Brockville Recorder & Times
October 22, 2001
Read the fine print.
That’s the message from a consumer advocate and local utility manager as dozens of new power sellers market long-term contracts now before the electricity market opens to competition next spring.
"The bottom line is I recommend not to sign – those deals represent a significant increase in your cost of electricity," said Thomas Adams, director of the environmental and consumer watchdog Energy Probe. "It appears to be a decrease but it’s a substantial increase and you sign away your rights to a rebate you would receive if you didn’t sign."
"Us being a local distribution company, we are not allowed to express an opinion one way or another," said John Walsh, president of Rideau St. Lawrence Utilities. "I can’t tell my customers if it’s good or bad – we try to educate them.
"Customers should be aware of the term of the contract, signing away the rebate, aware of cancellation charges – some pretty steep if they decide to get out after a year or two."
Walsh stressed that consumers don’t have to feel pressured by contract deadlines to sign up – they’ll still get power at wholesale rates from their local distribution company.
"They shouldn’t panic or worry about disruption in their power supply – there’s no way anyone will not have electricity," Walsh said. "We must give it to the consumer at cost. We cannot mark it up."
Consumers will have a choice about who they buy power from for the first time when the market opens to competition, slated for May. It’s like private long-distance telephone service – the same wires will be used by competing companies.
A letter sent by Ontario Hydro Energy, a subsidiary of Hydro One, for example, invites customers to lock into one-, three- or five-year deals for power at 5.79 to 5.95 cents per kilowatt hour. Residential customers of Hydro One now pay 8.75 cents per kilowatt hour.
The letter boasts that their rates beat their competitors and will protect consumers from a potentially volatile energy market if they sign up by October 21.
But read the part of the company’s brochure where it says that price only covers the power itself – which will rise and fall on the open market – not the other half of the customer’s current bill, fixed distribution costs which are on the way up, Adams said. The current Hydro One rate reflects all these other costs.
"It’s very hard for the ordinary citizen to detect this," he said. "It’s normally rolled in with everything else. It will be broken out. You’ll notice it keeps going up. You can’t shop to avoid this."
Tacked onto that cost per kilowatt hour is a delivery charge from the local distribution company, a transmission charge from Hydro One, a charge from the company that operates the electricity market and charge to pay off the former Ontario Hydro’s outstanding debt.
The Ontario Energy Board – the power market regulator – has approved a phased-in 70 per cent hike in distribution costs. There’s no competition in transmission and distribution.
Energy Probe argues that the typical customer’s bill will rise by one-fifth over the next three years, not because electricity will get a lot more expensive, but because of rising transmission and distribution costs.
They say it will go up even more with fixed-rate plans. They don’t offer a very good deal on the energy itself with customers likely to do better on the spot market, although they will have to tolerate some fluctuations, Energy Probe argues.
The current commodity price is about 4.5 cents per kilowatt hour. The group estimates that in the first year or two after deregulation prices are unlikely to go above five cents a kilowatt hour because of the price-stabilizing rebate.
It’s little known because government has done a poor job of advertising it, Adams said. But the rebate is designed to protect consumers and reduce the dominance of the main electricity maker, Ontario Power Generation, if prices rise above a benchmark 3.8 cents per kilowatt hour during the first four years after deregulation.
If prices reached 5.65 cents, for example, it could net a typical residential user $139 a year.
And Walsh points to the fact that the market regulator, the Ontario Energy Board, has predicted in writing to utilities after detailed studies that the cost of power after the market opens will be 4.3 cents per kilowatt hour.
If they regret the long-term deal, the cost for a consumer to buy their way out of a contract with a marketer could be as much as $180 a year, he added.
But Laima Cerf, director of residential marketing for Ontario Hydro Energy, says the long-term contracts are no different than a fixed-rate mortgage – they insulate consumers from a volatile market because customers get the best price the company can negotiate.
Nor are they hiding the distribution costs – they just don’t yet know what they’ll be, she said, noting that distribution companies are still approaching regulators for rate hikes and in the meantime the fact that energy is only half a customer’s bill is prominently noted.
And one knows how much the price stabilizing rebate will be or if it will happen at all, Cerf said. Customers sign it over because the company is assuming all the market risk to provide a set price, she added.
Similarly, it has to cost customers money to get out of the contract because the company will have already purchased power from their suppliers on their behalf, she added.
The real benefit of contracts like Ontario Hydro Energy’s is highlighted by the natural gas market. The company’s long-term contracts protected their customers from prices that went from 19 cents to 34 cents a cubic meter in a matter of months, Cerf said.
"That’s the kind of volatility on the supply side of costs and what could happen in the electricity market when it opens to competition," she said. "The fixed-rate deal is designed for consumers who want the peace of mind of knowing what 50 or 60 per cent of their energy cost will be for the future."