Bill Hulet Editor

Here's the thing. A lot of important local issues are really complex. And to understand them we need more than "sound bites" and knee-jerk ideology. The Guelph Back-Grounder is a place where people can read the background information that explains why things are the way they are, and, the complex issues that people have to negotiate if they want to make Guelph a better city. No anger, just the facts.


Sunday, November 13, 2016

Deconstructing My Electricity Bill

Executive Summary:

Some elements of our society have recently been pushing the meme that Ontario electricity rates are far too high and that the reason why is because of a Quixotic attempt by the current Liberal government to support solar and wind power. This article shows the real issue isn't rooftop solar, but rather the need to upgrade our obsolete transmission system into "smart grid" technology. It also suggests that the people who are suffering the most by attempts to make people pay the real as opposed to a subsidized cost for their electricity use are a class of rural poor. As a social policy issue, the author suggests that the rural poor would be much better served by a guaranteed annual income program rather than an immensely expensive subsidy for the entire population's energy use. 

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Deconstructing My Electricity Bill 

I've been hearing a lot of complaints lately about how much electricity costs. Moreover, the people complaining have been aiming their anger at the attempt by the provincial government to move towards a post-carbon society. On the other side are people who say that electricity isn't really all that expensive in Ontario, and that special contracts that the province has been handing out to encourage solar and wind production have nothing at all to do with what increases have happened. I suspect that a lot of people don't really know what to think about all of this. And frankly, I'm one of them. I thought that I'd put some effort into trying to learn what I can about electricity and share that with my readers.

It occurred to me that the place to start with this inquiry is where everyone else does, my electricity bill.



It should go without saying, but unfortunately some people are confused about exactly what they are paying for, so they confuse the water charges with electricity. So it's important to emphasize that the two are totally separate. (I own a duplex and share with another couple. So this water bill will be cut in half. That means I owe $21.40 for water.)

Remember, subtract the water charges from the bill total!


Electricity bills come in monthly, so this means that I had to pay Guelph Hydro $46.61 for electricity in the month of October.

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This raises the first issue that comes to my mind when I hear people complaining about electricity bills. I've heard folks say that they pay hundreds of dollars in electrical bills each month. Frankly, I don't understand what they are doing. I am not some sort of hermit living in a cave. I am cautious with energy use, but I do have a very pleasant 1100 square foot home. I have an electric range and cook almost all my meals from scratch. I do have high efficiency electric lights and try to turn them off when not necessary. But I also have an aquarium pump that runs constantly, a pellet stove, and, a gas boiler---all of which run on electricity. My computer runs constantly when I am awake and at home. I also have a new refrigerator that isn't even rated as an "energy star" appliance----but it is only 12 cubic feet in size. I do not have air conditioning, however. And I did spend 15 or so years totally gutting and rebuilding my 100 plus year old home into an R-2000 compliant structure. This means that I can get away without having air conditioning in the summer (or at least until climate change makes summers unbearable without it.) Oh, and I don't have a clothes dryer---I hang stuff up outside in the summer and inside in the winter.

The wild disconnect between my bill and what I am hearing in casual conversation and in public discourse seems to indicate to me that some folks are living very different lives than I am. I heard a phone-in show, for example, where a distraught woman called in and said that she was having a terrible time paying her electricity bills. It came out in the conversation, however, that what she had done was rent a drafty, decrepit old farm house (because the rent was cheap) and then attempt to heat it with electric baseboard heaters.

I remind myself to be compassionate and tell myself that I don't know anything about this woman and what aspects of her life brought her to where she is now, but I am perplexed by someone who moves to a drafty old farm house and attempts to heat it with electricity. When I was a child my family lived in one of those old barns. It got so cold in the winter that some of the bedrooms actually got frost on the wallpaper during especially cold nights. We all wore thermal underwear. When I sat up at night doing homework from school, I sometimes wore long-johns, shirt and jeans, a heavy sweater, a wool hat and gloves while I tried to figure out physics problems.

Generally, those old farm houses were laid out on the assumption that in the winter people spent all their waking time in the kitchen around the wood stove. The kitchens were usually one of the biggest rooms in the house and generally had easy chairs and couches in addition to kitchen tables and counters. As well, farm houses were well supplied with things like Hudson's Bay blankets. We had this old silk and eider-down comforter for one of the beds that was so hot that it was useless except on those nights where the frost was on the walls.

No one in their right mind would attempt to heat a home like this with electric baseboard heaters. Most country folk had a maple bush, chainsaw, cook stove, and, heated with wood.

OK. Now let me get off my "high horse". If someone is going to heat with electricity in a drafty old farm house, is there any especial reason for them to be angry about the price? Well, it turns out there is. Take a look at the actual charges on my bill.

