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Ontario's Energy Crunch

Gas and hydro rates set to soar

Globe and Mail - Friday, September 16, 2005
by Karen Howlett and Omar El Akkad

Consumers in Ontario should brace for a double whammy of higher electricity and natural gas bills as a hot summer combined with energy shortages begin to hit home.

Consumers are now paying artificially low prices for electricity and natural gas. But that is about to change.

Ontario's energy regulator announced yesterday that the shortfall between what the province is paying to buy electricity on the open market and what it charges consumers doubled to $228.8-million at the end of August from $113.5-million at the end of July.

This translates into an increase of between $28 and $37 a year for the average household, depending on consumption levels, said Bill Rupert, a managing director at the Ontario Energy Board.

He acknowledged that many observers are expecting higher prices when new rates come into effect next May.

"The lowest income people in Ontario are already being hit hard, and [Premier] Dalton McGuinty is going to hit them even harder," said New Democrat leader Howard Hampton.

The OEB also approved a 5-per-cent price hike this week for Union Gas, which has just over one million customers in Southwestern Ontario. Consumers are facing another 38-per-cent price hike to reflect soaring market prices for natural gas.

This week's price increase does not take into consideration the effect of hurricane Katrina, or the sharp spike in natural gas prices in August, said Gregg Scott, a partner at Energyshop.com, an energy price comparison service. The increases associated with those changes won't hit consumers until the next time natural gas providers can change their rates, Jan. 1.

"Consumers are saved for the first part of winter, but they're going to get blasted in the second part," Mr. Scott said.

Ontario Energy Minister Dwight Duncan said he is worried about the impact of rising gas prices on consumers. "I don't think Ontarians have really factored that into their winter budgeting," he told reporters.

Union Gas won OEB approval to charge customers about 30 cents a cubic metre effective Oct. 1. This amounts to a yearly increase of about $65 on an average customer's bill, said company spokeswoman Andrea Stass. Enbridge, which has 1.7 million customers in Toronto and surrounding areas, is also asking to raise rates to about 35 cents a cubic metre. Both companies pass their costs directly onto consumers.

Mr. Scott said the companies based their recent projections on gas purchased at lower prices during the summer. That supply will quickly dwindle in the winter, he said.

The current market price of natural gas is about 44 cents a cubic metre, he added.

Tom Adams, executive director of Energy Probe, an energy watchdog, criticized the regulator for underestimating electricity costs. This summer's sweltering heat has driven up consumption levels, forcing the province to import expensive power from the United States on many days to meet soaring demand. "The bottom line is that the supply outlook is terrible, the demand outlook is up, up, up and the underlying bankruptcy of the power system is more ad more evident," Mr. Adams said. "This $229-million is a warning sign of higher prices."

Howard Wetston, chairman of the OEB, said in a speech this week that the regulator assumed normal weather conditions when it forecast that electricity prices would average just over 5.3 cents a kilowatt-hour over the fiscal year beginning last April 1.

"I cannot predict what prices will be next year," Mr. Wetston said. "Much depends on supply and demand conditions for the next six to seven months.

The province has paid 9.85 cents a kilowatt-hour on average to buy electricity from generating companies so far this month, up from an average of six cents in the first half of this year.

Consumers, by comparison, are paying five cents a kilowatt for the first 750 kilowatt hours of power they use each month, and 5.8 cents for the remainder.

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