While some companies charge very simple and easy to understand electricity rates, many offer plans with pricing structures that seem confusing, random or even intentionally opaque. To help clear up some of the confusion, here is a breakdown of some of the more common electricity rate plans used by retailers and electricity utilities.
Hourly Ontario Energy Price (HOEP)
Consumers often think of electricity as a given. It’s just there. However, electricity is a commodity. Its prices rise and fall due to supply, demand, and economic factors, just as the prices of stocks and other investments rise and fall.
The price of electricity changes constantly, on a second-by-second basis. In Ontario, the electricity market is overseen by the Independent Electricity System Operator (IESO). The IESO essentially keeps the market organized, making sure that sales of electricity are properly sorted according to cost, so that buyers can easily purchase the cheapest available electricity.
The point at which buyers and sellers agree on a price is referred to as the Market Clearing Price (MCP), which is updated every five minutes. Every hour, the previous 12 MCPs are averaged together to calculate the Hourly Ontario Energy Price (HOEP).
Businesses that use large amounts of electricity purchase it wholesale according to the HOEP. Homeowners and small business owners usually pay what is called Time-Of-Use prices, which are regulated rates based on HOEP, but adds in other costs, such as transmission costs, the Global Adjustment, and other fees. To clarify, all consumers pay these additional costs. Smaller consumers just don’t see the breakdown of these fees.
Regulated Price Plan (RPP) Rates
If you see two different prices on your energy bill—one for consumption up to a certain threshold, and then a higher rate for consumption beyond that point—that means that you are on a Regulated Price Plan (RPP). Also known as a Tiered Regulated Price Plan or Tiered Pricing Plan, RPP rates are mandated by the Ontario Energy Board to give residents of Ontario access to electricity services with a predictable, stable price. Roughly 10% of Ontario residents pay RPP rates.
These prices are fixed, rather than reacting to economic influences as retail rates do. As a consequence, RPP rates are likely to be somewhat higher than retail rates, due to the need to ensure that utility companies can make up for periods when energy production costs are especially high.
The 2016 RPP Rate Schedule
- Between May 1st and October 31st, electricity will cost:
- 10.3 cents per kilowatt, below a total of 600 kWh per month
- 12.1 cents per kilowatt for each kilowatt above the 600 kWh threshold
- Between November 1st and April 30th, electricity will cost:
- 10.3 cents per kilowatt, below a threshold of 1,000 kWh per month
- 12.1 cents per kilowatt for each kilowatt above the 1,000 kWh threshold
These prices are reviewed every six months by the Ontario Energy Board, and are subject to change.
The Advantages of RPP Rates
RPP is highly desirable for consumers who value predictability above all else. In addition, the cost breakdown on an RPP bill can be easier to follow than bills for retail energy or utilities that charge TOU rates.
Additionally, you have no obligation to stick with your RPP utility. Thus, you can come and go as you please.
The Disadvantages of RPP Rates
The stability of RPP comes at a cost—a literal cost. RPP rates are often higher than rates charged by energy retailers. This is in part because RPP rates have to be priced in order to hedge against unpredictable cost increases in the future.
But for those who use more than a couple hundred kWh of electricity per month, many retailers offer competitive flat rate packages, in which you can use as much electricity as you want (below a pre-set cap), when you want, for a single monthly fee. In essence, the retailer pays for the risk, instead of the consumer.
In addition, many retailers offer variable rates that change according to current economic conditions, and these rates are often lower than RPP rates.
So, for consumers who really want to minimize their electricity costs, there are many reasons to look at alternatives to RPP utilities.
RPP Settlement
If you choose to sign an agreement with a retail energy supplier, you will be charged or credited for a “final RPP variance settlement,” when you leave your Regulated Price Plan provider. This is because of slight differences between the forecast price you were charged by your RPP provider, and the rate that was ultimately paid to the energy generator.
For all but the largest consumers of electricity, this settlement will amount to a few dollars. The settlement is based upon the “Final RPP Variance Settlement Factor,” which is recalculated on a monthly basis. When this factor is positive, you will be charged a settlement. When the factor is negative, you will be credited for the settlement.
To calculate your settlement, take your average monthly energy consumption in kWh, multiply it by 12 (if you were an RPP customer for less than 12 months, substitute the number of months you were an RPP customer), and then multiply by the variance to find your settlement.
For instance, if you stopped being an RPP customer on September 20th, 2016, when the factor was $0.000889 per kWh, and you had an average consumption of 400 kWh per month over the previous 12 month, your settlement charge would be calculated thusly:
400 kWh/month * 12 months * $0.000889 per kWh = $4.27
You would be charged a total of $4.27 on your final bill for your RPP settlement. For more information on the settlement, visit the Ontario Energy Board’s Final RPP Variance Settlement Amount page.
Time-Of-Use (TOU) Prices
The majority of Ontario electricity consumers pay Time-Of-Use (TOU) prices for their electricity. TOU prices are regulated by the Ontario Energy Board, which reviews current economic conditions and adjusted these regulated rates every six months.
While TOU prices can be a little difficult to understand, they’re built around a simple concept: when electricity demand is higher, it costs producers more to meet this demand, thus prices need to be accordingly high. When demand is low, the cost of production is low, and the prices are low.
TOU Periods and Prices
TOU prices are broken down into three categories:
- Off-Peak: This is the period when electricity consumption is lowest. During this period, prices are that their lowest.
- Mid-Peak: This is when demand for electricity is moderately high, but not at its peak. Prices during this period are a little higher than they are during Off-Peak hours.
- On-Peak: This is primetime, when electricity demand is at its absolute highest, and so prices are at their peak. During this period, the vast majority of people are at home and running their heating, air conditioning, TVs, computers, microwaves, etc.
As of May 1st, 2016, these are the prices for each of these periods:
- Off-Peak: 8.7 cents/kWh
- Mid-Peak: 13.2 cents/kWh
- On-Peak: 18.0 cents/kWh
Thus, the price that TOU users pay for their electricity changes depending on when they use their electricity.
TOU Price Breakdown
The TOU rate schedule is built around the typical power consumption of Ontario residents. Because this behavior changes on weekdays versus weekends, and winter versus summer, the TOU schedule changes according to the season and the day of the week.
For weekends and holidays, regardless of the season, all hours of the day are off-peak. No matter when you use electricity on these days, you will pay the lowest TOU rate. But it’s the weekdays where things get tricky.
In the summer (May 1st to October 31st), the weekday schedule breaks down as follows:
- Off-Peak: 7 PM to 7 AM
- Mid-Peak: 7 AM to 11 AM and 5 PM to 7 PM
- On-Peak: 11 AM to 5 PM
In the winter (November 1st to April 30th), the weekday schedule is:
- Off-Peak: 7 PM to 7 AM
- Mid-Peak: 11 AM to 5 PM
- On-Peak: 7 AM to 11 AM and 5 PM to 7 PM
The Ontario Energy Board review and update these prices every six months, so they are subject to change over time.
