Energy Probe

Robin Harvey
Toronto Star
March 7, 2002

Many Ontario residents who signed long-term energy contracts after Aug. 3, 2001 will have a year to get out of them, no questions asked.

That’s because some retailers, including Hydro One’s Onsource and Toronto Hydro Energy Services, issued direct sales contracts — negotiated door-to-door — that did not comply with provincial law.

Tom Park, of the Ontario Energy Board, yesterday confirmed that consumers would have a year to get out of such contracts signed after the law changed August 3, 2001.

This includes contracts that do not include a notice in at least 12-point type on the front with a 12-point bold headline "Buyers Right to Cancel" that explains the consumers right to opt out of the contract during a 10-day cooling off period.

If the information is not totally contained on the front of the contract, there must be a notice in 12-point bold type on the front telling consumers where in the contract they can find out about their rights to opt out. The 12-point type is roughly one-third larger than the type you are reading.

"Any contract signed after that date (Aug. 3, 2001) that does not meet the requirement means consumers have one year to cancel," Park said.

Toronto Hydro Energy Services recent door-to-door contracts do not have the required headline nor do they explain the consumers’ rights in large enough type.

"If we are doing it wrong, we’ll fix it," spokesperson Cathren Ronberg said.

Contracts used door-to-door by Onsource as late as October 21, 2001, did not have the correct information.

A spokesperson for Onsource said the firm would determine if there are problems with the contracts.

John Spears
Toronto Star
March 9, 2002

For perhaps the 15th time in 90 minutes, Vicky Sipidias is pounding home the message — energy sales agents must at all times be clear with consumers who they are working for.

They do not work for Toronto Hydro. They must never forget that, either.

A group of 20 trainee energy marketers hangs on every word, as she demonstrates the pitch at the doorstep.

"Hi, I’m Vicky Sipidias. I’m from Toronto Hydro Energy Services."

"You do not short-form that in any way whatsoever," she says sternly, as the recruits squirm on folding chairs in a Mississauga office mall.

"Once you leave this room, no one will refer to Toronto Hydro again. We are Toronto Hydro Energy Services."

"There is zero tolerance on this one," she warns. There is only one punishment for disobeying: "You will lose your job."

At the doorstep

"Hello. I’m from Toronto Hydro. I just need to see your electricity bill. I’m here to protect you from price increases."

That’s the way Paul Politi says he introduced himself for months as he sold electricity contracts door-to-door on behalf of Toronto Hydro Energy Services.

So did Jason Johnson, who worked for a time on Politi’s sales crew. The two former agents, who both decided to quit the game in December, say there’s a big difference between the training class and the reality of selling contracts door-to-door.

Leaving the impression that they came from Toronto Hydro, the 90-year-old utility, ensured a better reception at the door than explaining they represented Toronto Hydro Energy Services Inc., a two-year-old, unregulated retail energy marketer also owned by parent Toronto Hydro Corp.

The two say that the combination of a public that’s poorly informed about imminent changes to the electricity market, some policy confusion and weak policing make it tempting for unscrupulous agents to use questionable practices. Among them:

• Providing price comparisons that were misleading.

• Showing customers how power prices soared in Alberta following deregulation, without showing how they subsequently dropped.

• Encouraging customers to sign multiple contracts, on the understanding that they could pick the one they wanted when Ontario’s competitive market opens May 1.

Politi and Johnson marketed electricity and natural gas while wearing jackets and badges bearing the green and yellow logo of Toronto Hydro Energy Services Inc.

That would be your very own electricity marketing company, if you live in Toronto: Toronto Hydro Energy Services Inc. is a non-regulated energy marketer owned by Toronto Hydro Corp., whose sole owner is the City of Toronto. The parent firm also owns Toronto Hydro-Electric System Ltd., the regulated utility that owns and operates the electric wires that deliver power to homes and businesses in the city.

Since the city was granted ownership of Toronto Hydro Corp. in 1999, it has pushed to maximize returns from the company, which has annual revenue of $2 billion. The city hopes to reap income of more than $100 million a year from the utility and retailing operations combined.

Toronto Hydro Energy Services tried to do its marketing exclusively by mail. But last September, worried at the success of aggressive door-to-door selling by competitors such as Direct Energy Marketing Ltd., it contracted with first one and then two door-to-door marketing firms to sell fixed-rate electricity contracts.

Dashbros Inc., which markets gas and power in the Ottawa area, was in the Greater Toronto area until Jan. 1; Elite Marketing Group Inc., headed by retired Toronto Hydro employee Lorne Codell, took over that local role on Jan. 1. Both sell under a licence granted to Toronto Hydro Energy Services.

Codell and his staff say they’re rigorous about ensuring their agents market openly, honestly and in accordance with the code of conduct established by the Ontario Energy Board.

At the same time, Toronto Hydro Corp. is openly ambivalent about its decision to get into the rough and tumble of selling door to door, using agents who are paid only when they sign a customer.

Courtney Pratt, chief executive of parent Toronto Hydro Corp., puts it this way: "Quite frankly, if we had our druthers, we probably wouldn’t have done that, wouldn’t have gone there at all. But that’s the way this marketplace has evolved … There were so many people out there doing it, it was really a defensive tactic. We had to be there."

The problem, says Pratt, is the nature of door-to-door selling.

"With all the best of intentions, you’re not on the doorstep with these people and you can’t control everything that happens.

"So we know that some of our salespeople, and certainly some other people’s sales representatives, have been doing things that are wrong. We have worked very hard to take corrective action whenever we have heard of it. It’s not something we’re proud of, or condone."

Hydro officials say sharper training and better monitoring have curbed abuses. While Politi and Johnson stopped selling energy contracts in December, training sessions such as the one run by Vicky Sipidias appear to be addressing the sales problems they observed.

Meanwhile the Ontario Energy Board, which licenses sales agents and can levy penalties against firms that misbehave, acknowledges that it needs more investigative staff to police sales activity, and now must rely on complainants to gather solid, accurate information about shoddy sales practices.

The board has yet to use its power, granted in October, to fine retailers for breaking its code of conduct.

The name and structure of the Toronto Hydro companies is at the root of some of the marketplace confusion.

Toronto Hydro Corp., Toronto Hydro Energy Services and Toronto Hydro-Electric System share the same green and yellow corporate logo; all have the words "Toronto Hydro" in their name.

