ELECTRICITY DEREGULATION IN ONTARIO

Frequently Asked Questions About Electricity Deregulation

What you need to understand is that The OEB (Ontario Energy Board) has set the benchmark price at 4.2-4.5 cents per kWh. Usually it's written as 4.3 cents per kWh. This is only in effect until May 1, 2002, when the market opens. After this point, the market will determine the price (think of gasoline -- it's controlled by the market -- and it goes up before long weekends because demand is high). Use 4.3 cents per kWh as a price reference when comparing prices from private regulators.

Q: Will my bill look different?
Yes, it will. Be sure to read it carefully. Get familiar with it. It's going to be "unbundled," "transparent" and "itemized."

Your old bill used to tell you what your "energy charge" was, based on kilowatt hours (kWh). The main thing to know is that in the deregulated market, the old energy cost has been split in two main parts: generation and distribution; before these charges were rolled into one.

Generation will be privatized at various stations across Ontario starting in May -- which means that the power they produce will be for sale on the open market.

The IMO will take all the bids from the different companies and fix a price for energy, based on the competitive rates offered by different companies.

Distribution will remain public for now. Hydro One owns the major transmission grid in Ontario, along with some local utilities; however, an IPO has been launched for Hydro One to privatize the public company. The province wants to raise $5 billion through Hydro One's shares, which could go towards paying down the debt left by the former Ontario Hydro.

Watch your bill for something called the DRC, the debt-retirement charge. This is the legacy of Ontario Hydro. The utility went massively into debt, mostly from nuclear plants (both building and rebuilding them).

Hydro consumers have already been paying this for years, but the cost has been hidden inside your bill. You will now see it itemized on your bill.

Q: Will it cost me more?
The answer is a qualified yes. In round figures, it will cost consumers 16 per cent more than they have been paying. Before the market opens, province-wide, customers will start to notice increases on their bills -- about an 8 per cent increase due to restructuring of hydro distribution. The next 8 per cent comes from a new debt reduction surcharge, of the old Ontario Hydro.

It also depends on what the market says, which is anybody's guess. After May 1, 2002, it will be the laws of competition that will dictate the price consumers will pay. The OEB said last August that the benchmark price of energy will be 4.3 cents per kWh, with the highest possible price at 5.1 cents per kWh. However, the OEB also says that the price could change, as the deadline approaches and then once the market opens, that price may not mean anything -- nobody knows how the market is going to react.

The rates of the private companies are all higher, hovering around 5.5 cents per kWh. The difference here is that they are offering you that rate as fixed over a period of three or five years, whereas the rate of 4.3 cents per kWh is subject to change as the market fluctuates.

Q: What is the government's role in this?
As the market opens, the government has put the Ontario Energy Board in charge of protecting consumers. The Board has set a benchmark price for energy, and is supposed to act on behalf of consumers' interests in the new competitive market. The Board will set the code for retailers, hand out licences, and will shut down retailers who act illegally.

After May 1, 2002, the OEB does not control the price of electricity and the benchmark price won't be relevant any longer. The OEB will set the price for transmission and distribution of all electricity in Ontario (the wires and the poles) and continue to regulate that.

Information is available on their web site. A toll-free number has also been created to answer your questions. However, when 45,000 members of the Ontario Public Service Employees Union went on strike, this was one of the services that was discontinued. The phone number is 1-877-632-2727, or in Toronto, at 416-314-2455. There is no indication yet on when this service will resume.

The Ontario Energy Board is responsible for licencing the new energy retailers. If unlicenced companies try to get customers to sign up, the contract is null and void.

If the company you sign with goes out of business, the OEB will automatically take over the contract. The OEB assures that service will not be lost.

Q: What if I do nothing?
You will receive your energy from wherever you get your power now, under the SSS agreement (see below).

Q: What is SSS?
It stands for Standard Supply Service (SSS); you'll hear a lot about this over the next while. It means that if you want, you can stay with your current energy supplier (likely your local electric utility) after May 1st, 2002.

The utility will be required to feed you power, like always, under the SSS.

Please note that there is no SSS rate It will be determined by the market.

If you go this route, your bill will be "smoothed over," meaning, when energy prices are highest in January and July, they will be "smoothed over" the next 12 months so you won't pay the actual price for energy during that time. This is nothing new and it's in the consumer's best interest.