My bill, but not the same bill as someone in the countryside!
More than half of the charge is for "delivery". This is important, because it turns out that the delivery charges for someone who lives in the downtown core of a city are significantly lower than for someone who lives in the countryside. According to HydroOne's own site, there are three different classes of electricity customers. 
  • People who live in high-density areas and who have at least 3,000 customers with at least 60 customers for every kilometer of transmission line
  • People who live in medium-density areas with at least 100 customers and 15 per kilometer
  • Low density areas that lack 100 customers and less than 15 per kilometer
If you live in a low density area, that delivery charge of $22.58 turns into $43.32.  The difference between that woman on the radio's basic delivery charge and mine is $20.74. Moreover, for every kilo Watt hour (kWh) of electricity I use, I am charged 1.60 cents in per use delivery charges, whereas she has to pay 4.27 cents. I cannot see this per unit charge on my bill, so I can only assume that it is included in the gross charge per kWh. I used a total of 148.52 kWh last month, and the difference between the her per use fees and mine is 2.67 cents per kWh. Multiply the difference by the kWhs I used last month, 148.52, and you get $3.96 cents extra to add to my bill. Add these two extra charges to my bill, and you see that if my home were magically transported to a more remote part of Wellington county, the bill would now be $65.95.

(I double checked this information by looking at an electricity bill from a neighbour who has a cottage in the Sauble Beach area. It was a "Hydro One" bill, as opposed to Guelph Hydro. the total electricity charges were $103.80, plus $186.00 for delivery, plus $6.66 "regulatory charges", plus $4.71, plus $39.16 for Harmonized Sales Tax (HST). This brings the sub-total to $340.37. From which $24.76 was subtracted for "Ontario Clean Energy Benefit". The final total owing was $315.61.)

Now let's assume that that woman on the phone was using ten times as much electricity as I am. (I'm just pulling this out of the air, but baseboard heaters draw a lot of juice.) Let's assume that we both used 1500 kwhs, and that all of this came at the priciest fraction of the time of day. In my case the price plus transmission costs would come to $316.58, in her's $377.58.  Now frankly, I don't know if 1500 kWh comes even close to being realistic in describing how much that woman uses to heat her farm house. I do know that when I purchased my home (about 20 years ago), it was a drafty, uninsulated barn that was heated with electric baseboards. The first thing I did was rip them out and replace them with a high-efficiency hydronics system because---growing up in the countryside---I was horrified at what the electricity bills would come to if I didn't. 

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It would be easy to point fingers at the people who try to heat their homes with crazily inappropriate electrical heating systems. But that would not only be unkind in many cases, it would also often simply be inappropriate. It is possible to find yourself in a situation where you are "stuck" for one reason or another, and it is impossible to claw your way out of it. To illustrate this point, consider the cautionary tale of one of my university room mates.

I met "Dave" in grad school. He was a nice guy, gentle, soft-spoken, articulate, and cultured. He was getting by---like me---on a teaching assistant's stipend and student loans. He lived at the Albion Hotel (it still rented rooms then), but the other folks there were driving him nuts. (The next room had a couple in it and the man beat his partner on a regular basis and Dave hated to have to listen to it.) I was renting a house and subletting rooms to students, so I asked him if he wanted to move in. He was happy to do so.

Eventually, I got to know something about him. It turns out that Dave had come to Guelph to serve time in prison. Yes, Dave had some very interesting history. He'd had a job at a factory in K/W but had got laid off (it was the early eighties and jobs were a lot harder to get then than they are now.) His family had totally disowned him because he had come out of the closet as being gay, and they were all supporters of some flavour of Christianity that translates "Jesus loves you" into "God hates fags". After a fruitless period of time trying to find work, he pretty much lost hope of ever finding a job. At that point he found out that if you moved to a small rural village the rents were a lot cheaper than in the city. So he decided that his unemployment insurance cheques would go a lot farther there than in the city.

Unfortunately, the pogey stopped coming and Dave was starving. He went to the local welfare office, and it told him to go back to the city. (At that time welfare for single, young men in most towns was a one-way bus ticket to the nearest big city.) He also went to the local churches asking for a hand-out. They told him to "bugger off" too. (That whole "God hates fags" thing possibly had something to do with it.)  Eventually, Dave decided that the only way to avoid starvation would be to go to jail, so he broke into a church, set it on fire, and, sat playing the pipe organ until the police arrived.

Dave had psychiatric issues, no doubt about it. But they were dramatically accelerated by poverty and the way society treats people who make bad life choices. And in the same way, that woman who decided to save money by moving to a country house with "cheap rent", is probably equally stuck. And my friends tell me that rural areas are filled with people who are just hanging onto life by their fingernails. And the increase in electricity transmission costs are devastating to them. The thing to remember is that lots of people are standing in water up to their noses. The slightest increase in the depth is enough to drown them.