Sales agents working for Dashbros or Elite Marketing wear badges bearing the Toronto Hydro logo, with the words "under contract to" in small print above the Toronto Hydro Energy Services name.

Politi says that exploiting the similarity in names, though forbidden, was a temptation for agents who are given a quota of signing a minimum 32 electricity customers plus eight gas customers a week.

Leslie Ferrari, who oversees the training for Toronto Hydro Energy Services, acknowledges it can happen.

"Maybe Paul sold that way," she says. "It wasn’t endorsed by Toronto Hydro Energy Services."

Politi says he took Elite Marketing’s Codell on sales calls when he introduced himself as simply being from "Toronto Hydro."

At the time, Codell was still an employee of Toronto Hydro’s utility wing.

Codell’s recollection is that Politi did identify himself properly.

Codell says he walked into several businesses with Politi and watched him work his pitch unsuccessfully. Then they went to another business complex and Codell stayed outside. Politi emerged with several signed contracts.

Codell, after watching Politi, says he was "very disappointed in his selling skills" because he wasn’t courteous with some customers, but says Politi did have a successful sales record.

In the classroom

Sipidias is emphasizing the selling points of Toronto Hydro Energy Services.

"We don’t condone any lies, any untruths," she tells the recruits.

The firm is in the market to build long-term relationships, she points out; slick or dishonest sales tactics can only damage long-term prospects.

"We are ethical, we are trusted, we are known to be reliable," she says.

The product the recruits are selling is not simply a contract with a fixed price; the real product is price protection, stability and security.

On the street

Jason Johnson says his opening gambit after introducing himself was to throw a bit of a scare into the customer.

Sales agents are supplied with a graph pointing out that Alberta wholesale prices had zoomed to over 20 cents a kilowatt hour following deregulation. (The comparable price in Ontario is about 4.3 cents.) The graph is complete with the Toronto Hydro corporate logo in the corner.

The graph is badly out of date. Prices in Alberta did indeed run up steeply in the fall of 2000, to over 22 cents a kilowatt-hour. The graph fails to show that by November, 2001, when Johnson was knocking on doors, the price had plummeted back to the 3-cent range, lower than Ontario’s.

In the classroom

Sipidias has moved on to price comparisons. She has a big chart with pictures of apples and oranges.

The lesson is clear: Make sure price comparisons are fair — apples to apples, not apples to oranges.

She notes that the "energy charge" on a Toronto Hydro bill is 6.46 cents a kilowatt-hour; marketers, including Toronto Hydro Energy Services, are offering power for less than 6 cents.

But that’s a misleading comparison, stresses Sipidias. The 6.46 cents includes transmission costs and other regulated charges. Although the figure appears nowhere on the current bill, customers are actually paying about 4.3 cents a kilowatt-hour today.

Consumers are paying a premium over today’s price for the security of knowing their price is guaranteed for three years. The agent’s job is to sell security and stability in the face of an uncertain future.

On the doorstep

Life doesn’t work quite like the classroom, says Politi, who supervised whole sales crews and also trained sales recruits. In training, he kept to the rules. Outside could be a different matter.

The most effective sales tactic is to ask customers to get a recent bill. (This is standard procedure for all marketers, since they need a customer’s account number to register a sale, and to get paid their commission.)

"You show them that rates are 6.46 cents a kilowatt hour," says Politi. "Then you show them we’re charging only 5.79 cents. We tell them we’re going to lower their rate, which is not true."

It isn’t.

As Sipidias has explained, the true comparative cost is 4.3 cents a kilowatt-hour — though that’s not guaranteed beyond May 1.

Johnson says he used the same tactic, although he’d generally say the current charge was "6.46 cents bundled." Most customers wouldn’t ask what "bundled" meant.

Lorna Francis, vice-president of marketing for Toronto Hydro Energy Services, says sales people are strictly instructed not to use this misleading price comparison approach.

But Politi says when the pressure is on to sign a customer, many sales agents find it works.

Politi says door-to-door marketers got a bonus when the Ontario government imposed an additional charge of 0.735 cents a kilowatt-hour in June, to help retire Ontario Hydro’s debt. That made it easier to persuade customers they need protection from rising prices.

"See, on June 1 you already had an increase of about three-quarters of a cent," Politi would say. "The rates are going to go even higher."

In fact, customers pay the 0.735 cents no matter whether they sign a fixed price contract with a retailer or not.

Francis said she had never heard of agents using this approach. But she reiterates that using such practices is not in her firm’s interest of building long-term good relations with satisfied customers.

Johnson and Politi say that last fall they routinely signed customers knowing that they had previously signed contracts with other marketers. They’d tell the customers that on May 1, the customer could choose the contract they liked.

In part, they were exploiting a policy vacuum. It wasn’t clear for a time how customers with multiple contracts would be dealt with. But the energy board ruled late last year that the contract with the earliest date is the one that will be enforced.

Codell says Toronto Hydro is sometimes the victim of misrepresentation itself.

He recently had complaints from a Scarborough neighbourhood that Toronto Hydro reps had made nuisances of themselves, knocking on the same doors four and five times. In fact, says Codell, it was an area of the city his crews had never covered. Some other firm was evidently trying to scam customers into thinking they were dealing with their trusted utility.

Leslie Ferrari of Toronto Hydro, who designed and oversees the training provided by Elite, says instruction for recruits has become more focused than when the door-to-door sales campaign launched last September.

To curb abuses on the doorstep, she says, crew leaders are ordered to monitor their agents’ sales pitches from time to time.

Customer complaints are followed up quickly, aided by the fact that agents must sign their contracts with name and an ID number.

If they’re not meeting the proper standards, agents get retraining for first offences, and may be fired if bad conduct persists.

Crews visit the office three days a week for review and reinforcement.

The Ontario Energy Board plays the role of sheriff riding herd on rogue marketers. The energy board is the body that licenses the retailers. And since last fall it’s had the power to levy penalties against those that break the board’s code of conduct.

But Mark Garner, who heads the board’s licensing division, says no penalties have been levied so far.

In part, that’s because the board has taken the approach of trying to persuade marketers to change their practises, rather than zinging them with penalties right off the bat. At the board’s prodding, one marketer sent letters to all customers who signed contracts in 2001, giving them a 10-day window to cancel if they had second thoughts.

But the board has no investigative staff seeking out bad marketers.

"We’re not by nature trained investigators," Garner says. "We’re trained regulators."

