Paul Vieira
National Post
May 2, 2002

Photo: Glen Lowson, National Post
Mario Churland, senior exchange co-ordinator, at work yesterday on the electricity trading floor at the Independent Electricity Market Operator in Mississauga, Ont., where they buy and sell power to Ontario residents.

Ontario’s $10-billion electricity market opened yesterday with power prices well below average levels and industry observers impressed with first-day results.

"It is off to a very good start," said Tom Adams, executive director of Energy Probe, an industry watchdog. "It’s a bit of a surprise for [opponents of electricity reforms], who said prices would double or triple. But it’s in line with neighbouring U.S. markets prices – where they are and where they have been."

Prior to yesterday, the benchmark price for the Ontario power market was 4.3¢ a kilowatt hour (KwH). As soon as the market opened, the first quoted price was 2.54¢ KwH. The price later climbed to the 3¢ KwH range where it remained for most of the day – although it was expected to hit 4¢ KwH in early evening hours. (A kilowatt hour is the equivalent of burning 10 100-watt lightbulbs for an hour.)

But ratepayers shouldn’t expect prices to remain at that level.

Mr. Adams said prices will "bounce around," as they have in other deregulated wholesale markets such as New York and Pennsylvania. Prices there have climbed as high as 20¢ KwH and dropped near zero.

"There will be some volatility, but that won’t necessarily be a bad thing," Mr. Adams said, noting that electricity prices have been kept artificially low for some time (the Ontario government has frozen hydro rates since 1994).

That is one of the big reasons there is a massive debt – about $38-billion – left over from the old Ontario Hydro monopoly.

"What we need is efficient prices," Mr. Adams said. "If there’s high demand, prices should be high. If there’s too much supply, prices should be low."

For example, prices in the summer may skyrocket as many homeowners and offices choose to crank up their air conditioners to combat the steamy weather.

In Ontario’s open power market, the price of electricity will float and be set by on the wholesale market, much like the cost of bananas, cheese and other commodities is determined.

In the wholesale market, run by the Independent Electricity Market Operator, or the IMO, generators and other suppliers compete to supply the electricity needs of Ontario consumers. Up to 10 IMO traders, in a complex in Mississauga, Ont., will accept offers from suppliers and calculate a spot market price every five minutes by balancing the supply of electricity with demand at that particular time.

The players bidding for and supplying power in Ontario include, at this moment: 93 local utilities, which distribute power to cities and towns; 89 industrial companies, such as steelmakers and miners; 19 power producing companies, of which Ontario Power Generation Inc. is the dominant firm; 34 wholesale buyers and sellers, which include retailers and other traders; and four transmitters, of which Hydro One Inc. is clearly the largest.

Experts have forecast that electricity prices in Ontario should remain stable over the next five years, ranging on average in the 4.5¢ to 5.5¢ KwH range.

In the open market, households can obtain power at the market price through their local utility or sign a long-term deal that locks them in at a fixed rate.

The going rate for power in these contracts is around 5.5¢ to 5.7¢ KwH and roughly one-third of Ontarians have signed such deals.

Meanwhile, Chris Stockwell, Ontario’s Energy Minister, told a Bay Street breakfast crowd that Ontarians will reap the benefits of a restructured electricity market.

"I’m convinced a competitive market will be successful," he said. "Prices over time will be considerably lower than they would have been under the old monopoly-based system."

Citing a government-issued report, he said the province’s ratepayers would be paying $3-billion to $6-billion more over the next 10 years for power had the government not introduced its reforms for the sector.

But Howard Hampton, leader of the Ontario New Democratic Party, said households and manufacturers will end up with much higher hydro rates as a result of opening the market. "No matter where you go in North America, public power costs less."

Industry experts, such as Mr. Adams, have said electricity bills will go up next year, by about 20%, largely because of pre-approved increases in transmission and distribution fees. This forecast does not take into account what might happen to the price of power.