ELECTRICITY DEREGULATION IN ONTARIO

Electricity Buying Strategies

• whether or not you have an interval meter
• your facility's consumption curve (load shape)
• monthly variation in consumption
• your total electricity consumption
• the degree of price security desired

Customers without interval meters will have their prices set based on the aggregate usage profile of every facility in their utility without an interval meter. This is called the Net System Load Shape, or NSLS.

Your Consumption Curve (Load Shape)
This assumes that you have an interval meter. If your load shape resembles a mountain with a sharp peak, then you will pay a premium for your electricity because your use is predominantly at peak use time. This would describe a building that is used 8-10 daytime hours weekdays, with an air conditioning peak in the summer.

If, however, you happen to have a manufacturing plant with a 3-shift, 7-day operation and use electricity for the manufacturing process, you will be able to buy at a cheaper price. Your curve will look more like a plateau, or even a straight line.

Monthly Variation
Electricity use peaks in the summer and as a result is more expensive in the summer. If you use electricity for lighting and air conditioning, your consumption will peak in the summer months, and your price will be higher. If you use electricity for space heating, or don't operate in the summer (ie, a school) you will pay less for electricity.

Total Electricity Usage
Total electricity use is also an important factor in the decision. If you use more than 1 million kWh per year, you will get a better price, and the contract will likely allow you to keep the OPG rebate. You can also seek out a buying group for more buying power. If you use less than 1 million kWh per year, the cost of an interval meter will mean a long payback.

Price Security Desired
Assuming that your consumption is over 10 million kWh per year (smaller loads have less flexibility), you can lock in a price for anywhere between 50 and 100 per cent of your electricity needs. The remainder of your electricity would be bought or sold on the spot market. The spot market is an hourly price based on hourly supply and demand. This decision depends on your desire for price security.

The analysis is how to fill the space under the curve of your load shape. Buying on the spot market at peak times, eg. mid-day, will be expensive. Buying at off-peak times such as the middle of the night or on weekends will be less expensive. But if you have to sell at off-peak times, you won't get much for the electricity that you bought at a fixed rate.

Risk Management: What Electricity Blocks to Buy ?
This decision is one of risk management. Locking in too much at a fixed rate could protect your company from ruinous price spikes such as those in Alberta in 2000-2001. These are not considered likely in Ontario. Analysts do however expect prices to be high for the first few years of deregulation, until the market (suppliers and customers) get used to open market buying, and until new generation is started by independent companies.

However, locking in the majority of consumption at a fixed rate could sentence your company to paying a premium each and every month, compared to the spot market rate. A balance is required.

You can lock in 100 per cent of your use at a price that is somewhat of a premium, but gives you 100 per cent price security. (Not available if you have an interval meter). Or you can buy blocks of electricity for between 50 and 93 per cent of your use.

Electricity is sold as a certain number of kilowatts for a block of hours:

• 7 (days) x 24 (hours) blocks,
• 5 x 16 (weekday, on-peak blocks),
• 5 x 8 (weekday, off-peak blocks),
• 2 x 24 (weekend, off-peak blocks).

However, you can adopt a different strategy and cover only 50 -70 per cent of your consumption. You can choose to buy a fixed price block only for weekdays between 7 am and 11 pm, a 5 by 16 block. This provides you with a fixed price for all of the periods of high electricity prices. Although it exposes you to the variability of the spot market for extensive periods, these periods are those in which electricity has historically been, and is expected to be, inexpensive. Appendix 1 shows a sample of historical pricing. A 5 x 16 block is the most expensive fixed price, about 6 cents/kWh, but spot market purchases in off peak periods might be made at about 3.5 cents/kWh, bringing your average price down.

So, Your Options for Buying Electricity

1. Do nothing, and continue to be supplied by your LDC under default supply. This is a straight pass through of the monthly average spot market price. It's an option to everyone in Ontario, but Alberta only provides this option for customers who use less than 250,000 kWh/yr.
2. Purchase electricity from a retailer/wholesaler/supplier. Balance your risk by choosing between many different prices, contract types, contract lengths and financial instruments.
3. Purchase directly from the wholesale market. Any customer with a demand of over 50 kilowatts and who is equipped with an interval meter can theoretically register to become a wholesale market participant. However, in our experience it only really makes sense for users with a demand of at least 50 megawatts.