He has a staff of about 10 who react to complaints, but rely mainly on customers to gather information.

"We aren’t that big," Garner acknowledges. "In this type of market, my best help is an informed consumer."

That means for a complaint to succeed, customers must ask the right questions, and be sure of what the answers were — a tall order for most people suddenly called to the door by an unannounced marketer.

Garner says he has asked for a bigger budget for investigation and enforcement, but it hasn’t been approved. He also says consumers must recognize that marketers have a right to sell their products, and consumers have a responsibility to know what they’re signing.

"I don’t want to leave the impression that we’re waiting," he says. "We’re talking ourselves about how we can be more proactive right now."

But investigation is labour intensive, and involves such hard-to-prove aspects as determining whether a sales agent left a misleading impression.

"Let’s say you’re going to follow door to door," he said. "You’ve got to find where they are, you’ve got to follow them up, you’ve got to talk to the customers, and get a clear indication that there’s a systemic problem that needs to be addressed, as opposed to picking on a marketer and saying: ‘I don’t like your commissioned sales people.’"

Codell says some consumers are being misled simply because they’re not well informed about the coming electricity market.

"It’s not an easy business. I don’t think anyone’s done a good job with the consumer education thing," he says.

That’s one area where he can agree with Johnson and Politi.

"I probably misled a lot of people, I want to apologize to them," says Politi.

Johnson, too, regrets knowing that many of the people he signed to contracts didn’t really understand what they had signed.

"I’d never want to do it again, ever," he says. "You almost want to go back to these people and apologize."

Tom Adams and Randal Marlin

March 18, 2002

March 18, 2002

Advertising Standards Canada
350 Bloor Street East, Suite 402
Toronto, Ontario M4W 1H5

Dear Sirs:

We wish to place a formal complaint against the Globe and Mail‘s use of what we see as disguised advocacy advertising in its six page "Special Supplement on Ontario’s New Electricity Market," appearing in the Monday, March 11, 2002, issue.

Nowhere is there an indication that the material mimicking journalistic content outside the ads was paid for and controlled by the advertizers. An inquiry by one of the undersigned, Tom Adams, to the Premier’s office indicated that the government paid a portion of the cost. In a separate interview by Mr. Adams with the office of the Energy Minister, the government claimed most of the cost was borne by the companies, two of which are commercial firms owned by the Ontario government, taking ads in the supplement.

The Canadian Code of Advertising Standards states under section 2 that "No advertisement shall be presented in a format or style which conceals its commercial intent." It also states under 1(b) "Advertisements must not omit relevant information which, in the result, is deceptive." Thirdly, section 1(f) states that the advertiser in an advocacy advertisement "must be clearly identified as the advertiser in either or both the audio or video portion of the advocacy advertisement." We see no reason why the principle embodied in 1(f) should not, constructively, also apply to print media.

The authorship of the ads in the piece is clear but the authorship of the text is not disclosed. According to the office of the Energy Minister, the text was collaboratively developed by the government and the companies buying advertising space.

The typeface in the text and headlines is so similar to the regular type used by the Globe and Mail that the reader could easily get the impression that the material was coming from a journalistic source. The customary statement "an advertising supplement" which normally appears is absent, and instead we have "a special supplement on Ontario’s new electricity market."

The material is presented as straightforward fact, but it really contains advocacy instead of facts on certain key issues, as can be seen from the following:

The piece contains a bolded subhead claiming that "Customer protection is paramount." Three instances where actions by the Ontario government and its agencies have been directly contrary to the interests of ordinary consumers are the decisions on distribution rate increases for local distribution utilities, the decision to cross-subsidize the transmission costs of heavy industrial users, and the government’s decision to break its promise to stop providing special electricity subsidies to heavy industry.

The piece also relies on exaggerated claims. Jim Wilson, Ontario Minister of Energy, Science and Technology is quoted as saying that "$3-billion in new generation projects . . . have already been proposed by the private sector," and that this new generation capacity will support "jobs, investment and economic growth." There is no acknowledgment in the material that with only a few exceptions, the announced projects have been substantially delayed and some may even be canceled.

Our complaint is specifically against the Globe and Mail for carrying this material in violation of the Code and against the Government of Ontario for using this form of advocacy advertising.

We hope to hear from you soon as to whether you uphold our complaint.

Yours truly,

Tom Adams, Energy Probe, Executive Director
Randal Marlin, Carleton University
Adjunct Professor Department of Philosophy

Don Sellar
Toronto Star
March 30, 2002

The six-page electricity insert that came with the Star on March 21 was slick and cheery. Feel-good stuff that government publicity factories dream up as vehicles for one-sided messages.

Dressed up like a special news section with a pleasant mix of stories and ads, the "special supplement" promised — literally — to enlighten readers on the wonders of Ontario’s new, deregulated electricity market.

"Lighting the way to a brighter future," gushed a headline on the front page. "Now you can choose the power you use."

But the mystery insert bore no "Advertising Supplement" label. It had no bylines, no editors, no publisher. Nothing to say clearly who paid.

Curious omissions.

Yet there was room for a flattering photo of Premier Mike Harris and Energy Minister Jim Wilson below another nice headline: "Strengthening Ontario’s electricity sector."

Hmmm. Likely, Harris won’t be suing anyone for libel on this insert, even though it was cobbled together and printed at the Globe and Mail (not his favourite paper lately).

Was this useful information, propaganda, or a special editorial section telling consumers how to shop in a deregulated power environment?

Some skeptical Star readers found the insert confusing, and rightly so.

"I don’t see who produced it," said Wolfe Erlichman of Toronto, who’s in the printing business. "Is it a Toronto Star product or did someone pay for this supplement? Please, tell me."

From Newmarket, where he’s on sabbatical from Nipissing University, Dr. Michael Wodlinger, an academic (social foundations in education) called with the same question, later adding, "I really object to advertising being skewed as news or editorial."

So does Wayne Clifton, vice-president of advertising at the Star. "They slipped one past us, no question," he said ruefully. "We would not have accepted this insert in its present form. It did not meet our policy guidelines."

So what happened?

The insert was booked by Media Buying Services Ltd., a big ad agency that does work for the Ontario government. But Clifton said no one in his department at One Yonge St. saw the product until it was too late to stop it from being distributed.

"We care very much about the Star‘s brand, and when people try and utilize it in an incorrect way, this upsets us very much," he said.