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The problem is, however, that there really good reasons why the transmission cost should be higher in the countryside than in the city. Actually there are a lot of good reasons---. First, let's start with a history lesson.

On Thursday, August 14th of 2003 I was at work and the electricity went out. It was a hot, sunny day and a little voice told me "the provincial conservatives just lost the next election---". I was so sure of this that I actually told the other people in the room about it, who probably thought I was being my usual nutty self and brushed it off. Well, I was right. You see their government had refused to reinvest in the electricity infrastructure well past the point where they should have, and what the engineers had warned them could happen, did. We had a catastrophic power outage that lasted a very long time. In my case, the power was off for about a week (my block was one of the longest out of service in Guelph.)

Reporters portrayed the black out as being caused by a "software problem" in an American local utility. But that was just the eventual straw that broke the camel's back. The real problem was that electricity rates had been reduced to a political football and politicians refused to force consumers to pay the real cost of building a safe, resilient, dependable system. Instead, they took the easy route of avoiding expensive upgrades and kicked the can down the road.

This experience taught at least some people that a good electrical system is not just a question of cheap price, but also one of reliability. And for an electrical distribution system to be reliable, it needs to be resilient. And that comes from two things:  distribution of generation and redundancy of distribution pathways. To understand this, consider two different ways of generating electricity, a giant centralized nuclear reactor complex, or, thousands of solar and wind units spread across the entire province. In the former, the entire system collapses if there is a problem at the one site. In the latter, it is hard to conceive of any event that would wipe out all activity across the entire province. Equally important, if there is one centralized power generation place, power transmission will be centralized into a few corridors of high tension wires. Knock out those wires (like what happened during the massive ice storm of 1998), and people can lose their electricity for months.  

Oops! I wish that we'd paid a few extra bucks and put in some solar panels.
NOAA Photo Library, National Weather Service Forecast Office Portland ME

In addition, if you distribute power generation across the entire province you create problems for maintenance. Think of it this way:  before rooftop solar panels, if a lineman wanted to do some work he would just cut off the flow of electricity from the local transformer station and the wires past that point would all be safe to work with. But with the odd house having solar panels, each of those is putting electricity into the grid, so to work on a wire he is going to have to isolate each of those rooftop generating units from the line too.

The way to deal with these issues is something call the "smart grid". Here's a useful YouTube video from the US department of energy that does a good job explaining it. 



As you might imagine, upgrading the electrical system to a province-wide "smart grid" is not cheap. Moreover, it gets more and more expensive per person in rural areas.  This is simply a case of mathematics. It is cheaper, per person, to build a system where you have over 3,000 customers and more than 60 people per kilometer of wire, than where you have less than one hundred and less than 15 per kilometer. This is the same problem that governments face with sewers, telephone lines, water, and, roads. 

Unfortunately, there is a body of opinion in our society that says that government should use tax dollars to prop up unsustainable and grotesquely inefficient lifestyles instead of trying to get people to live more sensible lives. That's why some folks continue to argue for suburban sprawl instead of higher density cities, and, personal automobiles instead of public transit. It's also the attitude that fights tooth and nail against toll roads and raising water rates to the point where we can afford to pay for the cost of fixing worn-out pipes. I suspect that most of the folks who complain about this really don't understand the issues at stake and don't even want to understand what is going on. Instead, they are having a temper tantrum aimed at a world that seems indifferent to the inconvenience it is causing them. Sad to say, there a lot of "big children" in this world who's only response to the unexpected and unpleasant is knot up their fists and start yelling. If a politician decides to pander to their emotions, they can get a lot of votes---but the ultimate results are usually very bad for everyone. (Hence the blackout of 2003.)

It is insane to expect the average tax payer to subsidize ever single person in the province who buys electricity so a small number of poor rural users can still afford to waste electricity in drafty, poorly insulated houses. What does make sense is to charge the real cost of living in the countryside and increase the social safety net to the point where people don't move to the countryside in the mistaken idea that they can "live on the cheap" there. Many people who do have the wherewithal to afford it will probably opt out of the power grid altogether and instead purchase solar panels with a battery back up. Others will probably just "suck it up" and accept the increased costs as just part of living in the boonies. But lots of marginal folks should be encouraged to move to the city where there will be lots more services to help people with whatever problems have led to their living in dire rural poverty in the first place. Ultimately, the only people who really should be living in the countryside are people who work there such as farmers, loggers, etc. All the folks who live in the countryside and commute long distances to work are ultimately being subsidized by other tax payers. Which is why some rural areas have had big fights with people who own winterized cottages and expect the country to plough the snow off their roads in the winter. 

I suspect that the Liberal government understands this point, which is why it has committed to creating an experiment to figure out how well a guaranteed annual income will work. The reasoning is that it makes more sense to give the small number of poor people in our society some money rather than to create universal subsidies that keep the cost of things like electricity artificially low for the entire population. Not only would universal subsidies be an insane misallocation of scarce resources, it keeps people from changing their lives to be more in keeping with the physical reality that we face as a species. We simply can no longer afford this sort of behaviour in the face of the existential threat of climate change.