You may have signed a preliminary contract in March 2000. If you signed this contract before the retailer was licensed by the OEB, it's not valid. If you like the contract, and agree with it, then contact the supplier to firm up the contract in writing. If you don't like the contract, don't worry, you're back to where you started.

Q: Who Are The Main Retailers?
Direct Energy
Direct Energy is North American-based, with a British-based multinational parent company called Centrica, a company that was created after government deregulated the gas industry in the UK. Direct Energy controls about half the retail market; they also bundle their electricity services with natural gas. Recently, they bought out Enbridge Home Services.

First Source
First Source was formed when Enersource Corporation and Veridian Corporation came together. They have been marketing their services through direct market mail campaigns, town hall meetings and advertising.

Ontario Hydro Energy Services
It goes by the name OnSource for residential and Ontario Hydro Energy Services for industrial/commercial. Sounds like the old Ontario Hydro, but it's not. Don't be fooled by their similar logo, either -- that little orange plug. It's wholly-owned by Hydro One which for now, means Ontario Government (but rumour is it's up for sale).

Toronto Hydro Energy Services
Same logo, different company. It's an affiliate of the existing Toronto Hydro that is a private company and offers fixed rates as of May 1, 2002. It has been selling plans door-to-door and over the Internet.

Q: Who Are the Main Players?
Ontario Power Generation (OPG)
The main function of OPG is to generate electricity to sell to the customers of Ontario. OPG is a private corporation where 100 per cent of its shares are held by the Government of Ontario. Leading up to May 1, 2002, OPG controls approximately 70 per cent of the power generation in Ontario (the rest is divvied up between Bruce Power, Great Lakes Power, and other non-utilities).

After May 1, 2002, OPG can enter into the market and start selling the electricity it generates to the new private companies (there are about 500 potential clients). Under new licencing rules, OPG must divest 4000 mega watts of its generation in the first 42 months of deregulation and, in 10 years, OPG can control no more than 35 per cent of the generating capacity in Ontario, slightly more than other private companies are allowed (for reference, the former Ontario Hydro controlled about 85 per cent of power in Ontario). Over the past five years, more than 70 per cent of OPG's electrical production was generated by nuclear and hydroelectric stations.

The Independent Electricity Market Operator, (the IMO)
The IMO is the nerve centre of deregulation. It directs the flow of electricity from those who make it, to those who use it, (generators to the consumers).

Pre-May 1, 2002, the IMO holds all the data on how consumers use power, and when they use it; they project patterns of use and forecast changes in those patterns.

Post-May 1, 2002, the IMO will offer that information to private retailers. Based on that information, the private retailers will make a price offering for electricity. These offers will be competitive, which will set the price for electricity. Hence, the IMO will be the central station for where the "spot market" price is determined, based on the offers it will collect from suppliers and bids from the retailing companies who will purchase the energy, who then sent it through the transmission lines of Hydro One to the houses of the consumers. The IMO will also bill and settle financial accounts with the wholesale market.

The IMO is a non-profit corporation, with no share holders, established by the Electricity Act 1998 in Ontario that will be regulated by the OEB. It's also an "arms-length" corporation from the government. It is one of the companies that came out of the break up of the former Ontario Hydro.

Hydro One
Hydro One will remain the main company that transmits and distributes electricity -- the hydro lines that are on every street and the tall metal structures that transmit high voltage energy along right-of-ways. Hydro One is currently wholly owned by the government of Ontario, however, in a fundraising effort to pay down the debt, and IPO has been launched, and plans are afoot to privatize the company. Right now there are seven other subsidiaries who also own lines that transmit electricity.

Ontario Energy Board (OEB)
The OEB came out of the Energy Act in 1998, when the former Ontario Hydro was dismantled (same as the IMO). As the market prepares for deregulation, the OEB will act on behalf of the consumers who have comments or complaints about the process, or contracts they may have signed. The OEB has also set the "benchmark" price for electricity, which is around 4.3 cents per kWh. This is a reference price only and will not mean anything after May 1, 2002. The OEB is responsible for setting a code of conduct for retailers, handing out licences to the private retailers and shutting down retailers who act illegally. It will continue to regulate Hydro One, the company that distributes power, with its subsidiaries, throughout Ontario.

Source, "Deregulation for Dummies" CBC Radio One Special Report. For full details visit http://toronto.cbc.ca/feature/dereg. ET