Clifton found it suspicious that the insert wasn’t delivered from the printer to the Star‘s production plant at Vaughan until 24 hours before it was pre-inserted with other ad inserts for the next day’s paper.

"They delivered it to Vaughan only two days before it was to run, obviously to try and sneak it under the radar screen."

Not only was the insert badly labelled, misleading and laid out too much like editorial copy, Clifton was surprised to find it included ads from power industry, government and labour interests pushing deregulation.

The Star got no revenue from those "brokered" ads and was only paid for distributing the insert, he said.

Clifton said the Star was led to believe the insert was sponsored by the Ontario energy ministry, with which the paper had no direct contact.

As a result of the misadventure, he said, "we’re tightening things up."

Ray Hersh, group account director at Media Buying Services, wasn’t forthcoming. "We only book space, we’re not involved in creative. So we don’t usually see stuff ahead of time ourselves," he said.

Insisting his agency didn’t preview the insert, he refused to name other papers that ran it, calling all of this "a private matter" with the client.

He sent me to Shane Pospisil, information director, Ontario energy ministry, who explained the insert was devised by a 14-member committee formed to educate consumers about deregulated power.

It also ran in the Hamilton Spectator, Kingston Whig-Standard, Sudbury Northern Life and Windsor Star. The London Free Press, after seeing it, separated it from the paper, Pospisil said.

Asked why the insert wasn’t labelled as advertising, he said the Globe (which also distributed the insert, putting its name on every page) helped "with layout and the whole bit. I’m no expert on placing supplements in newspapers. We relied on the Globe and Mail to advise and guide us. I think they recognize there are some political sensitivities . . ."

Pospisil said the government is "very satisfied" it helped inform consumers on hydro choices. He denied the ad agency misled the Star, insisting the paper had time to vet it.

He insisted the Star was told well in advance that it would be "an electricity restructuring supplement. So we weren’t trying to mislead you."

Pospisil said the government spent $22,000 on the $250,000 project, with the insert advertisers and "electricity stakeholders" — from the power workers’ union to Ontario Power Generation — providing the rest.

He suggested the Star bid on another lucrative insert for a biotech trade show, Bio 2002, the government is staging later this year.

Another show, another opening. Ad department, beware.

The insert was also published in the Globe and Mail on March 11. Energy Probe’s Tom Adams wrote a letter of complaint to the editor about its publication, "Shame on the Globe and Mail, click here to read it.

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.

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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.

Stephen Salaff
Electricity Daily
April 11, 2002

An advertorial published in Canadian newspapers last month has set off a major controversy. The issue is whether the six-page advertising supplement, paid for by the Ontario government, represents propaganda on behalf of the impending opening of the province’s market to competition.

Toronto-based gadfly Energy Probe recently complained to the Globe and Mail newspaper, and Advertising Standards Canada, that the daily had published "disguised advocacy advertising" in its "Special Supplement on Ontario’s New Electricity Market," inserted by the government in the March 11 issue.

Probe’s complaint to Advertising Standards Canada was followed by a like complaint to that body from Michael Prue, a Toronto member of the Ontario parliament for the opposition New Democratic Party. The NDP is campaigning vigorously along with the labour-based Ontario Electricity Coalition to prevent the May 1 start of the competitive Ontario electricity market.

Probe executive director Tom Adams wrote the Globe, "Nowhere is there an indication in the supplement that the material mimicking journalistic content outside the ads was paid for and controlled by the advertisers. The authorship of the ads in the piece is clear but the authorship of the text is not disclosed." Energy Probe has advocated competition in Ontario for nearly two decades.

But Probe has become increasingly disillusioned with the prospects for the new market under the Progressive Conservative government of Ontario Premier Mike Harris, issuing a demand for the replacement of Harris’s minister of energy.

The Toronto Star, the Globe and Mail’s main competitor in the greater Toronto area, carried a similar six-page special electricity supplement on March 21. In a regular editorial comment on March 30, headlined "Power ad insert paraded as news," Star ombudsman, Don Sellar, called the supplement "slick and cheery feel-good stuff that government publicity factories dream up as vehicles for one-sided messages." Sellar revealed that bundles of the supplement were surreptitiously delivered from the printer to the Star’s newspaper production plant in the Toronto suburb of Vaughan less than 24 hours before the supplement was pre-inserted into the daily with other ad inserts. The Star’s vice-president of advertising, Sellar said, acknowledged, "They slipped one past us, no question. We would not have accepted this insert in its present form."

Adams rapidly leapt into the breach. "Some readers were clearly confused about the authorship of the infomercial material," he said. "The Toronto Star, by admitting that it made a mistake running the stealth advertising has shown itself more committed to ethical journalistic standards than the Globe and Mail."

Globe and Mail CEO, Philip Crawley, told Electricity Daily, "We publish special supplements which serve the needs of advertisers seeking to reach our high-end readership. This is in line with the practice of other leading newspapers around the world, such as the Financial Times."

Stephen Salaff is a freelance energy and environment writer.

Tom Adams and Allen Stanbury

April 12, 2002

Electricity Metering Options for
Ordinary Consumers in Competitive
Electricity Markets

Prepared with the financial assistance of Industry Canada

Executive Summary

In Canada, the United States and many other jurisdictions around the world electricity markets are changing. Liberalization, including commodity price deregulation and customer choice, already exists in one Canadian jurisdiction, is imminent in another and under active consideration in several more.

As Canadian jurisdictions move toward customer choice, de-regulating the price of commodity electricity, and unbundling of their electricity supply, ordinary consumers must chose between being billed on new electronic interval meters or their existing electromechanical meters.

The meter is the cash register of the power system. The type of meter chosen will affect the electricity bill paid by the consumer. Using older electromechanical meters means the actual consumption in each hour must be inferred from an reference profile assumed to be correct for all customers without interval meters. In Ontario, the reference profile is called the net system load shape (NSLS).

With interval metering, the customer is billed on actual consumption in each hour. The consumer’s bill will accurately reflect the actual consumption pattern even if consumption varies from the NSLS, perhaps because the consumer works a night shift that results in unusual usage patterns, takes a vacation that happens to coincide with an electricity price spike, or has installed special load control equipment.

This paper reviews the potential benefits of interval meters as they might be used by ordinary consumers in the future. This report identifies qualitatively the benefits and costs of interval metering.

