Since 2009, electricity prices have risen 95% for homeowners and 115% for small businesses in the province of Ontario; this has not gone unnoticed by Ontarians. A report by the ombudsman indicated that Ontarians have already paid $37 billion in excess electricity fees, and a report by the Ontario Chamber of Commerce indicated that 5% of small businesses are looking to close their doors due to rising costs. It is no wonder that many people are looking for ways to cut down their energy bills.
Most people in Ontario are paying what is called Time-of-Use rates, where electricity is more expensive during the day than during the night. A few of us are lucky enough to be paying market rates or tier rates, but the province is working hard to move everyone to a Time-of-Use billing rate. As a result, if you are using any electricity during the day you are often being heavily penalized. This is a problem for anyone who stays at home during the day, but it is especially a problem for small businesses that have no choice but to open their doors during the day.
A number of companies are in the market promising to “lock-in” low electricity rates, they can usually be found knocking on your doors. Consumers have naturally become sceptical of such sales tactics, especially since many people have been burned in the past when they were locked into a high rate only to find no way of cancelling their contracts. If you are currently stuck in a bad contract, there are a lot more options available to you now to help you get out of those contracts as we have outlined in this article here.
Interestingly, the reason that your electricity rates keep rising and the reason that locking-in your rates is a bad idea, are both due to the same problem. They are both the result of a hidden fee called the Global Adjustment. As more solar panels and wind turbines are turned on in Ontario, the supply of electricity steadily goes up. This is driving down the market rate of electricity to extremely low rates, currently at around 1 cent per kWh. But the government has guaranteed long-term rates to people who have installed solar panels and wind turbines, rates that are much higher than the market rate. This difference is made up in the Global Adjustment. This fee is also used to cover the costs of additional investments in the grid, such as smart metres and new high capacity transmission lines.
As an example, the graphs below shows you the different parts of your electricity costs. The grey line is the average rate paid by an Ontario household for their electricity. The orange line is the market rate for your electricity, and the red line is the Global Adjustment. It clearly shows that the cost of electricity is not actually increasing, but rather the Global Adjustment is what is driving up your electricity rates.
How your energy bill breaks down
So, at the end of the day, the majority of the cost of your electricity is not the market rate for electricity, it is the global adjustment fee. Of the roughly 25 cents that you pay for each kWh of electricity you use, only a few cents are for the cost of electricity. Everything else is fees, delivery and taxes.
So, going back to why locking-in your electricity rates has not worked historically, when you lock-in your electricity rate the only thing that you are locking-in is the market rate of electricity, the one portion of your bill that has been going down as shown above. Currently prices are extremely low, at around 1 cent/kWh, so some could argue that now would be a good time to lock-in your rates. If you are thinking of locking-in your electricity rates, understand that you are only locking-in the market rate.
So what are your alternatives?
The Ontario Energy Board (OEB) has already announced that for the coming years, Off-Peak rates will always be at least half that of On-Peak rates, meaning customers who shift their electricity use to evenings and weekends will save money on their electricity usage. For those of us who are able to shift our electricity usage, this is a sound strategy.
Unfortunately, many of us, especially small business owners, are simply not able to shift usage to Off-Peak hours. So if you are stuck using electricity during the day, it is important to try to find a way to get off of these rising On-Peak prices.
In most markets, a fixed rate would be a safe and reasonable choice to make. The promise is that you will get a fixed electricity rate for 3–5 years that will help to protect you from rate increases in the future. Unfortunately, as we have shown above, fixed rates are only able to lock-in the market rate of electricity and not the Global Adjustment fee that is added to bills in Ontario.
So, if Time-of-Use rates are guaranteed to continue to rise in the coming years, and locking in your rates does not do anything to protect you from these price hikes, then what options do you have? The key here is in the difference between On-Peak pricing and Off-Peak pricing. If you use most of your electricity at night, when prices are the lowest, then you are on the best rate available and you are best off staying with your default utility. If you use more than 50% of your electricity between 7am and 7pm, however, you are better off leaving Time-of-Use pricing and getting what we call a True Market Rate.
