Globe and Mail
Globe and Mail
May 2, 2002

Ontario’s electricity market opened for trading without a hitch yesterday, and the new spot price of electricity stayed within the anticipated range for an average spring day.

Some critics of the Ontario government’s deregulation plan had predicted immediate and drastic price spikes, and were proved wrong. But experts warned yesterday that no simple lessons about deregulation can be extracted from one calm day of trading.

"You can’t draw a conclusion from it; you need some history," said Michael Morrison, director of the Canadian Energy Solutions group at Fujitsu Consulting in Toronto.

Mr. Morrison said the reasonable trading price yesterday should allay the most extreme fears of soaring prices. But he said that it will take months and years of data to determine whether prices are rising or falling under a deregulated system.

Until yesterday, Ontario consumers had paid a regulated and fixed commodity price of 4.3 cents per kilowatt-hour for their electricity. (A kilowatt-hour is the amount of electricity needed to power a 100-watt light bulb for 10 hours.)

Under the new system, electricity prices are set every five minutes based on bidding in a open trading system, changing as demand fluctuates. Prices are typically low in overnight hours and rise during the day, then fall off again later each evening.

Trading opened yesterday at 1:01 a.m. EDT with an initial commodity price of 2.54 cents per kilowatt-hour, then rose through the day to 3 cents at 9 a. m., 2.98 cents at noon, 3.04 cents at 3 p.m., and 3.07 cents at 5 p.m.

The old rate of 4.3 cents was set by the Ontario Energy Board (OEB), so did not reflect an actual market trading price. It was also a long-term price, so is not directly comparable to yesterday’s trading price. That’s because electricity prices are expected to be lower on a spring day when neither heating nor air conditioning demands are high.

"This is a shoulder season," said Kevin Dove, spokesman for the Independent Electricity Market Operator (IMO). "Generally, demand is not high in the spring and the fall, so it is a lower demand season, and therefore pressure on prices should be less."

Dave Goulding, chief executive officer of the IMO, was pleased that the market began operating yesterday without any glitches. The IMO was created from the breakup of the old Ontario Hydro, and is responsible for operating and regulating the new trading system.

"I had every confidence that it would work," Mr. Goulding said early yesterday morning.

He attributed the flawless start to the months of preparation that the IMO had performed, including a trial run for the past month.

Blair Peberdy, spokesman for Toronto Hydro, said the launch was smooth for his utility, which is one of the 239 participants in the new computerized trading system.

He said the bigger technical challenge has been transforming the utility’s billing system to handle the one-third of its customers who have signed fixed-price supply contracts with electricity retailers.

Customers with fixed-price contracts will not be affected by the fluctuating trading price of electricity. And those who have opted to stay with the standard service provided by Toronto Hydro will not immediately see the impact of market prices, Mr. Peberdy said.

That’s because Toronto Hydro will initially calculate bills based on the old 4.3 cents/kwh price, and will adjust bills a number of months from now to reflect the actual average market price. He said the adjustment may be done sooner if the market price varies greatly from 4.3 cents.

"If it’s way off, we may do it earlier so the customer isn’t looking at a big refund or a big catch-up bill," he said. "We’re waiting for the OEB to advise us as to when that [adjustment] should take place, and I believe they’re waiting to see just how the market price moves."

Tom Adams, executive director of Energy Probe in Toronto, said one of the first lessons of yesterday’s trading is that prices seem to move in "lock step" with nearby U.S. markets. He said it is an indication of smooth trading across Ontario’s borders.

"It’s a good thing, not a bad thing, that we’re exchanging with our neighbouring utilities," he said.

Mr. Adams said consumers should not expect electricity prices to remain as stable as yesterday. During peak demand in the summer, prices can soar. On one large U.S. electricity trading hub, prices peaked at 91 cents per kilowatt-hour last Aug. 8, he said.

Consumers will not see those brief peaks on their bills, which will reflect average prices over the billing period.

Consumers can follow the market price of electricity on the IMO’s Web site at http://www.theimo.com, under "Today’s Market."