The natural market for interval meters appears to be larger customers, customers with a naturally favourable load shapes, and customers with manageable loads. As customers who can benefit from interval meters leave the pool that forms the NSLS, the pool will become more unfavourable over time, driving the exit of more customers.

Federal and provincial regulatory rules will have a significant influence over the rate of introduction of interval meters.

Interval meters will not be cost-effective for all customers. For example, a small customer with a standard contract with an energy retailer would get no value from metering improvements.

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Introduction

This qualitative discussion of metering issues focuses on the changes underway in Ontario’s electricity market. This study does not deal with sub-metering of bulk metered, multi-occupant buildings.

Electricity cannot be stored efficiently or economically. To maintain reliable service, power production must be continuously adjusted to exactly match consumption. Historically, most modern electricity systems imposed few administrative controls on consumption. The common exception was that in many utility jurisdictions a few large industrial customers, willing and able to reduce and/or eliminate their consumption when required by the system dispatcher, were induced to make this flexibility available to the system through offers of price discounts. Reliability of service was maintained predominantly by actions on the supply side of the equation. Centralized planning aimed to construct and operate facilities sufficient to meet peak demand. These measures were generally undertaken by vertically integrated monopolies encompassing generation, transmission and distribution functions. North America’s experience has been that this system provided reasonably reliable service. By relying primarily on the supply side of the equation, the cost to society for reliability was higher than it might have been with a more balanced reliance on greater demand-side flexibility. Building sufficient generation capacity to meet seasonal peak electricity demands has meant that much of the available generating capacity sits idle during off-peak times.

More and more jurisdictions are moving to liberalized markets for commodity electricity, where efficient prices reflecting the degree of scarcity of electricity provides signals for more rational demand responses, power system operation decisions, and, hopefully, more rational investments in generation and transmission capacity. These jurisdictions should eventually have the lowest societal costs for electricity. Two of the many challenges facing those seeking to liberalizing once monopolized electricity markets are price volatility and the tendency for small customers to see higher commodity prices even if aggregate prices are not changed or decline as a result of competition. Monopolized electricity markets can conceal great changes in the fundamental scarcity of electricity, with the impacts of changes in scarcity being apparent to the consumer only in exceptional cases. The proper functioning of liberalized markets requires accurate, scarcity-reflective prices. While the tendency of market forces is to level out volatility over time, at the outset competitive electricity markets are prone to "ill-behaved" volatile prices. California and Alberta in the winter of 2000/2001 were both examples. A fundamental cause of the price volatility in both instances was the lack of demand elasticity. Customers with more accurate price signals in both markets demonstrated significant price elasticity, a factor that mitigated the scarcity.

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In Ontario, the evidence suggests that the benefits of competition, relative to energy costs in a non-competitive environment, may not be distributed evenly. Load data from the local electricity distribution utility in Milton, Ontario shows customers using over 100 KW of demand, as a group demonstrate an electricity usage pattern, prior to the introduction of market pricing, that is much less weather sensitive than customers under 100 KW. If we assume that future market price changes are correlated positively with demand and that the total societal cost of commodity electricity remains unchanged at the beginning of market pricing, it is likely that residential and smaller commercial/industrial customers will pay more for electricity after the introduction of competition unless the usage pattern for small customers improves.

Market Power Mitigation Agreement (MPMA) rebates will be allocated to customers on the basis of their volume of consumption, not their exposure to peak prices.¹ In the event of significant and sustained price volatility where the average annual price is high, some extraordinarily flexible customers are likely to receive significant rebate amounts although their average cost of power may be low.

Incremental power consumed during periods of peak demand is likely to come from fossil units with poorer fuel efficiencies and worse emissions profile than plants used for intermediate and baseload operations. In Ontario, the coal-fired Lakeview station is one of the commonly used peaking stations but it has one of the worst emission profiles and local air impingements of any fossil-fired station in Ontario.

What is an Interval Meter?

An interval meter is an electronic device that records electricity consumption in each hour, or more frequently, such as in 5 or 15 minute intervals. Each reading is date and time stamped and can be collected through a variety of technologies. Itron’s MV 90 software suite is the leader in providing dial-up access to interval meters and is used in almost all wholesale electricity markets.

Other technologies such as power line carrier, wireless and satellite data collection are usually grouped together under the term automated meter reading (AMR). Many AMR technologies exist and their deployment in the industry is growing, but to date no single AMR technology that will address all of the data collection needs of distributors has become standard. Most distributors using AMR rely on a more than one AMR technology for data collection.

Interval meters are always electronic. In addition to facilitating daily and monthly data

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¹ The rules surrounding the Ontario electricity market require that Ontario Power Generation refund to consumers a portion of its revenues in the event that the weighted average spot market price exceeds 3.8 cents/kWh.

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collection, they offer important features for consumers. In Italy, where demand per household is capped, electronic interval meters are used to manage the demand in a residence within the cap by load shifting from one appliance to another. The clothes drier may by held back while the refrigerator is allowed to run. This is accomplished by a self forming local area network. Each appliance is retrofitted with a device that communicates over the 240V mains to the meter. The meter knows the capped maximum demand and is programmed to shift load from one appliance to the other so that inconvenience is minimized.

Electronic meters capable of 2-way communications may eventually also supply market price information to the consumer. In the future, either the meter or other energy management technology might be able to read the spot price over an Internet connection and might be able to manage residential usage during high price periods, giving the market enhanced elasticity to help stabilize energy prices.

Some high-end meters already have Internet protocol addresses and can be read with a browser. Many electronic meters provide additional information of value to the customer such as the frequency and duration of interruptions and voltage surges/sags/swells.

What is an Electromechanical Meter?

Most residences in Ontario are metered with an electromechanical meter. The Ferraris disk meter was invented in 1890 and is both stable and reliable but it must be read manually and provides no information other than the total energy consumed between readings, typically at approximately 30-60 day intervals. This is adequate in a market where prices changes only once a year but in most de-regulated jurisdictions, Ontario in particular, the price at the delivery level will change hourly depending only on supply and demand in that hour.²

How then would a customer with an electromechanical meter be billed in such a market? The energy distributor reads the meter and allocates the total energy consumed to each hour based on an arbitrary consumption pattern. In Ontario, the NSLS is calculated each day by the distribution company and applied by the distributor for billing purposes at the end of the month.