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One other thing that I often hear is that the reason why power costs have gone up is because those long term energy contracts that the provincial government awarded to home owners. What they are referring to is the Green Energy Act of 2009 that creates special contracts (called "Feed In Tariffs") that were designed to encourage people to invest in the newly emerging sustainable energy industry. When it was first introduced, the hardy folks who signed the first contracts for roof-top solar panels were promised 80.2¢/kWh! What!!!!!  Why would the province offer to pay such a huge amount of money?  Looking at my electricity bill I only have to pay as little as 8.7 cents per kWh.  Where is the difference coming from?  Those damn, spendthrift Liberals are at it again!!!!

Well, that number that I looked at on my bill is an average, which is why there are three different prices listed on the bill:
  • On Peak Summer @ 18.0 cents per kWh
  • MidPeak Summer @ 13.2 cents per kWh
  • OffPeak Summer at 8.7 cents per kWh
These, in turn, are averages. If you really want to see how much the cost of electricity fluxuates, you have to look at the Ontario spot market. Luckily, you can actually see this on-line at the Independent Electricity System Operator (IESO) website.  (The prices that this website quotes are not a final cost for consumers like you and me, so don't try to compare them to your own bills. All it is necessary to see is that the cost of electricity does fluctuate wildly from one part of the day to another.)

I am told that the absolute highest price for electricity on the spot market happens during hot, sunny days in the summer. That's because the biggest load on the system are air conditioners.  Moreover, when electrical transmission wires get hot (from the sun) they become more resistant. This in turn, makes them heat up. In addition, when they have a lot of power being drawn on them, they also heat up. This leads to a vicious cycle---wires getting hot makes them give off more energy as heat, which makes them tend to give off more heat when heavily used. (See this article that explains this phenomenon.)

There are two things about rooftop solar panels that make them specifically useful to deal with this problem. First, solar power creates the greatest amount of energy exactly when it is most needed to power air conditions. Secondly, because it is being created in residential neighbourhoods, it is being used almost exactly where it is being created. This means that it doesn't have to travel long distances over over-heating transmission lines. What this means is that a kWh or rooftop solar power is actually worth a lot more to our electrical grid system than one from Niagara Falls or a nuclear reactor.

In addition, the feed-in tariff system was never designed to be a permanent part of electrical generation. What it was intended to do was to liberate large amounts of capital sitting in people's retirement savings and use them to build both electrical---and equally important---human capital. I know quite a few people who looked at the returns in the feed in tariff contracts and decided that they were so much higher than what they could get in other investments that they took the risk and put in solar systems. If those guaranteed contracts weren't there, they simply would not have done so. And if the government or Ontario Hydro had wanted to do the job themselves, they would have had to borrow huge amounts of money to pay for it. Moreover, when my friends installed those systems they hired people who had made the significant effort to learn new skill sets and set up companies to install these new rooftop solar systems. If the feed in tariff had not existed, this whole new industry would not have been created. Now that the industry exists, the cost of installed systems has dropped so much that the government has been able to drop the guaranteed price that Ontario Hydro pays for the electricity created by rooftop solar. (The current promised rate for new construction is 28-38¢/kWh.) But without those initial contracts, this would never have happened.

(Addendum:

Since I published this post it has been pointed out to me that I should have emphasized how small a fraction of the entire electrical generation capacity of Ontario solar power continues to be. Looking at the IESO website this morning I saw the following breakdown in generation:  Nuclear 9,859 MW, Hydro 3,713 MW, Natural Gas 1,112 MW, Wind 1,146 MW, and teeny tiny solar comes in at 149 MWs. And this on a bright, sunny day when I don't see a cloud in the sky! It is profoundly dishonest to blame the increased cost of electricity on the feed in tariff system.)

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Electric policy in Ontario is a huge issue that requires a lot of expertise to really understand. The above only just starts to scratch the surface of the issue. But I am really concerned about the way the political parties and mainstream media have been dealing with this file. They all seem bent and determined on confusing the general public in order to get their support in the next election. And electricity is tremendously important in our race to move towards a carbon neutral society. I never hear anyone talk about the importance of the "smart grid" or the "spot market" or any of other issues I've identified above. Instead, I just hear whining about "electricity is too damn expensive" mixed with weepy stories about some person in a rural area who has to choose between food and paying their bill. I don't know why the debate is so shallow, perhaps it is just too complex for most journalists and politicians to really understand. I fear that at least some of the time these folks do understand and they just don't care because their convenient falsehoods help push their selfish, short term agenda. The result is the same, though. If we cannot think rationally about our electrical policy, it will spell disaster for our province.

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