Here is an example of the standard electricity billing format as of November 2019:
Note: Your Local Distribution Company (LDC) is also a valuable source of information that shouldn’t be overlooked!
Where your money goes
It is easy to associate the amount on your electricity bill with your Local Distribution Company (LDC), however they only get a slice of that revenue. Most of the charges are pass-through to reimburse a large number of players in the provinces’ electricity sector, most of which you probably would not recognize.
At the highest level, here is what you should know about your billing items:
The bill for an average residential customer (Toronto Hydro) using 750kWh of energy with the typical time of use (TOU) pattern would be $122.84 after a $9.36 rebate of the Provincial sales tax (8%). The figures are a snapshot from May 15, 2018 using the OEB Bill Calculator.
The different line items provide a first-level breakout of what you are being charged by the different companies involved in supplying energy to a residential ratepayer. The line items break down even further when it comes to what specific businesses charge.
Even if you used no electricity whatsoever there would still be charges on the bill to pay for delivery infrastructure and regulatory services. It’s a bit like buying a car and financing it over time. If you don’t drive the car, you still must make monthly payments.
Electricity
Electricity is a commodity which powers your appliances, lighting, heating etc. It may be one of several sources of energy for your residence. In a Time of Use (TOU) bill it will be separated into off-peak, mid-peak and on-peak charges. Add them up to find out what you pay for the energy portion of the bill.
Electricity is provided by generators that are either licensed by the Ontario Energy Board or under a contractual agreement with the Independent Electricity System Operator (IESO). There are more than 30 thousand generators in Ontario ranging from the largest nuclear power station in the Bruce to your neighbour’s house with solar panels. There are times when a portion of Ontario’s electricity is provided by other provinces or from the United States.
Most residential customers in Ontario pay for their electricity based on the time-of-use (TOU) although a growing number of people are on a two-tier billing system. A customer may choose between TOU and Two-Tier billing. Bill comparisons may be done easily through the Ontario Energy Board’s billing calculator or through your Local Distribution Company (LDC).
The electricity cost is billed and collected by the LDC, however, it is a pass-through charge. The revenue goes to the IESO who then compensate generators for their energy contribution to the grid or Retailers for their wholesale market energy transactions. The IESO determines how the money is paid to generators and retailers through a settlement process based on Market Rules, contractual and regulatory obligations.
The price paid for electricity is made up of a wholesale component and a global adjustment charge. The global adjustment is a fuzzy term that is used to capture all of the charges associated with generation that the wholesale revenue does not cover.
Electricity prices for residential customers are regulated and set by the Ontario Energy Board under the Regulated Price Plan (RPP). There is a different process for ratepayers who opt out of the RPP and contract with an Electricity Retailer for their energy.
Energy retailers offer service contracts to customers for the wholesale electricity portion of the bill – which you cannot see in the standardized bill format. A retailer acts as an intermediate business by purchasing power at a wholesale level and marking up the price to the customer. The Ontario Energy Board’s billing calculator has a bill comparison tool for the RPP vs retail contracts. See my commentary “Electricity Retailers – Rolling the Dice“ for additional insight into the electricity resale business.
Electricity charges are subsidized by the Ontario Government. See my article on subsidies here.
Delivery
There are two components of the delivery portion rolled into the single line-item. They are transmission and distribution charges. You won’t know the exact amounts unless your distributor provides the details. It will split out roughly 1/3 for transmission and 2/3 for distribution.
Distribution – Your electrical service connection and billing is handled by your Local Distribution Company (LDC). They are the people responsible for connecting your residence to the electricity grid and setting the conditions of service. Typically the LDC owns the infrastructure between the Transmitter and the base of the energy measuring device (the ‘meter’). The LDC will install an approved metering device to measure your energy consumption. The resident owns the meter base and the wiring infrastructure for the rest of the property. There are about 68 Local Distribution Companies in Ontario that are licensed by the Ontario Energy Board (OEB) to deliver electricity to customers. They receive revenue from a portion of the bill to cover their cost.
Transmission – The LDC receives energy from a transmitter that is licensed by the OEB. For almost every LDC in Ontario the transmitter will be Hydro One. The transmitter builds, owns and operates the high voltage infrastructure that interconnects large generators with LDCs. The transmission system operates at very high voltages to deliver bulk power with minimal losses over great distances with high reliability. Transmission charges are collected by the LDC and passed-through to the Transmitter.
Line power losses are paid for through the delivery charge.
Regulatory Charges
The regulatory charges on the bill are passed-through to the IESO to pay for the management and administration of the wholesale market. The IESO performs many other functions including planning, outage management and compliance.
Costs for rate protection and other low-income customer subsidies are either included in this line item or may be separated out in the form of provincial taxes as subsidies.
A more detailed explanation of all of these items may be found on the OEB website here.
Derek Hughes