The NSLS is computed in each hour based on the difference between the sum of the wholesale meters (which are interval meters) on the distribution company boundary and the sum of all interval meters installed within the distribution company. This includes a mix of industrial, commercial and residential customers so the NSLS may not match the actual consumption profile of any single consumer it purports to describe.

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² Prices in the IMO market can change every 5 minutes but are aggregated into hourly prices in bills to consumers issued by distribution utilities.

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Some consumers will have valid concerns about the accuracy of their bills under the NSLS approach. Some consumers may have actually purchased most of their power in low price hours but may be required to pay for some of this usage as if it was purchased in high priced hours.

Electricity Pricing in Ontario’s Future Electricity Market

Once the new electricity market is operating in Ontario, customers without a contract with an electricity retailer and without an interval meter will buy commodity electricity from their local distribution utilities under Standard Supply Service (SSS).

Distribution companies have three options for offering customers SSS. They can use a reference price set by the Ontario Energy Board, arrange for a third party to supply SSS, or seek Ontario Energy Board approval to pass through the spot market price. It appears likely that few if any utilities will adopt third party SSS. From the customer’s perspective, there is little difference between the reference price SSS and the spot pass-through SSS.

With the reference price, bills for consumers will be calculated on the basis of a forecast price with regular true-ups to invoice or credit the customer with accumulated differences between the forecasted price and the market price. With the spot pass-through, the utility knows the market price for the arrears periods covered by each customer’s bill and charges you that amount. In either case, the mapping of market prices onto customer bills is done using the concept of a NSLS.

One implication of the net system load shape approach is that consumers who tend to use power in low price periods will cross-subsidize customers who tend to use power in high price periods. Consumer benefits of interval metering have been demonstrated on a site-specific basis in the UK for small industrial and institutional customers.³

The movement of customers toward interval meters is likely to develop a momentum of its own over time. Non-interval metered customers who are cross-subsidizing other consumers have an incentive to improve their meters. As customers with naturally favourable load profiles leave the pool of non-interval metered customers, the remaining customers collectively face higher exposure to peak electricity prices.

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³ Consumer Advantages from Half-Hourly Metering and Load Profiles in the UK Competitive Electricity Market, P. Stephenson and M. Paun, Kingston University, Faculty of Technology, London SW15 3DW UK, Stephenson P & Paun M, DRPT2000 Int. Conf. on Elc. Utility Deregulation and Restructuringand Power Technologies, Proc., London, UK, 4-7 April, 2000; 35-40.

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Categories of Benefits

The benefits of interval metering are a function of price volatility. If the price for electricity was always the same, there would be no need for interval meters because the incentive to consume or conserve would not be related to timing. While some insight can be gained into expected price behaviour by studying data from various competitive jurisdictions, actual behaviour is unpredictable and fluid.

Increasing the penetration of interval metering will provide customers more direct means to manage their electricity costs, however, the benefits of switching to interval meters will not be evenly spread. Small business consumers, due to higher volumes of usage, are more likely to benefit from advanced meters than households. Customers with a naturally favourable load shapes, that is customers tending to use power at times when it is cheapest, and customers with manageable loads are also more likely to benefit from interval meters.

Customers with interval meters and sufficient communication to have reasonably accurate knowledge of the market price will have a greater incentive to align their consumption behaviour with the level of scarcity that exists in the market. Cost-effective implementation of interval metering on a widespread basis can be expected to help reduce the amplitude of price spikes relative to the amplitude we would anticipate with existing crude metering. Enhancing demand elasticity is recognized as a mean of mitigating market power. "Increases in the price elasticity of demand at peak times have a profound impact on the ability of generator to abuse market power. If demand is more elastic, then generators will lose a larger proportion of their output for a given change in price because total demand will fall."⁴

The benefits are not limited to participating (those installing interval meters ) customers. Non-participating customers could also be expected to benefit from the peak demand reductions resulting from real-time price signals on customers with new interval meters. Customers in commercially connected utility regions may also benefit from the impact of these strategic demand reductions.

In addition, as more interval meters are deployed, distribution utilities will have much better data than they have today to assess power quality, manage distribution assets, and make better use of the transformer capacity. Rather than specifying equipment on the basis or assumptions about coincident peak demands of consumers, actual load data can be used to reduce costs. Knowing the duration and magnitude of excess loads can allow loading above name plate rating without loss of life making even more capacity available from existing transformers.

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⁴ Options for Market Power Mitigation in the Alberta Power Pool, Final Report, Prepared for the Alberta Department of Energy by London Economics, Inc. Cambridge, Massachusetts, January, 1998 www.energy.gov.ab.ca/index.asp.

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The introduction of interval meters to small customers will impact consumption behaviour and therefore price. Since the price outlook is one of the inputs in determining the benefits from interval meters, prospective assessment of the benefits of metering improvements is necessarily uncertain.

Categories of Costs

Purchasing, installing, monitoring and verifying an interval meter is inherently more costly than it is for the common analogue meter now in use. Cost per unit tends to decrease as the number put in use increases. Functional replacements for electromechanical meters are presently in the range $70 to $150 per meter and will fall with increased sales volume.

Meters capable of interval data and automated data collection range from $250 to $800 per meter. Again this price will fall dramatically with increased sales volume, as it did in the U.K. where the introduction of the electricity market created long production runs with the result that meter prices for equivalent capability are often 20% of the functional equivalent in Canada.

Communication costs for electronic data collection can be significant. For residential meters the cost depends on the data collection technology and the ownership of the communications medium. Two types of technology are used in Canada dial up and automated data collection (AMR).

If the telephone line used for dial up is used exclusively, the meter data collection costs can be $125 to $400 per meter per year. On the other hand, many municipal utilities are able gain access to an existing customer telephone line at no cost since the meter is called once per day for about one minute between midnight and 3:00 am. Since there is no long distance charge, the cost of dial-up can be as low as $25 to $50 per year.

Dial-up is not suited to collect data for more than about 5000 thousand meters per day. On the other hand AMR systems are designed to collect data in volume. Many AMR technologies exist. Each uses a mixture of wireless, satellite, power line carrier and wide area network technologies. The cost per meter reading has been declining for over a decade but still remains higher than manual meter reading.

Technological uncertainties exist with changing meters. Some of these uncertainties include the choice of one-way vs. two-way communication, the future role of the Internet, and how meters might in future integrate with energy management technologies. Experience with time-or-use meters, which several Ontario distribution utilities invested in during the 1990s, but which became obsolete because of the recent market reforms, provides a cautionary lesson.

