How to really save on electricity costs

Larry Hughes

According to the minister of energy, Nova Scotians will save on their electricity costs when the new Energy Efficiency and Conservation Act comes into force in 2015. Since the savings are due entirely to the removal of the Demand Side Management (DSM) tax, Nova Scotians are still limited in the ways they can explicitly save on their electricity costs to either reducing their use of electrical goods (notably appliances, lighting, and electric heaters) or replacing existing electrical goods with new ones that are more efficient (some of which are, at present, directly subsidized by the DSM tax).

However, those Nova Scotians who are unable to use less electricity or do not need (or simply cannot afford) new electrical goods have no way of saving on their electricity costs.

In Nova Scotia, the amount of electricity consumed over a billing period by most residential electricity consumers is measured in kilowatt-hours and recorded on an interval meter. The cost of the electricity consumed is obtained from the residential price of a kilowatt-hour of electricity (currently $0.1425) multiplied by the number of kilowatt-hours consumed. This is referred to as flat-rate billing.

Each day, the province’s demand for electricity varies: it is typically lowest from late evening to early morning (off-peak), highest from late afternoon to early evening (on-peak), and somewhere between these two in the morning, throughout the day, and in the evening (mid-peak). To meet this demand, Nova Scotia Power generates electricity from different sources, principally coal and natural gas, supplemented with hydro-electricity, wind, and imports of electricity. Since the price of these sources is not the same, the cost of production also varies throughout the day.

The residential price of electricity used in flat-rate billing ignores these variations and can be thought of as the average annual cost of producing a kilowatt-hour of electricity for all of NSPI’s residential customers. This means that at any moment in time, the cost of supplying a kilowatt-hour may be more or less than the residential price of a kilowatt-hour.

This makes flat-rate billing inherently unfair for two reasons. First, residential customers with demands that coincide with periods of costly production (such as the on-peak) are effectively subsidized by those with demands that don’t. Second, residential customers wanting to save on their electricity costs by using electricity during periods of less costly production (such as the off-peak hours) are unable to do so.

An obvious solution to this problem would be to have different prices for electricity throughout the day, reflecting the cost of production. However, this solution is not possible with an interval meter since it does not record when electricity is consumed.

Fortunately, metering technology (known as advanced meters, smart meters, or interval meters) is available that can record hourly electrical consumption. In jurisdictions where such meters exist, the cost of the electricity consumed is determined from the amount of electricity used during, for example, the off-, on-, and mid-peaks multiplied by the price of electricity for each of these periods. This is referred to as time-of-use billing.

Time-of-use billing, unlike flat-rate billing, reflects something closer to the actual cost of production. With time-of-use billing, electricity costs are higher during the on-peak and lowest during the off-peak, allowing customers to reduce their electricity costs by doing electrically-intensive activities (such as clothes washing or water-heating) at other times of the day.

Although time-of-use billing is available in Nova Scotia, it is limited to NSPI’s residential customers with in-floor heating or electric-thermal storage only. Over the past decade at various rate-hearings, whenever my students and I proposed the installation of advanced meters for all residential customers in the province, no action was taken. The main argument being that since NSPI was relying on coal for 80% and more of its generation, there would have been little difference in price between the on- and off-peak periods.

However, because of the significant changes to NSPI’s fuel mix over the past decade and the expected changes in the future, the argument against time-of-use billing rings hollow. In fact, as NSPI incorporates more variable renewables (notably wind) into its energy mix, advanced meters coupled with communications technology will allow appliances in the home to determine when to operate based upon the real-time price of electricity.

If the minister of energy required NSPI to switch residential customers to advanced meters and time-of-use billing, Nova Scotia’s residential customers could decide when to consume electricity and really save on their electricity costs.

Published in Chronicle-Herald 10 May 2014