Flat rates for homeowners get OEB okay

Stuart Laidlaw
The Toronto Star
October 19, 1999

Homeowners will keep paying a flat rate for electricity under an Ontario Energy Board decision yesterday, but could face once-a-year price shocks as utilities adjust their bills to reflect changes in electricity prices.

In the decision, which is a compromise and a partial reversal of the regulator’s original stand on the issue, the board agreed with municipal utilities that customers don’t want to be exposed to the volatile electricity market.

“Residential consumers may not adapt well to a variable price and there is evidence that many small volume consumers prefer a fixed price for standard supply service,” the board said in its decision.

Under a proposal written by board staff, customers were to be charged a floating price for electricity that would rise and fall with demand. On peak demand days, such as when temperatures rise and air conditioners are running, the price would spike.

The board held hearings on that plan over the summer, getting comments from from municipal utilities, consumer groups, industry, independent power generators, environmentalists and retailers hoping to enter the market.

Utilities argued that they should be allowed to charge a flat rate for electricity, just as they have all along.

Consumer organizations and the watchdog group Energy Probe fought that suggestion, saying the floating price would give customers the lowest price over-all.

Retailers, hoping to compete with the utilities by offering flat rates to those who want to avoid price fluctuations, argued that letting utilities offer flat rates would freeze new entrants out of the market.

The energy board’s compromise decision yesterday calls on the Independent Market Operator, a successor company to the old Ontario Hydro, to predict the average wholesale price for electricity for the following year.

The flat rate charged by utilities would then be based on that estimate, with adjustments made at the end of the year. If the Market Operator guessed too low, the difference would be added to your bill. If the company guessed too high, you’d get a rebate.

Robert Power, a lawyer for the law firm Power Budd, which specializes in hydro deregulation, said the annual adjustment, or “true up,” could be a shock for a lot of people.

“Customers are going to go a whole year without knowing the true cost of electricity.”

The plan is based on a system put in place when the natural gas industry was deregulated a few years ago. Tom Adams of Energy Probe said the system did not work well then, and he is not optimistic about it this time around.

“When the true-ups showed on people’s bills, they screamed.”

While the gas industry began with annual true-ups, it has since moved to quarterly adjustments to lessen the shock on its customers and to make predicting future prices easier.

Adams expects the same thing will happen in electricity.

He acknowledged that yesterday’s decision will mean that customers buying power from local utilities will pay the lowest possible price, but said retailers will lose their biggest chance to gain customers by offering flat rates.

“Retail competition is going to be hurt by this,” he said.

But Nino Silvestri, head of marketing at Direct Energy Marketing Inc., said the market still has plenty of room for retailers who may charge a little more in exchange for a stable price, with no true-ups, and longer contracts.

Silvestri’s company already sells natural gas to about 100,000 customers in Ontario and is anxious to move into electricity.

“We want to get competition going in this market,” he said.

Blair Peberdy, vice-president of corporate communications at Toronto Hydro, applauded the board’s move to flat rates for all customers.

But he did not like another part of the decision that restricts utilities to being no more than electricity distributors, unable to offer customers long-term contracts. That may also mean utilities can no longer rent water heaters, he said.

Toronto Hydro had hoped to compete directly with retailers under deregulation, but now may not be able to, he said.

“We’re going into this with our hands tied.”

This entry was posted in Reforming Ontario's Local Electrical Distribution Sector. Bookmark the permalink.

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