Zoned hydro rates proposed for Ontario

Joan Walters
Toronto Star/Torstar News Service
June 27, 2002

Ontario consumers would pay different power prices across the province in a zoned rate system being considered for the new electricity market.

The proposal – being pushed by the big private energy companies now operating in Ontario — would see a new pricing system that charges consumers according to where they live.

The suggestion that Ontarians in the north or rural areas might pay different rates than consumers in cities and suburbs led to a barrage of protests by public power advocates yesterday.

“This essentially means that the one-price system we’ve always had, the system that says we’re all equal citizens of Ontario, would be gone,” said NDP Leader Howard Hampton. “It means some consumers should be prepared to get whacked over the head.”

Few details on how zoned pricing would actually work have been made available by the Independent Electricity Market Operator (IMO), which is studying how to implement the zones.

Called “locational marginal pricing,” the system would differ dramatically from the uniform base rate that everyone in Ontario pays now.

“It hasn’t been fleshed out other than being an idea that needs to be explored and eventually implemented,” said Ted Gruetzner of the IMO.

“In simple terms, it means the price of energy could differ from place to place, depending on the cost of delivering it.”

Energy Minister Chris Stockwell’s office said the government has not decided whether it supports the concept, which has been studied since 1998.

“The IMO is still gathering data and deciding whether they will be going ahead,” said aide Diana Arajs.

But earlier this year, 80 major market players told a planning session organized by the IMO that zoned pricing was a top priority. They wanted it pushed hard, and implemented fast.

Tom Adams of Energy Probe, who was at that meeting, believes new pricing is the right step in ensuring a well operated, orderly market for Ontario.

“The system we have now is what’s referred to as a postage-stamp system,” Adams said. “It costs the same to put a stamp on an envelope to Vancouver as to send it across the street. That system is attractive from a social welfare point of view but it’s unattractive from an economic efficiency point of view.”

Zones might not take effect for a year to 16 months, the IMO said.

But the proposal is relevant now because about a million households have already signed fixed-price electricity contracts for three to five years, agreements which retailers now say would have to change if price zones arrive.

Union Energy Inc., which took over Ontario Hydro Energy Services in April, is already telling customers it may need to alter fixed-rate contracts if the IMO changes how prices are set.

The Ontario Energy Board is reviewing the terms of those 200,000 contracts for possible violations of the provincial energy retailing code.

And Union Energy has given customers an opportunity to get out of the contracts, within certain time limits outlined in notices sent this week.

Paul Kahnert of the Ontario Electricity Coalition, a public power group, said zone prices are outrageous.

“Under public power, your prices were uniform no matter where you lived,” Kahnert said. “Suddenly we’re looking at something where you get penalized for where you live.”

In American states where zones exist, rates generally are highest where it is most difficult to deliver power.

In New York, with 11 zones, Manhattan and Long Island have the highest prices because of congestion on transmission lines, and because they are most distant from power sources.

“It’s actually hardest to move power in the New York City area,” says Steve Sullivan of the New York Independent System Operator, the state’s equivalent to Ontario’s IMO.

New York has an open market with rates that fluctuate daily, like Ontario’s. Prices are set by bidding, as in Ontario.

In Ontario, it is thought that prices would be lowest in zones closest to the province’s major power sources, which are largely in urban southern Ontario, including Pickering, Darlington, Niagara Falls and the Golden Horseshoe.

Gruetzner, the IMO spokesperson, said it is important to note no studies have been done yet to see which parts of Ontario would have which rates.

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