Canadian Press
CTV.ca
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, where they are charged a regulated price per kilowatt hour for the electricity they use for heating, air conditioning, lighting and appliances.

On May 1, the regulated price will rise to 5.8 cents per kilowatt hour for the first 600 kWh’s 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 to deliver power.

About 25 per cent 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.

Following the Ontario Energy Board’s announcement that regulated electricity bills will rise between three and 15 per cent for most homeowners starting May 1, "we noticed a very large increase in the number of people signing up (for fixed-rate contracts) through our website,” MacLellan said.

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

"What customers need to think about is, over the next five years, do I think that electricity prices will go up more than 25 per cent?” said Ian Mondrow, spokesman for Direct Energy, the province’s largest electricity retailer.

"If they go up by more than 25 per cent over the next five years, you could end up being better off. It’s important to say that we don’t sell savings, because no one can say for sure what prices are going to do. We sell certainty.”

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.

"So, by my math, our price is about 25 per cent higher, after you account for the rebates, than the regulated price plan,” said Mondrow.

Mondrow said Direct Energy, which also operates in Alberta, originally entered Ontario’s electricity market in May 2002. That fall, the market was "effectively closed by Ernie Eves” when the province froze the retail price at 4.3 cents per kWh, which was below cost, Mondrow said. The company re-entered the market about a year ago, when the regulated price plan came into force.

The regulated prices are now determined by a number of factors, including the amount of electricity produced by generators, natural gas prices, and the weather.

The May 1 price rise comes after the Ontario Energy Board underestimated the price of supplying regulated customers. Customers paid about $3.7 billion over the past year, while the electricity cost $4.1 billion.

The summer of 2005 was the hottest in Ontario for 30 years, increasing demand as low water levels reduced output from hydroelectric plants. High natural gas prices also contributed to the cost.

"In terms of supply mix, looking out over the next five years, the most important factor is the government’s announcement that they intend to close down the coal plants by 2009," said Adam White, president of the Association of Major Power Consumers in Ontario.

"If they do that, our analysis suggests that electricity prices are going to rise significantly. You can generate electricity using coal with our existing plants for about four cents per kWh. With current natural gas prices, you’re looking at at least six."

MacLellan notes that the government has announced incentives for wind power, which is 11 cents per kWh. And solar power is about 42 cents per kWh.

"Anything that they’re going to replace coal with, or just to compensate for our natural growth, it’s pricey," he said.

A rise in the cost of supplying power will not necessarily directly translate into a rise in the regulated price, Adams pointed out.

"We can talk about what the future’s likely to bring in terms of the wholesale price of power, but how that translates into retail prices for households in this highly-politicized environment – I’d love to stick my neck out, but I just don’t know which direction," he said.

For now, he insists, "the only (fixed-price contract) worth thinking about would be green power customers that are prepared to pay a little more."

Bullfrog Power bills itself as the first 100 per cent green electricity retailer in Ontario. The company offers one-year rates, which are currently among the cheapest fixed rates available.