Cost issues for meter verification are discussed in the next section.

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Some consumers, particularly those using a small amount of electricity, may not see sufficient payback to justify acquiring an interval meter. As meter and communication costs decline, the market for meters will expand.

Regulatory Issues

Two regulatory agencies currently control the metering options available to Canadian electricity customers: Measurement Canada, the federal agencies that administers weights and measures, and the Ontario Energy Board, the provincial agency that regulates electricity distributors.

Federal Regulations

Electricity meters in Canada are regulated under the national Electricity & Gas Inspection Act. National regulations are a significant factor in the lifecycle cost of an electricity meter since Measurement Canada requires that the meter population be sampled periodically to ensure that each group of meters in the population is accurate.

Measurement Canada is currently in the process of modernizing its practices with regard to electronic metering. Under the existing Measurement Canada policy, electronic meters are subject to much more stringent and costly meter verification than analogue meters and the approval of new metering technology is a slow process. Under the auspicious of the Canadian Electrical Association, the metering industry is pushing for new rules that will permit the metering industry to modernize.

The glass enclosed Ferraris disk meter with the rotating disk seen is seen on nearly every household today. These meters are inexpensive, reasonably accurate, rarely influenced by voltage surges and have service lives exceeding 40 years. The purchase price is low – about $35 each. The cost of meter reading in urban utilities where meters are located outside is often in the range of 25-40 cents/reading.⁵

Each electromechanical meter group must be sampled every 12 years. Depending on the size of the group, 1.5 to 3% of the meters in the group are replaced and taken back to the meter shop to be reverified. The cost of shop testing, the labour to install replacement and collect the meter ranges from $100 to $250 per meter, depending on the location in Canada. Added to this is the cost of maintaining a pool of replacement meters.

The volume of electronic meters in Canada has been low, due in some measure to

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⁵ "Comparative Review of Meter Reading Costs:" by Thomas Adams, 1996 April 1, Pre-filed Testimony on Behalf of Energy Probe, Presented to the Ontario Energy Board Regarding E.B.R.O. 492.

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regulatory policy. Current Measurement Canada policy requires that 100% all electronic meter be reverified every six years. Replacement and testing costs are the same as for electromechanical meters but the increase in sample size and recall frequency, means that the cost of reverification is up to 128 times that of electromechanical meters.⁶ With the life cycle cost so much higher in comparison to electromechanical meters, few Canadian utilities have adopted electronic meters in significant numbers.

Measurement Canada has recognized the need for change in policy and is actively considering the needs of consumers and industry in mapping out a strategy for change in regulatory policy. Results however may be some years off.

In the meantime, distributors that have deployed electronic meters have done so because they want to offer new rates, better information, or load control options to customers. This imperative will escalate with de-regulation.

Provincial Regulations

Retail metering rules in Ontario are established under the OEB’s Distribution System Code. Under those rules existing customers over 1 MW must have interval meters and new customers over 500 KW must have interval meters (Section 5.1.3 of the Code). Some Distribution companies have taken the initiative to bring Interval meters to a wider group of customers. Milton Hydro has fitted all customers over 100 KW with interval meters.

Experience in other jurisdictions suggests that a portion of the non-customer specific costs to utilities of interval metering should be shared with customers who do not themselves have interval meters. As discussed below, Florida Power & Light has demonstrated the use of interval metering to enhance reliability, monitor power quality, and improve the management of distribution systems for the benefit of all customers.

The wider benefits of interval metering are not recognized in the Distribution System Code. A customer that requests interval metering shall compensate a distributor for all sunk and incremental costs associated with that meter and the meter it replaces (section 5.1.5 of the Code). Under the Distribution System Code, the LDC determines the metering options customers have and the communication options that the meters must use.

Under Section 5.1.6 of the Code, a distributor is required to identify in its Conditions of Service the type of meters that are available to a customer, the process by which a customer may obtain such meters, and the types of charges that would be levied on a customer for each meter type.

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⁶ Industry Initiative: Electricity Measurement Accuracy Program (E-MAP) Proposal, prepared by the CEA Task Group on Metering & Regulations, Canadian Electricity Association (CEA), July 2001, www.canelect.ca.

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Ontario’s current Performance Based Rate-making (PBR) formula creates a disincentive for distribution companies to expand the range and quality of services offered to consumers. Under PBR, the rates distributors can charged are capped, creating an incentive to distributors to cut costs within the scope of existing service offerings. If interval metering is to develop in Ontario, the Ontario Energy Board will have to declare clear rules that give distributors assurances that their reasonable costs can be recovered.

Considerations for Introducing Interval Meters for Small Consumers

There are several arguments favouring a regulatory system designed so that customers voluntarily identify themselves for upgrading to interval meters, and bearing a portion of the incremental cost. Interval meters will not provide any benefits for small customers who have already signed contracts with marketers. Customers with naturally favourable seasonal loads will receive fewer benefits. For example, some retired residential customers spend some portion of the summer months at cottages and the winter months in warm climate regions, resulting in their local electricity usage being concentrated in periods of low seasonal electricity demand with a higher probability of relatively low prices and relatively low price volatility. For customers using very small amounts of electricity, the increase in fixed costs associated with interval meters is more difficult to recover from savings on the commodity cost of power.

On the other hand, if meter replacement is handled centrally, economies of scale might be achieved. A strategy combining voluntary upgrading for small customers hoping to benefit with utility-managed upgrading of metering for customer classes where benefits across the class can be demonstrated, might prove beneficial.

Customer choice in meters was recommended by the Ontario Market Design Committee. Under the existing Distribution System Code customers can only install meters approved and supplied by their local utility. Meters of the future may have energy management features built in.

Energy retailers might want to play a role in metering. Energy retailers might be interested in promoting meters that are suited for or compatible with controlling electricity usage for particular appliances.

Government and regulatory leadership on metering improvements is necessary. With very few customers currently metered with equipment fully able to accommodate the new electricity market, metering improvements are necessary for the full realization of the benefits of Ontario’s electricity restructuring. The net benefits of metering improvement may be modest on an individual household level but may be significant on a province-wide basis.

