Martin Mittelstaedt
Globe and Mail
December 11, 2000

Deregulation leaves millions of people with no way to know which firm offers the best power deal 

For Helen Nolan, the recent notice from her local electricity company was a puzzle.

An affiliate of Toronto Hydro was offering a contract to supply all the electricity she’d use for a year at what it called “a good fixed rate” of 5.65 cents a kilowatt-hour, or about the amount of power that would keep a 100-watt light bulb shining all night.

“The literature was confusing,” Ms. Nolan said. “I don’t have anything to compare [it with] and I don’t know what all is involved.”

In recent weeks, electricity competition has arrived at the doorsteps of Ontario’s four million residential power customers. And so has confusion and criticism. Some experts are warning that consumers could be bamboozled into signing long-term contracts for power at excessive prices.

“Right now, in my opinion, the sheep are being fleeced,” says Tom Adams, executive director of Energy Probe, a Toronto environmental and consumer advocate, referring to the public.

Mr. Adams is critical because the contracts are offering power at costs that could be more than 20-per-cent above what rates are likely to be when competition officially begins next year.

Although no one knows exactly what rates will be when Ontario’s market opens, one estimate commissioned by the Ontario Energy Board, the provincial regulatory body in charge of consumer protection, projected 4.2 cents a kwh.

If the estimate turns out to be accurate, anyone who has signed a contract now could be a big loser.

Electricity suppliers defend their rates, saying they are offering consumers the security of a guaranteed price, much in the same way that some homeowners desire long-term mortgages as insurance against a spike in interest rates.

Those signing long-term electricity contracts will do well if prices soar under a competitive market.

“It’s the same rationale you would go through if you were choosing a mortgage. Do you want a variable rate or do you lock in? If you lock in, you generally pay a slightly higher rate,” said Blair Peberdy, vice-president at Toronto Hydro.

Under the government’s competitive market plan, consumers who don’t select a supplier will automatically receive the going wholesale market rate for power. That rate will fluctuate depending on supply and demand conditions.

The sales pitch by suppliers is causing added consumer uncertainty because it’s such a novelty. For more than nine decades residential consumers haven’t had to think twice about buying electricity. Rates in Ontario and almost everywhere else in Canada have been set at the cost of production by government-owned power monopolies.

Under Ontario’s new plan, consumers will also pay additional charges for the delivery of their power and for retiring the debt of Ontario Hydro, the defunct provincially owned electric utility. Many of these costs are now consolidated on electricity bills, but a new billing format under the competitive market will show totals for each item.

A review of electricity contracts currently offered indicates it is almost impossible for buyers to make an informed judgment on the deals, some of which would lock purchasers into five-year fixed-priced contracts worth thousands of dollars.

Some of the electricity marketers include affiliates of Toronto Hydro, Hydro One Inc., formerly part of Ontario Hydro, and Direct Energy Marketing Ltd., a subsidiary of British energy company Centrica PLC.

Although some consumer products are distinguished by quality, power is the same regardless of supplier because the electrons that make up electricity are identical, so price and duration of contracts are the crucial considerations.

But because no independent sources are posting electricity prices, consumers have no yardstick by which to evaluate what they’re being offered.

Many of the sales contracts also contain a clause in the fine print that gives the suppliers the rebates consumers would have received under a government plan to protect ratepayers against surging power prices. Some also have hefty cancellation fees.

Mr. Adams of Energy Probe said the electricity contracts are almost impossible for non-experts to understand. “Unless you’re heavily involved in this [electricity] restructuring debate, you wouldn’t know what they’re talking about,” he said.

He is also critical of the energy board, meant to be a consumer watchdog, for not being more aggressive in helping consumers navigate the contracts.

In response to concerns about consumer confusion, the board issued a pamphlet last month warning ratepayers to be careful when approached by power suppliers.

The rate study is available on the board’s Web site, but the document is highly technical and difficult for a consumer to find unaided.

The confusion for consumers has been accentuated by a timing glitch in the way the government has allowed deregulation to proceed.

Initially, the government wanted the open market to begin this year. But the date was postponed until an unspecified time next year.

In the meantime, the OEB licenced nearly 40 electricity marketers to sell power. They’ve been fanning out over Ontario, vying with each other to sign up customers both large, like the major power-consuming companies, and small buyers, like Ms. Nolan.

All this frenzied selling activity, with door-to-door sales pitches and promotional brochures, is taking place even though consumers don’t have to sign with anyone to keep their lights on and toasters running, Mr. Adams said.

Electricity contracts

Sources: OBB & Companies