Fixed-price hydro no deal

John Spears
Toronto Star
July 27, 2001

Consumers who haven’t signed a fixed-price contract are likely to pay about 4.3 cents a kilowatt hour for electricity under Ontario’s new market system, says a study conducted for the Ontario Energy Board.

The study says prices in Ontario will closely track prices in Michigan and New York state when the competitive market opens. The market is due to open by May next year.

The energy price, which will be deregulated under the new system, is only part of the electricity bill. Consumers must also pay regulated fees for the power to be transmitted and delivered to their homes, plus a special charge to retire the debt of the former Ontario Hydro.

The non-energy part of the bill is likely to make up 40 to 50 per cent of the total.

The new study was conducted for the energy board by Charles River Associates of Washington, D.C.

It noted that Ontario Power Generation (OPG), one of the successors to Ontario Hydro, will be the dominant power producer in the opening years of the market.

To blunt OPG’s market clout, the price it receives for most of its production will be capped at 3.8 cents a kilowatt hour. If its average exceeds 3.8 cents it must give customers a rebate.

Although the price is allowed to sink below 3.8 cents, the study says OPG will have every incentive to gain the maximum price. OPG’s controlled price production will amount to about 70 per cent of Ontario’s total electricity supply, the study says.

Prices for the remaining power – generated by OPG and private facilities, or imported from Michigan, New York, Quebec and Manitoba – isn’t regulated.

Michigan and New York, where prices are higher than in Ontario, will have the strongest influence on the price of imported power, the report says.

Combining OPG’s controlled price with the import-influenced prices means that consumers without fixed-price contracts can expect to pay about 4.3 cents a kilowatt hour when the market opens.

That price will be adjusted regularly as markets change.

Tom Adams, executive director of Energy Probe, noted that 4.3 cents a kilowatt hour is considerably less than fixed-price contracts now being marketed.

Retailers are selling fixed-price contracts of up to five years at up to 5.95 cents a kilowatt hour.

Adams cautioned that the price projections in the energy board study are hedged with many assumptions. Fluctuations in natural gas prices, coal prices or more aggressive exporting by Hydro Quebec could change the outlook, he warned.

“It’s just a forecast. We shouldn’t give it more credence than someone quoted in the newspaper saying the stock market will be higher or lower in a year’s time.”
– Tom Adams, Energy Probe executive director

“It’s just a forecast,” he said. “We shouldn’t give it more credence than someone quoted in the newspaper saying the stock market will be higher or lower in a year’s time.”

A spokesperson for Energy Minister Jim Wilson said the study is “consistent with our internal analysis.”


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