away from flat-rate billing to an inverted-block rate or, better yet, a time-of-use rate. The reason is quite simple — as a regulated monopoly, NSP will do only what it is told to do by the Utility and Review Board. And to date, the UARB hasn’t told NSP to change.

The UARB is well aware of these alternatives. In the November 2004 rate-hearings, I made a submission on the inverted block rate. At both the April 2008 Demand Side Management hearings and the April 2010 hearings, I made submissions for time-of-use rates. All were rejected.

In 2008, NSP’s principal argument against time-of-use rates was that since most of their generation came from coal (around 80% at the time), a time-of-use rate wouldn’t have much impact. Today, NSP’s billing inserts remind us of how far the company has moved away from coal — down to 57% in 2011 with further reductions expected. This being the case, it seems reasonable to expect that now would be the time to introduce interval meters and time-of-use rates.

(NSP has years of experience with interval meters and time-of-use billing — their Domestic Service Time-Of-Day Tariff is for households using electric thermal-storage and in-floor radiant heating.)

The province’s $42 million energy-efficiency tax collected each year from NSP’s ratepayers could cover the cost of supplying interval meters to all Nova Scotian households. In fact, NSP’s use of interval meters highlights one of the deficiencies of the tax: it targets all electricity consumption making no distinction between electricity from low-carbon or high-carbon sources; with interval meters, electricity could be taxed based upon, for example, its carbon content.

Without a change in electricity metering and NSP’s antiquated billing system, Nova Scotian households will continue to be unable to take advantage of lower-cost electricity and future advances in smart-grid technology. If change is to come about, it is up to the UARB. However, in an article on interval meters and the UARB that appeared in allnovascotia.com on 22 September 2008, I wrote “The UARB never misses an opportunity to miss an opportunity”.

Maybe they’ll get it right this time.

Submitted to AllNovaScotia.com 29 May 2012