January 17, 2002

  Summary and update on Energy Probe’s expectations for consumer electricity price changes related to Ontario’s electricity market restructuring

Energy Probe believes that, comparing overall bills before April 1, 1999 with bills after all the changes currently decided are fully implemented, bills for ordinary household consumers (1000 kWh/mth) who don’t sign contracts with marketers are likely to rise by at least 20 per cent. Contributing factors in both the upward and downward directions are:

• The Ontario Energy Board PBR Rate Handbook decision that increased distribution rates by 60 to 70 per cent. Some of this increase has already been implemented in many areas of Ontario.

• Double recovery of the Debt Reduction Charge for the period June 2000 to April 2001.

• Payments in lieu of taxes that will soon be paid by distribution utilities to Ontario Electricity Financial Corporation (OEFC).

• Net load billing for network transmission as decided by the Ontario Energy Board and net billing for IMO fees as decided by the IMO (the largest elements of which are recovery for out-of-merit dispatch costs and costs for ancillary services) both of which will transfer costs from large industrial customers with load displacement generation to smaller customers.

• The unfavourable net system load shape of small customers who don’t have access to interval metering.

• The impact of the government’s decision to grandfather special rate discounts to a secret group of Ontario’s largest industrial electricity consumers (primarily felt by customers through reduced MPMA rebates and longer recovery period for DRC).

• The recovery transition cost incurred by all components of Ontario’s former electricity system.

• Based on current pricing trends in the New York and PJM markets, in the near term, overall commodity prices are likely to decline, offsetting somewhat the impact of the above factors.

Energy Probe estimates that those with marketer contracts are going to see a further increase over their current embedded commodity-only rates (not bills) of 19 per cent to 42 per cent.

Further significant upward price pressures appear to be coming but their magnitude is uncertain. The unfunded stranded debt is bigger now than at April 1, 1999. The government’s claim, repeated in OEFC’s most recent financial statements, that the unfounded stranded debt will be eliminated by 2010-2017 is unlikely to be sustained. Not only is the sign on the stranded debt recovery cashflow negative for the first two years taken together but we suspect that the estimate for the stranded debt is understated. The prevailing official stranded debt assessment took the Ernst & Young audited nuclear liability figures from the old Ontario Hydro at face value. We believe that the E&Y approach suffers from a number of flaws which understate the liability – particularly related to the generator in-service period estimate, the generator load factor estimate, and the adherence to a volumetric recovery mechanism. Eventually, we anticipate that taxpayers will get hit for at least some of this. (Note that contrary to the provincial Auditor’s statements, the taxpayer has already starting paying electricity costs since the $520 million owing annually to OEFC from the province is not being recovered in dividends from OPG and H1. Not including the cost of electricity consumed in government operations, taxpayers paid general electricity costs of $235 million in f2000 and $54 million in f2001.)