Andrew Douglas
Country Guide
April 1, 2002

Don’t believe door-to-door sales reps from electricity retailers who claim that you’ll save money by signing a long-term contract.

As of May 1, the commodity (actual power) portion of Ontario’s electricity market becomes deregulated. Instead of one government-owned supplier, multiple players will offer to sell you electricity. But this doesn’t mean you have to make any fast decisions. You have four years of price protection.

Plenty of misinformation is circulating throughout the countryside. Before signing a contract, do your homework and know the whole story.

Three years ago, Ontario Hydro split into five companies. Ontario Power Generation owns most of the generating stations in the province although they’ve started selling and leasing power plants to other companies. Hydro One owns the transmission system. Ontario Electricity Financial Corporation manages $22 billion of the former Ontario Hydro’s debt – which Ontario residents will continue to pay down. The Electricity Safety Authority will do inspections.

And the final company to split from Ontario Hydro is the Independent Electricity Market Operator. It will make sure the power load is distributed properly across the whole system and buy electricity from generation companies – starting at the lowest bid and working up until they have enough power to meet demand. Every electricity supplier called upon will be paid the highest accepted bid for each five-minute period.

In a deregulated market, you decide who supplies your hydro. You can sign a contract with a new provider or stay put. By not signing a contract, you’ll automatically be moved to something called standard supply service, or SSS. That means, you’ll stay with the electricity retailer you currently have and pay a price based on the floating spot price for electricity.

"Unless you absolutely want to sign up and are prepared to live with the consequences, there’s no good reason to hook up with a reseller at this time," says Lynn Girty, chair of the electricity committee at the Ontario Federation of Agriculture (OFA) and a seed corn grower near Blenheim. It might eventually pay to sign a long-term electricity contract, but not for at least four years. Until then, consumers are protected against a jump in electricity prices. That’s plenty of time to learn how free market forces will affect the price for electricity.

"The OFA is doing its best to get across the idea that the market is coming and will involve changes," says OFA researcher Ted Cowan. "The major benefit of not signing with anybody is learning how the market works. If you don’t sign, you go to standard supply which is a pass-through of the wholesale price right down to the retail customer."

You may not know it, but right now you’re paying between 4.3¢ and 4.5¢ per kilowatt hours (kWh) for electricity. On average, Ontario homeowners pay 9.4¢ per kWh, but that includes roughly 5.1¢ of other costs including distribution and debt recovery. Come May 1, all those costs will be split up and itemized on your bill.

Tom Adams, executive director of Energy Probe, a consumer watchdog in Ontario, says the electricity wholesale price is likely to go down to 4.2¢ per kWh at least for the first six months. Sales reps from resellers Direct Energy, First Source, and Ontario Hydro Energy Services are armed with contracts locking you in at 5.6¢ to 6¢ per kWh. Adams thinks the commodity portion of electricity bills will go down in an open market.

"In the long term I expect a move from 4.3¢ down to the 3.9¢ to 4.1¢ range," says Adams, who happens to be an Ontario Agriculture College crop science grad from the class of 1984. "Technological progress, improved efficiency of power generation, and benefits of trade with Quebec and Manitoba will drive prices down."

"Approximately 200 applications have come in from people wanting to establish power generation facilities and be part of the grid – and we already have a surplus," says the OFA’s Lynn Girty. As farmers well know, excess supply means low prices. He points to wind farms and other operations that will also begin selling electricity back to the grid.

So if Adams and the OFA are right, signing a five-year contract for 5.5¢ could cost the average homeowner $40 a month extra compared to sticking with standard supply. The stakes are higher for farmers who use a lot of electricity. But simply shooing high-pressure electricity sales reps out your lane won’t solve all your problems, especially if you’re a high volume user like a dairy farmer.

One thing we know for sure is that after the first four years there will be periods when electricity prices will be astronomically high. "They’ve seen that in neighbouring U.S. states, even in successful markets like Pennsylvania," says Adams. "For short periods – under two weeks – high demand coupled with mechanical problems can interrupt supply from power plants and send prices through the roof."

Those price spikes could see electricity costs go from 4¢ to 80¢ per kWh. Adams advises the average homeowner to stay put and ride out the short spikes. He likens it to studies that show that staying with a floating mortgage rate over 25 years saves more interest over time than locking in an interest rate, even though the interest rate may jump periodically.

But if you’re using a lot of power – say $15,000 a year – there are new ways to protect yourself from price spikes. Price spikes happen at peak periods such as hot summer days when air conditioners are going full blast. An interval meter costs $800 to $1,200 to install. It clocks your hourly electricity use so you get billed the hourly rate at the time you use the electricity. Some farmers may be able to shift their power usage to low-cost timings that will save them money.

"Judging by market performance in the U.S., costs could range from 2¢ at night to 12¢ at peak times during the day," says Cowan. Dairy farmers could store hot water in insulated tanks for use during the day. Depending on off-peak power prices, long-term savings could be significant. "It would take a substantial price difference to make it worthwhile," notes Cowan, "but you’ve got time to figure out your strategy before price spikes hit home."

The Ontario Energy Board estimates the market price at 4.2¢ per kWh after May 1, although that could change as the deadline approaches.

More good news: the rural rate assistance program remains in place. It subsidizes full-time rural residents to the tune of $150 million a year by reducing distribution costs. The program’s goal is to reduce household electricity bills for rural customers to a level no more than 15% above urban prices for the rest of Ontario. So sit tight. You’ve got plenty of time to figure out the best way to pay for hydro.

How to get out of an electricity contract

A lot of arm twisting and cajoling is going on up and down the rural routes as high-pressure sales techniques are applied to sign up electricity customers on long-term contracts.

"Individual sales people have misrepresented prices and used scare tactics," says Ted Cowan, researcher at the Ontario Federation of Agriculture (OFA). "They say if you don’t sign, you might not have power." Prices quoted by electricity retailers are often 25% higher than the rate you can expect to pay after deregulation begins in May.

Sales reps have been known to compare the price of the energy component they’re offering with the total amount on your bill which until May includes distribution, debt repayment, and generation costs. "They don’t explain the potential rebates available if you’re not signed up," says Lynn Girty, chair of the electricity committee at the OFA. "As soon as you sign up you forego those rebates."

If you signed a contract and want out of it, you have to prove that the sales rep who sold the contract broke the code of conduct as laid out by the Ontario Energy Board. You can read the code in all its mind-numbing bureaucratic entirety at http://www.oeb.gov.on.ca/documents/elrecode.pdf.

Sales reps must immediately and truthfully identify themselves. They must clearly indicate that the offer is not being made by a regulated distribution company, and not mislead or confuse you about the identity of the marketer, its promotion campaigns or trademark, or those of competitors or the regulated distribution company. They cannot subject you to undue pressure, and must give you sufficient time to read the documents. They can’t lie about their offer. They can’t say anything regarding contracts, rights or obligations unless it’s in the written offer. And the contract can’t have print that’s too small or difficult to read.

If you think you’ve been unfairly signed up, complain to the company that holds the contract. If they don’t give in, take your case to the Ontario Energy Board at http://www.oeb.gov.on.ca or call 1-877-632-2727.