Rob Ferguson
Toronto Star
December 22, 2001

There’s a knock at the door. Someone with a clipboard.

To your surprise, it’s not someone looking for a charity donation, promising a lower rate on long-distance phone service, or hoping to sign you to a long-term natural gas contract.

This time, they’re selling electricity. You’re going to see a lot more of them now.

That’s because Premier Mike Harris announced this week that Ontario’s hydro market will be open to competition starting May 1. It’s the kind of thing that has happened in the last few years with long-distance phone service and natural gas.

It means Ontario residents will be able to make their morning toast and coffee using power from any one of a number of electricity retailers, not just the local utility, such as Toronto Hydro – although people will still have that option if they don’t sign a contract.

The change was announced by the provincial government in 1998. It was first slated to take effect Nov. 1, 2000, but was pushed back because the industry wasn’t ready.

In the meantime, electricity retailers including Direct Energy and Toronto Hydro Energy Services have been going door-to-door, buying newspaper ads and doing mail-outs to build customer lists.

More than 100 retailers have been licensed by the Ontario Energy Board to sell electricity, says chairman Floyd Laughren, a former NDP finance minister who urges consumers to learn as much as they can about the hydro business before they even think about signing an electricity contract.

“The best consumer protection is an informed consumer.”

Things to watch for include:

Penalties for cancelling a contract, a move you may want to consider if prices fall below the rate you’ve agreed to pay.

What happens if you move to a new home.

Whether the contract entitles the retailer to rebates distributed by Ontario Power Generation, which took over Ontario Hydro’s generating plants and now controls 85 per cent of the power supply. To make sure OPG won’t overcharge customers, the government has capped the company’s revenue at 3.8 cents per kilowatt hour and required it to rebate what it earns beyond that level. OPG is to reduce its share of the market to 35 per cent within 10 years.

Although only a handful of retailers are scouting customers on a large scale, so many sales reps are going door-to-door that there have been instances of husbands, wives and even older teenaged children signing different contracts.

That’s a problem the industry is now trying to resolve, probably by treating the first contract signed as the enforceable one, Laughren says. Will cancellation penalties be levied for the others? “I wouldn’t think so.”

There have already been almost 700 complaints about electricity retailers, including some who make bogus comparisons between the rates they’re offering and the rates consumers are currently paying.

That’s one reason why consumer advocate Tom Adams, executive director of Energy Probe, has this advice for Ontarians wondering what to do when they get an offer at the door or in the mail: Don’t sign anything on the spot.

“There’s real reason to be concerned,” Adams warns.

He also advises against showing your current hydro bill to anyone. Some unscrupulous sales reps copy down account numbers and claim to have signed the customers.

“Some of these marketers are snakes,” Adams says.

On the tactic of price comparisons, he says one sales trick is to point out that the current Toronto Hydro charge of 6.5 cents per kilowatt hour (the standard unit in which electricity is measured) is higher than the new offering price of some retailers below six cents.

“The customer says, “Hey, man! It’s a no brainer, sign me up!”

Wrong.

The current charge of 6.5 cents includes items such as transmission charges to get the power to your house – charges not included in the new offering price for electricity alone. Those charges will appear separately on bills after May 1 along with a charge to help pay Ontario Hydro’s debt of $21 billion, a distribution charge and a dispatch charge for maintaining the power system.

“There are thousands of customers who will sign up today. They’ll think their prices are going down,” Adams says.

He and Laughren say the actual cost of the electricity alone will be about 4.3 cents per kilowatt hour on what is known as the spot market, where prices will fluctuate with supply and demand.

Customers should also know that they have a 10-day cooling off period. After signing an electricity contract they can cancel it within 10 days by contacting the retailer in writing.

The energy board issued a code of conduct for hydro and natural gas retailers last month.

“It requires them not to misrepresent the price,” Laughren says, acknowledging that the code hasn’t short-circuited questionable tactics from some sales reps. “They’re out there, they’re entrepreneurial and they’ll be as aggressive.”

The code also requires sales reps not to “unduly pressure” consumers and to give them sufficient time to read contracts before deciding.

Executives from some retailers have already been scolded at the energy board for the actions of their sales reps.

“They refer to them as rogue agents,” Laughren says. “They either dismiss them or give them what for.”

Adams of Energy Probe suggests consumers who are interested in signing a long-term deal compare contracts from several retailers, making sure they understand all the hydro jargon. Much of it is explained at http://www.energyprobe.org by clicking on “protect consumers.”

“There is all sorts of special lingo. You need a translator.”

It is estimated that thousands of Ontarians – perhaps as many as one in five households – have already signed.

“The take-up rate has been very high,” says Blair Peberdy, vice-president at Toronto Hydro. “It looks as though it’s going to be a vibrant market.”

By the time May 1 rolls around, he estimates from talks with colleagues at other utilities across Ontario that as many as one in three households will have signed long-term electricity supply contracts, usually for three or five years at a set price.

Think of it as similar to locking in a mortgage to avoid ups and downs in interest rates.

None of this would be as confusing if authorities had done a better job of teaching Ontarians what to expect – or started to tutor them earlier, contends Adams of Energy Probe.

“The education of the ordinary consumer has just been awful.”

Laughren acknowledges a better job could have been done.

“There is no question the public is not well informed about the changes to the price of electricity,” he says, noting that the Ontario Ministry of Energy is launching an advertising campaign in the new year.

Details have been available on the Ontario Energy Board Web site at http://www.oeb.gov.on.ca, some of it in language Laughren is planning to simplify.

“We want to make it easier to comprehend.”

The site points out that there is no rush for consumers to sign a contract. They will continue to get electricity from their local utility on what is known as the spot market.

That means the rate won’t be fixed for several years. It will fluctuate with supply and demand in much the same way gasoline prices move up and down.

Opinions are mixed on where prices could go. Some watchers are warning that they could go higher. Others say there’s plenty of supply, helping to keep prices fairly stable.

As with mortgages, some people are willing to pay more to have a guaranteed rate. Others are willing to take chances. Last winter, for example, natural gas prices soared and socked it to homeowners who hadn’t settled long-term deals in advance. But natural gas prices have since fallen dramatically.

Industry observers agree on one thing.

“People need to start paying attention,” says Peberdy of Toronto Hydro.

Ontarians confused about the coming changes would do well to take a minute to think about how they came about and how the new system will work, he adds.

For decades, Ontario Hydro made electricity. Your local electric utility sold it. Rates were regulated by the Ontario Energy Board. There was really no choice for consumers to concern themselves with.

But over the years, Ontario Hydro ran up a huge debt – at one point approaching $40 billion – largely by building expensive nuclear power plants that ran into maintenance problems and cost overruns.

Politicians began to question whether taxpayers would be on the hook for expensive power plants. The alternative they chose was to privatize the province’s electrical system, splitting Ontario Hydro into two parts: a power producer called Ontario Power Generation and a company that owns the transmission lines, Hydro One.

The government also decided to restructure the hydro system, allowing private companies to build power plants, in order to sell power to retailers, who would in turn sell it to homeowners.

How will the power get to your house? The same way it does now – through wires already in place. Local utilities that take care of that are also setting up metering and billing systems to keep track of who’s buying power from whom and at what price.

Peberdy said Toronto Hydro, which is selling electricity through its Toronto Hydro Energy Services subsidiary, has already spent $40 million on its system.