Energy dilemma

Tara Perkins
Toronto Sun
April 19, 2006

More Ontarians are turning to long-term, fixed-price electricity contracts following last week’s announcement that regulated prices are rising May 1, but experts caution that prices would have to rise dramatically for the contracts to pay off.

"Signing one of those (long-term) contracts is extremely pessimistic," says Tom Adams, executive director of Energy Probe, a national consumer group.

"What they’re offering is peace of mind at a huge premium."

Most Ontarians are still under the province’s regulated price plan, whereby they are charged a regulated price per kilowatt hour for the electricity they use.

On May 1, the regulated price will rise to 5.8 cents per kilowatt hour for the first 600 kWhs used per summer month, and 6.7 cents per kWh after that.

Regulated bills vary across the province depending on what the local utility charges.

About 25% of residential consumers have instead chosen to lock in their rates through a long-term contract offered by one of the six electricity retailers serving Ontario, said Ian MacLellan, spokesman for energyshop.com.

Those consumers are placing a bet on how high electricity prices will rise.

"It’s important to say that we don’t sell savings because no one can say for sure what prices are going to do," said Ian Mondrow, spokesman for Direct Energy, the province’s largest electricity retailer. "We sell certainty."

He said customers need to determine how high they think electricity prices will rise in the next five years.

For the certainty of knowing what their electricity will cost them for the next five years, Direct Energy’s customers are currently signing up at 9.65 cents per kWh.

However, Mondrow noted that the regulated price includes two types of rebates that fixed-price customers will receive directly.

Those two rebates add up to 1.124 cents per kWh, bringing Direct Energy’s effective price down to about 8.53 cents per kWh.

SOME THINGS TO CONSIDER BEFORE FIXING YOUR RATE

Some tips for consumers considering a fixed-price electricity contract:

Rules and regulations vary between marketers – read contract details.

Some electricity retailers’ prices are more "fixed" than others.

"Full requirement" contracts charge the contract price for every kilowatt hour used over the life of the contract.

Others have adjustment clauses that adjust the price based on total customer usage and the company’s electricity purchase pattern.

Cancelling a fixed-term contract before it ends carries a typical penalty between 1.5 cents and 3 cents per kWh for the remaining electricity on the contract.

Key points to consider:

What is the price being offered?

How long is the term? Are there optional contracts of different length?

Does the price differ depending on the length of the contract?

What other fees or charges are required?

Can an OPG Rebate be transferred to the contract?