Smart meters are used to cut electricity bills by tracking usage in homes and business settings. The goal is to reduce electricity usage during periods of peak demand, offering incentives through a time-based pricing scheme. At the same time, many share the opinion that the program is not cost-effective, causes higher bills, and wastes money without cutting electricity demand.
Time Meter Technology
Smart meters help local distribution companies to determine the amount of electricity used during mid-peak, off-peak, and peak periods. High prices are set during certain hours of the day and during certain days in which demand for electricity is high. Customers are given the opportunity to cut or reduce usage during peak periods to reduce their electricity bills. The main benefit of using smart meters instead of standard ones is that they can measure usage during the day.
Smart Meter Initiative, Problems and Challenges
The Ontario Smart Meter Program was developed to solve problems related to tight supply. Limited supply is mainly due to lack of investment, transmission problems, and problems with existing plants. While the goal is to reduce consumption and demand, the initiative failed to live up to its promise. According to Bonnie Lysyk, Ontario’s Auditor General, some 17 percent of the meters installed in the province had not transmitted any readings in 2014. Reports by energy agencies also show that consumers use almost the same amount of electricity during peak hours and periods as they did before the smart meters were installed. Not only this, but between 2010 and 2016, the cost of electricity increased by 82 percent during peak periods, resulting in high bills for consumers. For many, it is time to reevaluate the time-based pricing scheme and the benefits it offers to consumers.
The main goal of the program was to give households opportunities and incentives to shift usage from peak to off-peak periods. However, a report by the Brattle Group consulting firm reveals that the time-based pricing scheme failed to offer sufficient incentives to reduce usage. In fact, demand and usage fell by just 0.7 percent according to the 2015 – 2016 Energy Conservation Progress Report drawn up by the Environmental Commissioner of Ontario. The expected cut in demand in Ontario was six times higher. Another report by BEworks, a management consulting firm with a focus on behavioral economics, shows that the new pricing model failed to shift consumption to off-peak periods. The 2014 report by the auditor general confirms the findings.
In fact, just 35 percent of households reduced their consumption, and the main reason is that off-peak and on-peak rates are not significantly different to offer consumers real incentives to change their usage patterns. In 2013, the average reduction in consumption was just 3.3 percent according to a report by Navigant Consulting.
A blogger and independent advocate Scott Luft explains that the new pricing scheme affected low users and benefited heavy users. The same rates apply to households that use less than 600 kWh and to those that use more, meaning that the cost of electricity actually dropped for heavy users. In fact, certain groups of people cannot take advantage of time-based pricing, including seniors and parents with small children who stay home most of the time.
Finally, the benefits of differential pricing and the Ontario Smart Meter Program were significantly overestimated due to a lack of adequate planning. A cost-benefit analysis was not made by the Ontario Energy Board or the Ministry of Energy before the start of the program.
Ontarians pay the highest electricity rates in Canada, and there are many reasons for this, from lack of investment in new infrastructure to deals with private companies and decisions on infrastructure upgrades.
The main culprits for soaring prices in Ontario are a series of contracts concluded with private operators and the recent privatization of Hydro One. Hydro One was privatized in 2015 so that the government could raise funds for infrastructure and transit projects. This means a loss of revenue for the government and less money for public services such as healthcare and education. Not only this but the cost of electricity is likely to increase as private investors borrow funds to finance purchases, and the debt is then passed onto consumers in the form of high electricity prices.
Contracts with Private Operators
High prices are also the result of a decision to upgrade the electricity grid by replacing coal plants with solar, wind, and natural gas plants. Since 2003, the construction and running of plants has been outsourced to private investors who concluded 20-year contracts with the government in exchange for cost overruns. The problem is that private businesses were guaranteed fixed revenues regardless of the quantity of electricity produced. Some companies operate below their capacity and still get 100 percent of the revenue. Figures published by the Globe and Mail show that one of the natural gas plants was operating at just 25 percent of its capacity. The cost of all this is passed onto consumers in the form of higher electricity rates. One reason for the higher rates is that more plants have been built in Ontario than needed, resulting in a huge excess of generating capacity. At the same time, households still pay for the electricity produced, regardless of whether it is needed or not. Plants generate surplus power that the provincial government is bound to buy under the concluded contracts. The surplus electricity is then sold to the U.S. at below production costs. Consumers pay for this surplus electricity in the form of global adjustment.
The three components of the global adjustment include contracts concluded with independent electricity system operators, baseload and nuclear stations, and contracts of generation plants with the Ontario Electricity Financial Corporation. Independent electricity system operators include conservation programs, nuclear refurbishments, producers of energy from biomass and waste, and renewable facilities.
According to a report by the Auditor General of Ontario, households are billed inappropriate and illegible costs, totaling $30 million. A report by CBC also shows that natural gas plants add inappropriate expenses to electricity bills. Some of the items that were billed include car washes and scuba gear.
Solutions to Reduce Costs
One of the solutions to this problem is to cancel existing contracts with private operators. However, this is not a cheap solution. Cancelling the power plants in Oakville and Mississauga cost about $1 billion. Closing the Pickering Nuclear Plant is a second option given its high operating costs. Some 50 percent of the energy produced there is a surplus for Ontario. The main reason is that output cannot be reduced during off-peak periods. Closing the plant will result in close to $740 million in savings.