Most large commercial businesses in Ontario are already paying this True Market Rate, which is the combination of the market rate and the Global Adjustment. As you can see in the graph below, this True Market Rate has been less than Mid and On-Peak prices for the past 10 years, but higher than Off-Peak prices. What this means is that if you use a lot of electricity during the day, this True Market rate will help you get a lower rate.
To help show how a True Market Rate can save you money, let’s look at two examples. The first person we have is Susy the teacher, who works all day at school and is only home at nights and on weekends. The second person we have is Bob the mechanic, his shop is open all day Monday to Saturday and closed on Sunday.
Since Susy is never home during the day, most of her electricity usage is during Off-Peak hours. Her refrigerator and heating are still partially on during the day though, so a breakdown of her electricity usage looks like this:
On-Peak usage: 18% Mid-Peak usage: 18% Off-Peak usage: 64%
As you can see in the chart below, because Susy uses so much of her electricity during the cheapest off-peak hours of the day, a True Market Rate would not help to save her money.
On the other hand, Bob’s shop is open all day so most of his electricity usage is during On-Peak and Mid-Peak hours. The shop has a refrigerator and heater that are still partially on during the night though, so a breakdown of the shop’s electricity usage looks like this:
On-Peak usage: 35% Mid-Peak usage: 35% Off-Peak usage: 30%
As you can see in the chart below, because Bob uses so much of his electricity during the more expensive On-Peak and Mid-Peak hours of the day, a True Market Rate would help to save his shop over 11% of his electricity costs.
The key thing to notice in the examples above is that moving to a True Market rate is not right for everyone, but it is great for those of us who use a lot of electricity during the day. In general, if you use more than 50% of your electricity during Mid and On-Peak hours, a True Market rate will save you money.
EnPowered has recently begun allowing homeowners and small businesses to group together to get access to this True Market Rate; group buying for energy. We are guaranteeing to our customers that anyone who joins an electricity group will have the lowest rates in the market and will have no cancellation fees. In other words, it is free to test out and see if a True Market rate will save your home or business money.
Natural Gas
Up until now, everything we have talked about has been about your electricity bills, but for those of us with natural gas bills there is also a way to control our gas costs.
Thankfully, the natural gas market is a lot easier to understand than the electricity market. Your local natural gas utility manages the pipes and sends natural gas directly to your door, this gas is priced at roughly the average price of natural gas over the past three months plus some added fees. This means that the gas price you see on your bill follows the market closely and moves up and down every 3 months.
The other option available in the market is to lock-in your gas rates for anywhere between 1 and 5 years. Thankfully in the gas markets there are no other hidden fees to worry about, so if you are able to lock-in your gas at a good rate it will save you money in the long-term.
Currently, natural gas prices are at historically low prices, in fact rates in the market are lower than they have been in nearly 25 years. As a result, most people are loving how low their current natural gas bills are. Unfortunately, it usually is not until gas rates rise that people start looking to lock-in their rates, but at that point you are probably too late.
Interestingly, the most recent figures indicate that roughly 50% of large commercial businesses have locked-in their natural gas rates today whereas only about 5% of homeowners and small businesses have locked-in their rates. The obvious explanation here is that commercial customers are being offered better, lower rates than everyone else is. Locking-in your natural gas rates only makes sense if you can lock them in for a truly low rate.
Thankfully, EnPowered has also created a group-buying option for natural gas. In this way, a large number of homeowners and small businesses can group together and get access to those same lower commercial rates. Group-buying for your energy. For an idea of how current rates look compared to utility rates, see below:
The OEB has already announced in advance that Ontario’s electricity prices will continue to rise for at least the next three years. If you are able to shift your electricity usage to Off-Peak hours, this is the best option available to you. But for those homeowners and small businesses that are unable to stop using electricity during the day, it may make sense to explore a True Market Rate at the new EnPowered group-buying website. And if you have natural gas at your home or business, now is the best time to look at locking-in your rates at historically low levels before we have another winter like 2014.
Originally published at www.en-powered.com.
