Fred Vallance-Jones
Hamilton Spectator
September 5, 2002

Customers who signed fixed-price electricity contracts will pay less for power they used this summer than those who stuck with their local hydro utility.

But the savings for July will amount to no more than about $8 on an average Hamilton bill.

And an expert in Ontario’s new electricity market says in the longer term, those who stayed with utilities such as Hamilton Hydro will be the real winners.

Record demand driven by heat and air conditioning resulted in short-term spikes that pushed the hourly price to nearly a dollar a kilowatt hour in July and August.

Those peaks pushed the average price Hamilton Hydro will charge its residential customers for the period from July 1 to July 31 to 6.4 cents a kilowatt hour.

That’s higher than the prices in the fixed contracts with firms such as Direct Energy, but not by much. (The average Hamilton Hydro price for August isn’t yet available but based on the hourly prices that month, it may be a shade higher again).

"What we have been through in the last two months is near crisis conditions in the power markets," said Tom Adams, executive director of Energy Probe, a Toronto-based lobby and public interest group. "It was almost as bad as it gets . . . yet prices have averaged out to fairly moderate levels."

By the end of the first full year of the new market, next May 1, Adams expects that overall lower prices in spring and fall will have more than compensated for this summer’s peaks, and those expected again in the depths of winter.

A recent Hamilton Hydro bill, for power use by a Spectator reporter, shows that so far, the open market customer has indeed paid less on average. The bill covers June, a period of low prices similar to those expected this fall, and July, the first of the two peak months.

The final average price (not including the distribution charges that all customers pay) is about 5.2 cents a kilowatt hour. That’s less than the 5.6 to 5.95 cents common in the fixed price contracts.

For a typical user of 1,000 kilowatt hours a month, that difference translates to an $8 to $10 saving, savings that will only increase if the expected lower prices this fall come to pass.

It’s not the best possible news for the fixed-price marketers, whose door-to-door agents have often promised savings as an incentive to sign up.

In their press statements in recent months, the marketers have taken to promoting price stability as the key selling point for their one- to five-year contracts.

"In the long term, we don’t guarantee savings," said Ray McManus of Direct Energy, the largest of the electricity marketers.

Art Leitch, head of Hamilton Hydro, likens the contracts to a fixed-rate mortgage that may not be cheaper than a variable rate loan, but offers a guaranteed rate. "You pay a premium for this peace of mind."

Adams says a great irony of this summer’s market is that connections with U.S. power grids not only kept the lights on when Ontario’s generators couldn’t meet demand, but also helped keep the price down for open-market customers.

Critics of the new market had warned that U.S. connections would drive prices up here because generating companies would start sending power southward, forcing prices to U.S. levels.

But Adams says what really happened is the power flowed in the other direction. The imports soaked up some of the unprecedented demand, preventing prices in Ontario from going even higher than they did.

Adams expects growing pressure to further harmonize the markets in Canada and the United States, allowing power to flow more easily to where it’s needed under common pricing rules.

The Independent Market Operator, the Ontario agency that oversees the competitive electricity market, has already inked an agreement with its counterparts in New York and New England to accelerate harmonization of the three markets.