Energy security and the electricity-chain stakeholders

A characteristic shared by all jurisdictions is the requirement of an energy system, which is made
of one or more chains that represent the flows of energy from various sources to meet demand
from end-users (Hughes, 2011). Figure represents a single process in a chain that together with
other processes creates the chain on which this project focuses: the electricity chain.

Figure 1: A generic energy process and its flows (Hughes, 2011)

As seen above in Figure 1, the energy system is comprised of energy inflows and outflows between
the system’s four main entities: electricity sources (suppliers), electricity end-users (consumers),
policymakers and their policies, and the environment. Together, each energy source forms its own
separate chains, which all work in parallel to each other making up the jurisdiction’s energy
system. Using the energy security framework as outlined by the IEA as “availability and
affordability (of its converted energy flows) and acceptability (of its losses and emissions flows)”,
it is possible to measure and record effects on the system (Hughes, 2011). n order to understand
and assess the proposed format changes and the desired consequences, it is first necessary to
further understand the current situation of the various stakeholders.

1.1 Current Electricity Billing Landscape

1.1.1 Issues Arising From Traditional Bill Design

In order to stay in business and turn a profit on their supplied services, electricity suppliers track
the amount of electricity used by each customer and charge them for that amount using the rate
model in place. Traditionally, induction meters have been used for this measurement. Induction
meters record the consumption of electricity in consumer’s homes by noting the KWh used over
the time period of a few months (Hughes, 2012). The difference between an induction meter and
an interval, or Time-of-Use (TOU) meter that will be discussed in Section 2.2.2, is the length of the
interval between each type of meter’s readings (Hughes, 2012). Since induction meters are limited
to tracking usage over such a long period of time (a number of months), the two types of rate
models that can be used in conjunction with these meters are: the flat-rate billing model, which is
one single rate that is multiplied by the sum of the hours used over the billing period (usually one
month), or the block rate billing model, which categorizes customers into blocks depending on the
amounts of electricity consumed (Hughes, 2012). For example, there could be a rate block for
customers who use from 0-200 kWh, then a different rate for those who use between 200-500
kWh, etc. (Hughes, 2012).

According to a report on the importance of billing rate structures, “at a minimum, a rate model is
a means of generating revenue from customers. However, rate models can do far more than this;
judiciously applied, they can influence customer consumption patterns by rewarding changes in
behaviour” (Hughes, 2004). This can be seen in block rates that are structured to encourage
consumption like in the case of declining block rates. Customers who fall into higher usage blocks,
usually commercial customers, are given a discount for using more, which in theory, stimulates
(and certainly does not dissuade) further consumption (Hughes, 2012). Encouraging consumption
is the supplier’s means of earning higher revenues for more services rendered. Assessing the
declining block rate policy through an energy security lens, it decreases affordability for those
within the electricity chain who can afford it least (as it provides cost cuts for the larger consumers,
who tend to be larger companies and larger property owners), decreases acceptability through
encouragement of greater electricity consumption, and through this encouragement, decreases
future availability. Aside from rate structures that discourage customers from increasing resource
conservation, traditional bills are generally seen as too complicated, and are often misunderstood.
As can be seen in Appendix A, current billing formats focus on total monthly charges, summing the
total kWhs used, the different efficiency charges and rate riders applied by the utility. Recently
some have added small measures such as historical usage charts and small tips to increase energy
efficiency (Maritime Electric Company Ltd., 2012). Often, these bills provide direction to a tutorial
on the supplier’s website that explains the monthly statement (Maritime Electric Company Ltd.,
2012). In order to visualize the landscape that the current billing formats create for electricity
customers, one could re-invoke the grocery store imagery from the introduction where no prices
exist on individual items in the store and customers receive a lump-sum billing statement for their
purchases at the end of each month (Kempton & Layne, 1994). If grocery shoppers were unaware
of what each item cost, it would be nearly impossible for them to figure out where to cut back and
what items were responsible for the lion’s share of the price. It is the same type of scenario faced
by the customer when they receive their electricity bill at the end of the month. The bill provides
no breakdown of how this energy was used, meaning the customer has no way of determining
what behavioural changes to adopt, as these statements only provide the information of amount
used and resulting cost.

1.1.2 Solutions to the Issues Associated with Traditional Bill Design

Development of an effective means to encourage behavioural change towards electricity

consumption is a key in maintaining a stable electricity chain. As previously mentioned, energy
poverty is increasingly becoming an issue in places like Nova Scotia where simply having the ability
to turn on the lights at night is becoming a luxury for some. One way to help people mitigate rising
electricity costs is to encourage them to reduce their usage, as it has been shown that as much as
36% of energy consumption is dependent upon behaviour (Wood & Newborough, 2003). This
demonstrates great potential for change in regards to use of kilowatt-hours, and therefore
affordability, for electricity consumers. A central factor preventing this change has been the lack
of incentive and guidance for this change provided by traditional induction meters and billing
structures. In order to combat this problem, the interval or “Smart” meter was invented that
records consumption at the time-of-use (TOU) and measures use at a much smaller interval
(usually every hour, but it can be as often as every 15 minutes) (Hughes, 2012). Data recorded by
these meters can be transmitted to the utility through an Internet connection (Hughes, 2012). The
intervals allow the supplier to better comprehend electricity use due to increased accuracy of
monitoring. This information can also predict usage trends more accurately allowing the supplier
to set lower rates for use at lower demand times in order to give customers incentive to use
electricity during off-peak hours.

These methods, known as peak shaving and valley filling, are depicted in Figure 3. They do not
reduce the amount of electricity used, but instead redistribute use to times of lower demand on
the generating capacity of the electrical infrastructure in place (Hughes, 2012). For example, the
redistribution of consumer use of dishwashers and laundry machines to night instead of day (the
typical peak usage time, depicted by the peaks on the red line in Figure 3) prevents producers
from needing to increase output capacity for times of high usage. On the graph, this creates less
extreme peaks and valleys, and less generating capacity is required overall.