Pierre Marcoux
The Hamilton Spectator
October 31, 2000

“Nobody knows what the new price of electricity will be,” said Peter Dyne, who is in charge of the energy committee for the Consumers’ Association of Canada. “So people should wait until the market opens.”

The new electricity market — slated to open sometime in 2001 — has led the way for a number of hydro retailers to sell electricity to a wider market.

The latest competitor to enter the fray is Toronto Hydro Energy Services Inc. — which recently sent letters across the 905 area to advertise its fixed one-year rate. The retail arm of Toronto Hydro promises a commodity rate of 5.65 cents per kilowatt hour.

Direct Energy Marketing Limited also has entered the local electricity retail market with a similar plan.

Consumers’ associations are convinced more offerings like these are coming to a neighbourhood near yours. But they also think that customers should be careful with those plans because it could be cheaper to stay with the local utility.

“I don’t think this is a market where you will see substantial savings by shopping around,” said Michael Janigan, executive director for the Public Interest Advocacy Centre in Ottawa. “It’s difficult to find out how there will be a cheaper supply.”

Under the old public system of selling electricity at cost only, municipal electric utilities such as Hamilton Hydro bought power produced by Ontario Hydro and distributed it. They billed their customers, kept some money to cover their costs, and passed the rest to Ontario Hydro.

Now the government is deregulating the industry by opening the power generation and sales markets to competition. Retailers can offer a competitive price, but consumers should know that they can still buy electricity from their utilities. In fact local utilities, such as Hamilton Hydro, become default providers for consumers who choose not to buy electricity from independent retailers. The utilities will buy the commodity at the best possible price, and sell it to customers at cost only.

“Essentially, the price is a pass-through,” Janigan said, adding that independent retailers would try to make a profit.

The utilities will buy most of their electricity on the unregulated market. As a result, the cost will be under market pressure and could be volatile.

Yet Ontario Power Generation, which still holds a near- monopoly over production, will sell most of the commodity on this market.

The government has legislated that the electricity Ontario Power Generation sells has to be priced on a yearly average of 3.8 cents per kilowatt hour for the next 48 months, until it sells part of its producing capacity to private generators.

Dyne explained the commodity price will be more than 3.8 cents per hour because the independent market operators will charge for their work. Moreover, the utilities will add a few cents on the commodity for metering and calculating how much hydro is needed at all times.

Tom Adams, executive director of Energy Probe, said other factors such as Ontario production shortfalls, high electricity prices from participating areas such as New York and Michigan or little investment in new electric generation could cause prices to increase even more.

Yet both Dyne and Adams think the price won’t exceed the current 4.5 cents per kilowatt hour. Adams said it’s now hard for consumers to find this price because it usually is bundled with the costs of distribution and transportation.

When deregulation kicks in, however, bills will have five components: the cost of the commodity, the costs of distribution, transportation, and taxes, and the payment on the old hydro debt.

Toronto Hydro still thinks the utilities cost will be higher than 4.5 cents, however, or even more than its own plan, for that matter. Yet to make sure that people don’t get locked into a contract they don’t like, the company offers the option of 30 days’ notice prior to cancellation at any time during the first year of the contract, at no cost.

“We know this market is complicated and that’s why we built the cancellation,” said Blair Peberdy, vice-president of corporate planning for Toronto Hydro. “It is risk-free for consumers. At any time, they can leave without penalty.”