Hydro prices keep rising

Rates are supposed to fall overnight but early-morning charges have more than doubled

Hamilton Spectator - Sept. 25, 2002
by Fred Vallance-Jones

Electricity in Ontario's new power market has been getting steadily more expensive, even in the middle of the night when demand is at its lowest and prices are supposed to be low too.

The pattern is revealed by a Hamilton Spectator analysis of hourly prices since the market opened on May 1.

It's just the latest piece of bad news for consumers who are already smarting over hydro bills that are up dramatically from even a year ago.

The way Ontario's market is supposed to work, prices go up when demand is higher and drop when it's lowest.

And indeed, the highest prices have been seen at the times of soaring demand.

But while attention was focused this summer on sky-high prices pushed by record use of air conditioning, what has gone relatively unnoticed by consumers is that prices have been escalating overall as well.

The same level of market demand has generated higher and higher power costs, even in the middle of the night.

Early in the morning of May 4, for example, Ontario industries, businesses and consumers were using 13,611 megawatts, near the bottom of the day's demand.

The price for that power was 1.4 cents a kilowatt hour, a bargain compared to the fixed rate of 4.3 cents that prevailed before the market opened on May 1.

But the bargain prices quickly began to disappear.

By June 14, between 6 and 7 a.m., the same demand of 13,611 megawatts resulted in a price 71 per cent higher: 2.4 cents a kilowatt hour.

Toward the end of July, the price was over three cents for demand at about the same level, and by Sept. 16, it was sometimes approaching four cents a kilowatt hour. That's more than two and a half times the prices seen in the earliest days of the market.

It's an important trend for consumers, particularly those who haven't signed fixed-price contracts with marketers and so pay whatever price the market dictates (not including rebates that may be paid next year).

The agency that runs the electricity market, the Independent Electricity Market Operator, or IMO, says there are a number of reasons why electricity is more costly than in the earliest days of the open market.

IMO spokesman Ted Gruetzner says with the hot dry summer, some of the generating units ran flat out and couldn't be taken down for routine maintenance until now. With that maintenance under way, there's less capacity available for peak periods. Less power supply can mean higher prices. Of a theoretical 27,000 megawatts of available Ontario generation capacity, only 20,000 are actually on line now.

Tom Adams, head of the lobby and watchdog group Energy Probe, argues that the system is "tired" and that once needed repairs are done and capacity is back on stream, prices should come down.

But yesterday, the IMO issued its latest 18-month market outlook, and it warned of continued tight supplies through the rest of 2002, and with them, "upward pressure on market prices." It said that just as during the summer, power may have to be imported to keep the lights on.

The IMO report adds that if laid-up nuclear units at Pickering and Bruce Power do not return to service as scheduled next year, the outlook will be gloomy then too. It noted that so far, not a single such unit has come back on line, and projected startup dates have been missed. "This history suggests a significant risk that some return to service dates will not be met," the report warned.

But tight supply at peak periods doesn't fully explain why prices continue to rise even in off-peak periods when demand is much lower and the system isn't being stressed.

Gruetzner said part of the explanation is that after the hot dry summer, water levels are down, meaning there is less cheap hydroelectric power available. That means more electricity has to be bought at the higher prices demanded by fossil fuel-fired plants.

Gruetzner also acknowledges some of the explanation lies in the sometimes secret workings of the market itself.

"Since there's never been a market before and we're only six months into it, no one knows what the price really is," Gruetzner said. "I think people are exploring how it works."

Prices in the market are set every five minutes based on prices at which generators offer to sell. The IMO accepts power from the lowest price up until it has enough to fulfil demand for that five minute period. All generators are then paid that top price.

The actual details of which generators offer how much power, at what prices and when, are shrouded in secrecy. So it is impossible to know who is driving the price, what prices specific generators are offering, and whether they've been increasing those prices.

A market surveillance panel set up as part of the new market is supposed to watch for any abuses or attempts to manipulate prices, although there has been no evidence of that so far.

Still, whatever the cause of the overall rise in prices, consumers who didn't sign fixed-price contracts can look forward to rebates if the price of power stays high.

Under a mechanism set up prior to market opening, the largest generator, Crown-owned Ontario Power Generation, will pay the rebates if the average market price in each of the first four years of the market exceeds 3.8 cents a kilowatt hour.

Most consumers who signed fixed price electricity deals agreed, as part of the contracts, to hand the rebates over to the marketers.

OPG recently applied to the Ontario Energy Board to cut the size of any rebates.

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