Price of electricity triples in Ontario’s open market

Kingston Whig-Standard - Wednesday, September 18, 2002
by Annette Phillips

Electricity prices have more than tripled since Ontario’s power market opened in May, an increase that experts are attributing to the summer’s steamy weather.

The commodity price, or the cost of electricity before transmission and distribution charges and various fees are added, has jumped from an average weekly price of 2.84 cents per kilowatt hour when the market opened in May to 10.9 cents the first week of September.

The upswing has been steady, with average weekly prices climbing to 4.06 cents by the first week in June, 5.37 cents for the same period in July and 6.96 cents in August.

"It’s no surprise prices during the summer are higher than they were in May," said Peter Dyne, chairman of the Consumers’ Association of Canada’s energy committee.

The extent to which we have had to import power from the United States may be somewhat of a surprise, but the surprise is as much the weather as anything else.

Demand for electricity during July and August went virtually off the scale as Ontarians ran to turn up their air conditioning in the midst of a prolonged heat wave.

The Independent Market Operator, managers of the province’s electricity, imported enormous amounts of power to cool down consumers, and still warned of rolling brownouts or worse, blackouts, if demand continued to rise.

Historically, electricity prices drop between September and December as air conditioners shut down and supply outpaces demand. So far, that hasn’t happened. Prices this week have been some of the highest yet.

"It is true that when the air conditioning systems turn off, the price is expected to go down, but looking at [Monday and Tuesday’s] prices, there are curious things happening that I do not understand," Dyne said.

Part of the reason prices remain high is that many of the generating stations that worked flat-out to produce power over the summer are now undergoing maintenance in readiness for winter demand, said Ted Gruetzner, a spokesman for the IMO.

"All summer the generating stations were required to work above and beyond the call of duty," Gruetzner said.

Ontario has enough generating stations to produce 27,000 megawatts of power if every station works to capacity.

Over the summer, generators were producing some 25,000 mw around the clock to keep up with air conditioning. At the same time, the IMO was importing power and issuing brownout warnings. The brownouts didn’t happen.

"We were in a situation where we only had so much generation available at a given time. If we had lost a large generating station, or lost a transmission station, you wouldn’t have had enough," Gruetzner said.

"[Air conditioning] is like adding a City of Toronto to the electricity system," Gruetzner said.

Yesterday’s demand was a more normal 20,000 Megawatts.

There’s no way to tell for sure, but the IMO believes the five brownout warnings issued over the summer caused consumers to cut back electricity consumption.

"It’s hard to quantify, but the days we did those appeals, we believe anywhere between 3,000 and 5,000 mw [of electricity] was saved by the people." "That amount of electricity is roughly equivalent to the output of the Pickering nuclear generating station," Gruetzner said.

The delayed reopening of Pickering is another reason electricity has been in short supply.

Ontario Power Generation, the generating arm of the old Ontario Hydro, had expected to have the first of four Pickering generators refurbished and back in service this year. Three other generators were supposed to come on line in intervals of six to nine months. But the project faced several delays and OPG spokesman John Earl says it will be early in 2003 before Pickering A is up and running.

"That will help the supply issue," Earl said.

With more supply, prices should fall, experts say. But until such time as Ontario’s available electricity supply outpaces demand by a wide margin, prices are expected to stay on the high side.

"That’s the commodities market," Earl said.

The market is working the way the market was designed to work.

Though other companies can, and do, make electricity in Ontario, OPG makes the bulk of the province’s power supply at nuclear, hydroelectric and fuel-fired plants across Ontario.

In opening the market to competition, the government put onerous responsibilities on OPG. While the company continues to provide the bulk of the province’s electricity, it is selling off some 70 per cent of its assets and operating under a price cap meant to offset rising electricity prices.

"You don’t usually find a company trying to shrink and be competitive at the same time," Earl said.

The experts agree that short supply, high demand and a brand new electricity market are responsible for the increase in prices. Neither OPG nor local electricity distributors like Hydro One and Utilities Kingston have increased rates since the market opened in May.

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