Public in dark on electricity pricing

Task force seeks greater stability
Natural gas system regarded as model

Toronto Star - June 26, 2003
by John Spears

You wouldn't buy gasoline from a pump where the price was covered up. And you shouldn't have to buy electricity that way, either, says the chairperson of an electricity task force set up by the Toronto Board of Trade.

Jan Carr told a board breakfast that the task force has proposals to make power prices more stable, visible and understandable to consumers who haven't signed fixed-price contracts with energy retailers.

Prior to the temporary price freeze slapped on electricity by the Ontario government, consumers without fixed-price contracts discovered the price of the power they used only when they got their bills, usually a couple of months after they'd actually used the electricity.

And the price varied wildly, with monthly averages ranging from less than 3 cents a kilowatt hour to more than 8 cents. Hourly prices have shot over $1 a kilowatt hour.

Carr said that when the current price freeze of 4.3 cents a kilowatt hour expires in 2006, the province needs a better way of selling power to consumers unwilling to sign long-term, fixed-price contracts.

The task force's solution: Market electricity much like natural gas.

Gas customers without fixed-price contracts buy gas from their utility, which passes through the market price of the commodity. But gas utilities don't buy all their gas on the volatile spot market.

Instead, they sign contracts of various lengths with a range of suppliers, and pass the blended price through to their customers. That allows the utility to estimate the price accurately months in advance, and inform their customers what they'll be paying.

Customers may face make-up charges, or receive credits, at the end of the year. But the amounts are generally small.

Carr's task force says electricity customers should be treated the same way.

Currently, all the electricity they buy is purchased on the volatile spot market.

Carr says Ontario customers without fixed-price contracts should be divided into perhaps five groups, based on geography.

The Ontario Energy Board or some other agency should then conduct an auction, asking generators to bid for the right to sell power to the groups of customers. Contracts might be for up to five years, and might have built-in price adjustments at regular intervals, possibly based on the consumer price index.

There might be a requirement that some of the power be from renewable sources like wind.

With most of their power supply locked up under long-term contracts, customers would have a reasonable idea for about a year in advance what they'd be paying for power. Only a small portion of what they use would be bought on the spot market.

Carr acknowledged in an interview that the task force proposal has raised the hackles of some energy retailers selling fixed-price contracts, who feel the new system might crowd their turf.

Retailers may well have to compete, Carr said, adding: "That isn't necessarily a bad thing from the consumer's point of view. Retailers will have to be innovative. That's how competitive markets deliver value."

The task force proposal also would encourage more private investment in badly needed generators, Carr predicted.

Investors have been reluctant to risk their money in Ontario partly because much of their output has to be sold on the unpredictable spot market. By opening up more long-term contracts with stable prices, investors will be more willing to risk sinking their money into expensive, long-term generation projects, Carr said.

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