The Demand Response Impact of Residential Time-of-Use Rates in Ontario, Canada: 2012 & 2013 Demand Analysis Working Group Ahmad Faruqui , Ph. D. Principal October 7, 2014

Background Besides the nation of Italy, the Canadian province of Ontario is the only region in the world to roll out smart meters to all its residential customers and to deploy Time-of-Use (TOU) rates for generation charges to all customers who stay with regulated supply TOU rates were deployed as a conservation measure in Ontario, to incentivize customers to curtail electricity usage during the peak period and/or to shift that usage to less expensive mid-peak and off-peak periods, and possibly to reduce overall electricity usage

The Study Objectives Estimate provincial estimates for calendar years 2012 and 2013 of: The impacts of TOU on energy usage by pricing period The elasticity of substitution between the pricing periods The overall price elasticity of demand

Local Distribution Companies (LDCs) Participating in the Study In the Year 1 Study, hourly customer data from four LDCs was analyzed: Hydro One, Toronto Hydro, Hydro Ottawa, and Newmarket-Tay Power These LDCs were selected based on their previous experience with TOU pilots, general size and geographic location In the Year 2 Study, we added hourly customer data from three more LDCs: Thunder Bay, Cambridge North Dumfries and Sudbury These new LDCs were selected based on geographic and demographic factors contingent on having a sufficiently long period of pre-TOU data to allow impact evaluation to be carried out These 7 LDCs’ customers constitute more than 50% percent of the Ontario Population

Analytically, Ontario was Divided into Four Regions Residential General Service Central 2,093,849 198,791 East 709,513 66,677 North 340,620 40,734 West 1,189,938 119,435

All-in Residential TOU Peak Price Comparison across Regions

Residential Peak to Off-Peak Price Comparison across Regions

The TOU rate includes three pricing periods Seasons: Periods: * Period 6 was a mid-peak period before May 2011 ** Period 6 was a peak period before May 2011 * Period 6 was a mid-peak period before May 2011 ** Period 6 was a peak period before May 2011

Year 2 Results are Consistent with Year 1 Results Residential customers show consistent patterns of load shifting behavior across regions and study years The load shifting model parameters are generally well-behaved and have magnitudes that have been observed in other pilots There are some unexpected, positive elasticities in the conservation models, likely due to little price variation. None of these are statistically significant.

Overview of Residential Class Results There is significant evidence of load shifting across all regions and years Reduction in usage in the peak period, some reduction in the mid-peak Increase in usage in the off-peak periods Load shifting is higher in the summer rate period than the winter in the earlier years, but are more or less equal by 2013 Regional summer peak period impacts range from -1.595% to -3.477% Regional winter peak period impacts range from -0.209% to -3.078% Summer peak period substitution elasticities range from -0.080 to -0.172 There is no evidence of conservation

Residential Peak Period Impacts across Regions Note: Black bars indicate 95% confidence intervals for the impact

Ontario Residential TOU Impacts Compared to TOU Pilots from Around the Globe Note: the Arc is zoomed in to the relevant peak to off-peak price ratio range

Residential Summer Load Shifting Across All Periods for Ontario * Period 6 was mid-peak before May 2011 Note: Black bars indicate 95% confidence intervals for the impact

Residential Winter Load Shifting Across All Periods for Ontario * Period 6 was peak before May 2011 Note: Black bars indicate 95% confidence intervals for the impact

Residential Substitution Elasticity Comparison across Regions Note: Black bars indicate 95% confidence intervals for the elasticity

Residential Substitution Elasticities Compared to Other Pilots

Conclusions This is the first comprehensive study of a full scale deployment of TOU rates on a default basis to millions of customers Before the study was done, the skeptics argued that consumers would not respond to TOU rates given the opt-out nature of the deployment and the mild peak to off-peak price ratio That concern proved to be unfounded and a consistent amount of demand response was observed in both years, 2012 and 2013 Ontario’s demand response is broadly in line with that observed elsewhere, as embodied in the Arcturus database

References Faruqui, Ahmad, and Jennifer Palmer, “Dynamic Pricing and its Discontents.” Regulation: Fall 2011, pp. 16-22. http://object.cato.org/sites/cato.org/files/serials/files/regulation/2011/9/regv34n3-5.pdf Faruqui, Ahmad and Sanem Sergici, “Arcturus: International Evidence on Dynamic Pricing,” The Electricity Journal, August-September, 2013. http://www.sciencedirect.com/science/article/pii/S1040619013001656 Faruqui, Ahmad, Ryan Hledik, and Neil Lessem. “Smart by Default,” Public Utilities Fortnightly, August, 2014. http://www.fortnightly.com/fortnightly/2014/08/smart-default Faruqui, Ahmad, Neil Lessem, Sanem Sergici and Dean Mountain. “Impact Measurement of Tariff Changes when Experimentation is not an Option, March 3, 2014. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2411832

Presenter Information Ahmad Faruqui, ph.d. Principal│ San Francisco Ahmad.Faruqui@brattle.com Cell: +1.925.408.0149 Dr. Ahmad Faruqui helps develop customer-focused competitive business and regulatory strategies for utilities. He has testified before a dozen regulatory commissions and legislative bodies and worked for several dozen utilities around the globe. He has also worked for the Alberta Utilities Commission, the California Energy Commission, the Edison Foundation, the Electric Power Research Institute, the Federal Energy Regulatory Commission, the Ontario Energy Board, the Ontario Power Authority and the World Bank. His work has been cited in The Economist, The New York Times, Wall Street Journal, Washington Post and USA Today. He has appeared on Fox Business News and National Public Radio. The author, co-author or editor of four books and more than 150 articles, he holds a Ph.D. in economics from The University of California at Davis and B.A. (Hons.) and M.A. degrees in economics from The University of Karachi, Pakistan. The views expressed in this presentation are strictly those of the presenter and do not necessarily state or reflect the views of The Brattle Group, Inc.