London Hydro Inc.: Evaluating Different Electricity Pricing Schemes Custom Case Solution & Analysis

1. Evidence Brief

Financial Metrics

• Time-of-Use (TOU) On-Peak Rate: 15.1 cents per kWh (Exhibit 1)
• Time-of-Use (TOU) Mid-Peak Rate: 10.2 cents per kWh (Exhibit 1)
• Time-of-Use (TOU) Off-Peak Rate: 7.4 cents per kWh (Exhibit 1)
• Ultra-Low Overnight (ULO) Overnight Rate: 2.4 cents per kWh (Exhibit 2)
• Ultra-Low Overnight (ULO) On-Peak Rate: 24.0 cents per kWh (Exhibit 2)
• Tiered Pricing Tier 1 (up to 1000 kWh): 8.7 cents per kWh (Exhibit 1)
• Tiered Pricing Tier 2 (above 1000 kWh): 10.3 cents per kWh (Exhibit 1)
• Monthly fixed service charge: 32.00 dollars (Paragraph 14)

Operational Facts

• Customer Base: 162000 residential and small business accounts (Paragraph 4)
• Infrastructure: Smart meters installed across 100 percent of the service territory (Paragraph 6)
• Billing System: SAP-based CIS requiring logic updates for ULO (Paragraph 22)
• Geography: London, Ontario, with a mix of high-density urban and suburban residential zones (Paragraph 5)

Stakeholder Positions

• Vinay Sharma, CEO: Focused on grid stability and supporting provincial decarbonization goals (Paragraph 2)
• Ontario Energy Board (OEB): Mandates the availability of ULO to provide consumer choice (Paragraph 3)
• Electric Vehicle (EV) Owners: Seeking to minimize charging costs which typically occur overnight (Paragraph 18)
• Shift Workers: Potential beneficiaries of ULO due to non-standard domestic activity hours (Paragraph 19)

Information Gaps

• Price elasticity of demand data for the 24.0 cent on-peak ULO rate (Gap 1)
• Current penetration rate of Level 2 home charging stations among London Hydro customers (Gap 2)
• Projected impact of ULO adoption on total annual utility revenue (Gap 3)

2. Strategic Analysis

Core Strategic Question

• How can London Hydro implement the Ultra-Low Overnight (ULO) pricing scheme to support grid efficiency and customer choice without incurring significant revenue loss or customer dissatisfaction?

Structural Analysis

The utility sector in Ontario is undergoing a transition from centralized, predictable demand to decentralized, variable demand driven by electrification. Using a Jobs-to-be-Done lens, customers do not want electricity; they want affordable comfort and mobility. TOU pricing fails to provide sufficient incentive for EV owners to maximize overnight charging. ULO addresses this by offering a 67 percent discount compared to standard off-peak rates, but it introduces significant risk via a 58 percent premium on evening peak usage. The structural problem is the high cost of peak capacity. If ULO does not successfully shift load, it becomes a simple revenue subsidy for existing overnight users.

Strategic Options

Preliminary Recommendation

London Hydro should pursue the Digital Comparison Tool strategy. This path mitigates the risk of bill shock by forcing a data-driven decision. By allowing customers to upload their actual smart meter data into a simulator, the utility shifts the responsibility of plan selection to the consumer while providing the transparency necessary to maintain trust. This approach minimizes the risk of political backlash when customers realize the 24.0 cent peak rate is nearly triple the tiered rate.

3. Implementation Roadmap

Critical Path

• Month 1: Finalize SAP billing logic for the four-tier ULO structure (Overnight, On-peak, Mid-peak, Weekend Off-peak).
• Month 2: Develop and beta-test the Online Price Plan Comparison Calculator using historical interval data.
• Month 3: Launch integrated marketing campaign focused on the Comparison Tool rather than the ULO rate itself.
• Month 4: Open the enrollment window for ULO and monitor the first 90 days of consumption patterns.

Key Constraints

• IT System Latency: The ability of the SAP CIS to process hourly interval data for 162000 accounts without performance degradation.
• Customer Data Literacy: The gap between providing a tool and the customer correctly interpreting their load profile.
• Regulatory Compliance: Adhering to OEB reporting requirements regarding enrollment numbers and load shift metrics.

Risk-Adjusted Implementation Strategy

The primary execution risk is the bill shock associated with the ULO on-peak rate. To mitigate this, the implementation must include a 12-month look-back feature in the comparison tool. If a customer chooses to switch to ULO, the system should generate a shadow bill for the first three months, showing them what they would have paid under TOU. This feedback loop allows customers to revert to TOU before significant financial impact occurs. This contingency is essential because the organizational capacity for handling a surge in billing complaints is limited.

4. Executive Review and BLUF

BLUF

London Hydro must position the Ultra-Low Overnight (ULO) rate as a niche product for EV owners rather than a broad-market solution. The 24.0 cent on-peak rate is a dangerous financial trap for standard households. Success will be measured by the accuracy of customer self-selection, not the total number of enrollees. The core objective is to shift EV charging load to the 11 PM to 7 AM window to defer capital investment in grid hardening. Prioritize the deployment of a data-driven comparison tool over aggressive rate marketing to prevent revenue erosion and protect brand equity. Verdict: APPROVED FOR LEADERSHIP REVIEW.

Dangerous Assumption

The most dangerous assumption is that price signals alone will drive behavioral change in residential households. Domestic routines like cooking and laundry are often inelastic due to work schedules and childcare needs. Assuming that non-EV owners will shift these activities to 2 AM to save five cents per kWh ignores the human cost of sleep disruption and operational friction.

Unaddressed Risks

• Revenue Neutrality Risk: If a significant number of EV owners switch to ULO without a corresponding increase in total kWh sales, London Hydro will experience a net decrease in distribution revenue. Probability: High. Consequence: Moderate.
• Peak Rebound Risk: If ULO users concentrate all deferred activity at exactly 11 PM, the utility may face a secondary peak that exceeds the original evening peak. Probability: Moderate. Consequence: High.

Unconsidered Alternative

The team failed to consider a Managed Charging Program as an alternative to ULO. Instead of changing the price for the entire house, the utility could offer a flat-rate credit to customers who allow the utility to remotely control their EV charger. This would achieve the same grid stability goals without exposing the customer to the 24.0 cent on-peak penalty for their entire home energy consumption.