Richard Brennan and John Spears
Toronto Star
July 4, 2002

 Many Ontario businesses will be hit with an extra charge for electricity that will effectively double the posted market price for power during peak demand periods, says the agency that runs Ontario’s new electricity market.

The information came to light as Ontario set a new record for electricity demand yesterday, brought on by the summer heat.

To cope with the heavy demand, Ontario had to import 10 per cent of its electricity needs at prices up to 50 times the price consumers were accustomed to paying under the old regulated market system.

But the high price of the imported power is not reflected in the market prices posted by the Independent Electricity Market Operator (IMO), which runs the province’s power market.

Instead, it will be factored in and added to the invoices businesses receive in their regular billing period. The IMO says the extra charge for peak periods Tuesday amounts to 8 cents a kilowatt hour — or roughly double the average price for the day.

Since the demand for power was even higher yesterday, it’s likely extra charges will result for yesterday’s power use.

Businesses that have fixed price contracts with suppliers won’t pay the extra fee.

Householders, who are billed under a different system, may have a cushion against high-priced imports built into their current rate. But the IMO says those rates "will be reviewed as the market unfolds."

Yesterday’s disclosure that posted prices might not be what they seem even caught experts off guard.

Energy consultant Jan Carr of Barker, Dunn and Rossi sat on the advisory committee that was instrumental in establishing the new electricity market. Carr said he assumed prices posted hourly on the IMO Web site reflected the market.

"What is a surprise to me is that what they show on the screen is apparently not relevant," Carr said.

He compared it to seeing a share price quoted on the Toronto Stock Exchange, then discovering there were additional charges added to the price.

Carr said it’s reasonable to factor in the cost of imported power – and said that importing 10 per cent of the supply during periods of peak demand is probably sensible, and in line with past practise.

But he said he’s surprised that the price with imports factored in isn’t easily accessible.

The IMO prepares price projections a day ahead of time, then plots actual prices established as buyers and sellers trade power on its marketplace.

Observers have wondered why the price projections were showing sky-high prices, in the $2 a kilowatt hour range on Tuesday, for example, while the actual price averaged just 8.4 cents.

Yesterday, the IMO explained that suppliers outside the province are bidding for and receiving prices close to the projected price.

Electricity generators inside Ontario bid according to different rules, and are getting the much lower price posted as the market price. That’s the rate paid by electricity customers who haven’t signed fixed-price contracts.

What wasn’t clear until yesterday is that business customers will get hit with a surcharge later on for the high-priced imports.

IMO spokesman Ted Gruetzner said householders are already paying a charge of 0.62 cents a kilowatt hour, which will be used in part to cover the cost of importing high-priced power during peak periods.

But that built-in fee "will be reviewed as the market unfolds," according to the IMO statement on the IMO Web site at http://www.iemo.com. Click on "Understanding the role of import prices during high demand periods." Be warned, it’s not easy to read.

The surprisingly low posted prices of electricity, despite soaring demand, has puzzled some players over the past few days.

The IMO and energy minister Chris Stockwell have urged consumers to cut back on power use, warning the system is stressed and could be subject to brownouts.

But the relatively low posted prices haven’t punished those who ignored their advice.

For example, the energy ministry estimates a typical central air conditioner uses about 50 kilowatt hours of power a day. When the price jumped to 8.4 cents – Tuesday’s average – the added cost of keeping cool was just $2 per day higher than it was a year ago, when the energy price was 4.3 cents a kilowatt hour.

Tom Adams, executive director of Energy Probe, said the low posted prices don’t do enough to discourage people from high energy use.

"There are some questions about why the price is so low when we are clearly in some danger" of brownouts or blackouts, he said.

"The price should be out there disciplining people," he said in an interview Tuesday. "But leaving the air conditioning on appears to be a relatively cheap option. That’s not right."

Yesterday’s demand for power in Ontario hit 25,318 megawatts, erasing the old standard of 25,269 megawatts set last August. The IMO issued a blunt statement acknowledging that for much of Tuesday "the extreme heat caused Ontario electricity demand to exceed the supply capability of the generation available within Ontario."

Stockwell couldn’t be reached for comment, but press secretary Diana Arajs said there was "no cause for alarm" with the level of imports. "It was the highest single day of consumption in the history of the province, so when we are in a situation like that we would import power from outside the province," she said. "It’s not uncommon."