Click here to continue reading.

media release
June 28, 2002

Rates for Toronto Hydro’s low-volume residential customers have increased 14.5 per cent since Ontario‘s restructured electricity market began in 1999. Energy Probe, a national environmental and consumer think-tank, compared rates paid prior to the legal commencement of Ontario’s restructured electricity market in April 1999 to rates paid immediately prior to May 1, 2002, when the commodity portion of electricity bills – the amount of electricity consumed, exclusive of costs for regulated services like transmission and distribution – became subject to market forces.

The impact of Ontario‘s electricity restructuring on consumer prices has been the subject of much speculation. In February 2002, the Ontario Ministry of Energy, Science and Technology in cooperation with Fred Lazar, a professor of economics at York University, issued a public statement claiming "average electricity prices in Ontario‘s new competitive market will, over time, be considerably lower than what they should have been under the old monopoly-based system." Representatives of the Ontario Electricity Coalition, Myron Gordon and John Wilson and advisors to NDP leader Howard Hampton, claimed in the Toronto Star (April 30, 2001) that "electricity deregulation in Ontario will double our bills." In October 2000, Energy Probe published its own forecast, estimating that rates would increase 20 per cent for ordinary consumers after reforms had been implemented, compared to rates paid prior to market restructuring.

Energy Probe’s rate calculations By comparison to a Toronto Hydro electricity bill valued at $56.40/590 kWh for the period November 1998 to February 1999, rates for the period March 1, 2002, to May 1, 2002: Customer Charge: $14.22/month Distribution Charge: 0.0134 c/kWh Energy Charge: 0.0646 c/kWh Wholesale Energy Surcharge: 0.00735 c/kWh Total (Assuming 590 kWh): $64.57 The overall increase for the period is: 14.5 %

FOR MORE INFORMATION, CONTACT:

Tom Adams
Executive Director, Energy Probe
Tel. (416) 964-9223, ext. 239

 

Toronto Star/Editorial
July 4, 2002

There is a major flaw in Ontario’s new competitive electricity system.

The market offers consumers almost no incentive to heed the price signals it sends out when supply has trouble keeping up with demand.

With electricity use at record levels amidst this week’s blazing heat, soaring prices should convince consumers to cut back.

But without state-of-the-art electricity meters, they won’t save a cent by conserving energy.

The agency that runs the system, the Independent Electricity Market Operator (IMO), issued a "Power Warning" this week, asking people across the province to cut down on their consumption in a bid to ease the strain on power supplies.

Energy Minister Chris Stockwell joined the IMO in pleading for people to conserve on electricity as overloaded transformers caused power outages across the city.

But the most powerful inducement to conserve ought to be skyrocketing electricity prices. On Tuesday, the cost of electricity shot up from about 4 cents per kilowatt-hour to more than 47 cents. That massive increase was followed by multiple price spikes yesterday.

Unfortunately, even those who cut back on their electricity usage will pay dearly for those who did not.

That’s because consumers have been effectively shut out of the instantaneous electricity market.

Most don’t have meters capable of measuring electricity usage when it actually occurs. That means consumers – except the minority that signed fixed-price contracts – end up paying the average price of electricity over a two-month period. Thus, they pay for spikes like yesterday’s whether they overused the system or not.

From the consumer point of view, the whole point of having a fluctuating price is to give buyers an incentive to conserve electricity at peak times, and take advantage of low prices at non-peak hours.

If they could have avoided the sky-high prices, many consumers would have chosen to live with the heat during the day, and only turned on their air conditioners at night.

Or they would have waited until 11 p.m. to turn on their dishwashers if they could have saved money by doing so.

But there is no point in sweltering if you have to pay the same price as others who are running their air conditioners full blast.

The system is even more unfair to those who don’t have air conditioning because they have to pay the same electricity prices as those who drive the prices up.

In its attempt to sell competition in electricity to the public, the Ontario government kept emphasizing that competition would give consumers choice.

But without sophisticated meters, the only choice open to consumers is to pay for every price spike caused by others, or to pay a hefty premium for stable rates.

That choice is tantamount to heads, electricity sellers win; tails, consumers lose.

If Queen’s Park really wanted consumers to have meaningful choices – and to conserve on electricity – it would order local utilities to provide their customers with meters that measure and price electricity usage when it actually occurs.

Canadian Press
Toronto Star
July 25, 2005

More than a million people who have signed contracts to buy electricity at a fixed price may actually have to pay more than they bargained for due to a quirk of Ontario’s deregulated power market.

That’s because the cost for often exorbitantly priced imported power the province needs in times of high demand is a floating rate charged separately from domestically produced power.

"You can get a very mistaken impression of what you’re paying for power during those periods when we are importing," said Tom Adams of Energy Probe.

"It is right now impossible for consumers to see what price they’re actually paying for the juice."

Ontario is highly dependent on its neighbours during peak periods – such as occurred during recent heat waves.

At those times, the province routinely went outside its borders for about 10 per cent of its daily power, a substantial amount.

That power routinely ranges between $1 and $2 a kilowatt-hour, 25 to 50 times the usual going price.

On a customer’s bill, the extra cost for imported power is rolled into a range of charges known as "uplift" charges.

Consumers now pay a fixed 0.62 cents a kilowatt-hour for those charges based on a projected estimate of what the various costs will be over a year.

However, that price was set before the decision was made to separate the costs of imported and domestic power and the actual uplift will only be known at the end of the year.

Although, theoretically, the uplift cost might end up being lower than expected, Charlie Macaluso of the Electricity Distributors Association said people on fixed-price contracts could well be in for shock.

"There are significantly high uplift charges that are accumulating that are probably beyond what many may have expected," said Macaluso.

"Those people who are on a fixed-rate contract will potentially see a significant increase in their bill . . . because the import charges were not protected with that fixed rate."

The Independent Electricity Marketing Operator – or IMO – the provincial agency that manages the amount of power flowing through the province, said it’s monitoring the uplift costs.

"So far, they’re tracking to be within that 0.62," said spokesman Ted Gruetzner.

"But it was always understood that it was a flexible cost."

It’s impossible to know what the imported power component of the uplift charge is at any given moment because of the time lag in calculating the final price.

However, to address criticism about a lack of transparency, the IMO on Thursday began listing an estimate on its Web site.

Bob Hunt of the Ontario Energy Marketers Association said marketing companies are concerned about a potential customer backlash.

"They recognize that they will be asked about additional charges and unfortunately it’s not something that’s within (their) control," said Hunt, adding that many large industrial users are also unhappy with the pricing system.

"There is an IMO communications session in August and I’m sure that this will be one of the hot topics."