Cost of Electricity

Let us use Toronto Hydro as an example. Most power companies in Canada use the same business model. The only difference being a slight difference in the price of the multitude of difference types of charges that they bill you for. Toronto Hydro which provides electrical power to more than 676,000 residential, commercial and industrial customers is one of Canada’s largest.

The current electricity fixed rate for residential consumers is 5.3¢/kWh/first 600 kWhs used per 30 days and 6.2¢/kWh/remaining kWhs used per 30 days. This means that is a two tier system. If you use the maximum 600 kWhs per month you will pay $31.80 per month for the cost of electricity.

Electricity Costs

Type of Charge	Cost (kWh)	Type (Fixed/ Variable)	No Usage Cost (0 kW/ month)	Average User Cost (600 kW/ month)	Above Average User Cost (1200 kW/ month)
Electricity Rate <601	5.3¢	Fixed	$0	$31.80	$31.80
Electricity Rate >600 kWh/h	6.2¢	Fixed	$0	$0	$37.20
Transmission Charge	1.02¢	Variable	$0	$6.12	$12.24
Distribution Charge	1.87¢	Variable	$0	$11.22	$22.44
Customer Charge	$12.68 / 30 days	Fixed	$12.68	$12.68	$12.68
Wholesale Market Operations	0.62¢	Fixed	$0	$3.72	$7.44
Regulated Price Plan Admin Charge	25¢ /30 days	Fixed	$0.25	$0.25	$0.25
Debt Retirement Charge	0.7¢	Variable	$0	$4.20	$8.04
Total Cost			$12.93	$69.99	$132.09
% Change			0%	441%	89%

Regardless of how much electricity you use there will be a fixed monthly cost of $12.93. You can turn of all of the power to your home and live in the dark for a month but the power company will still charge you $12.68 for having the privilege of being their customer. You will also pay a charge of $0.25 for administrative fees.

Most hydro electric companies state that the average residential user uses less than 600 kWh per month. This number used to be 1000 kWh per month but on May 1, 2007 this number was reduced to 600 kWh. It would be fair to say that there was a cost reduction for this first usage tier. The cost per kWh was reduced by 0.2¢. However there was an increase in the Distribution charge of 0.01¢/kWh and an increase in the Customer charge of $0.25. This meant that the effective decrease in the cost of electricity was 0.15¢ for the first 600 kWhs. If you were a consumer that was using up the former limit of 1000 kWhs per month the cost of electricity actually increased by 0.55¢/kWh for the 400 kWhs difference.

Reducing the Cost of Electricity

You would think that the goal of any business would be to increase their profits. Simple logic dictates that the more a business sells, there greater it’s revenue and therefore an increase in the profit it generates.

This holds true except for power companies. The problem that power companies face with the standard business model is that an increase demand in power usage but its consumers, regardless of the fact that they are willing to pay for the increased cost, would result in a failure in the infrastructure that supplies power to its consumers. In simple terms, the power company does not have enough electricity for everyone if demand increases. The power company is not able to discriminate who gets electric power and who does not so it actively spends millions of dollars every year providing advertising and incentives asking its consumers to use less.