Rebooted rate design could spell extreme price changes for NB Power customers

A recently revived Energy and Utilities Board review is examining potentially extreme pricing changes that would shift more cost to residential consumers in New Brunswick with electric heat and move other residential consumption to lower demand periods.

The so-called "rate design" initiative could eventually result in premium prices for consumers in high-demand periods, discounts during lulls, special charges for peak monthly consumption levels, known as demand charges, or other measures or combinations of measures designed to reshape New Brunswick electricity demand.

The changes are being considered in an effort to make prices fairer between consumers who heat with electricity and those who don't and to help manage costly swings in demand that plague NB Power each winter.

Still, a pair of U.S.-based consultants who are helping frame the issues to be considered in an overhaul of prices warn the public needs to be supportive for any change to work, even if those changes are ultimately revenue neutral.

"Most changes in rate design will raise bills for some customers and lower them for other customers," wrote Ahmad Faruqui and Cecile Bourbonnais in a report to the EUB released last week.

"If not properly explained or rolled out, even simple rates can cause confusion and subsequently backlash from customers."

Rate design workshops

Faruqui and Bourbonnais led three workshops this summer among NB Power "stakeholders" to restart consideration of better electricity pricing in New Brunswick after the process began and then stalled in 2017.

Participants this summer included representatives of NB Power, the EUB, J.D. Irving Ltd., Enbridge Gas New Brunswick Ltd. (now Liberty Utilities), public intervenor Heather Black, municipal governments, municipal electric utilities, the Canadian Federation of Independent Business and individual concerned citizens.

The consultants' report on those sessions concluded there is strong support already among New Brunswick energy players for winter and non-winter "seasonal rates" for consumers as an initial way to tilt more NB Power costs toward people who use electricity for winter heat and away from those who don't.

"Under NB Power's current tariff for residential customers, the higher cost of heating usage is likely being subsidized by customers without electric heating," wrote the consultants. "Space heating demand is generally concentrated in peak periods when generation costs are highest."

Seasonal electricity rates would involve some kind of discount on NB Power's current residential charge of 11.18 cents per kilowatt hour in the seven months between April and October, offset by a premium price charged during the bulk of heating season between November and March.

Even though that would not raise more money for the utility, it could cost some customers significantly more depending on how the discounts and premiums are set.

"Seasonal rates will raise bills for customers who use more energy in peak season than the average customer and lower bills for customers who use less energy in the peak season," wrote the consultants.

"Seasonal rates have the benefit of being relatively simple and understandable to customers."

Multiple options

That change alone could be a tough sell to the public given that more than 60 per cent of NB Power's residential customers heat with electricity, but the review may look at even more dramatic changes, depending on whether NB Power's separate application to acquire smart meters is successful.

The consultants said a rate design hearing could decide daily "time of use" rates are in the public interest where prices can rise and fall by the hour, sometimes as much as 300 per cent during periods of high and low demand.

Those rates have been successful in shifting consumption in other jurisdictions, the consultants noted, especially in conjunction with smart meters and other technologies.

"Evidence from nearly 350 deployments worldwide shows that customers respond to time-varying rates, and that their price response is boosted with enabling technology," they wrote.

Other options that might be considered are "block rates" where electricity prices increase after a monthly limit is surpassed by a household or "demand charges" where the peak amount of electricity a house uses over a 15- to 60-minute span in a given month is documented and billed.

"Some of the rates can be combined. They are not mutually exclusive," the consultants said of the multiple options that exist to change the way consumers are charged.

Faruqui and Bourbonnais recommended a number of steps before implementing any changes, including studying in detail NB Power's costs, production and customer loads to properly determine who should pay what for power with rates designed accordingly.

They estimated it would take two years of preparation before rates could begin to be changed.

As a first step, the two are scheduled to formally present their findings in person to the EUB at a hearing Dec. 17 and answer questions on how the board might proceed.