Deregulation will lead to savings, says official

ORILLIA, ONTARIO - Concerned that deregulation will lead to higher municipal electricity costs, Orillia council recently passed a motion asking the province to extend the fixed-price system, scheduled to end April 1.

But the province's Independent Electricity System Operator (IESO) has calculated that cities can cut their electricity bills by almost one-fifth by shifting consumption to night time, when power on the market is cheaper.

"The hourly price is uniquely suited to municipal usage," said IESO spokesperson Lisa Pearson.

Electricity rates were regulated for the MUSH sector (municipalities, universities, schools and hospitals) after the market opened five years ago. Prices shot up and down with extreme volatility.

"The intent was to provide some stability to the public sector," said Pearson. "It gave them time to get used to the hourly pricing model."

Many cities have already partially opted out of the fixed-price program to take advantage of cheaper night-time power on the market. By shopping around for electricity, the City of Hamilton saved $1 million in less than a year.

Many municipalities, including Orillia, have already opted to power streetlights with power purchased at night on the spot market.

Since streetlights account for 14 per cent, on average, of a city's electricity consumption, the savings are significant.

The fixed price for electricity is 5.9 cents per kilowatt hour.

The market price, though potentially twice that level during daytime peak periods, falls to 3.8 cents per kilowatt hour at night.

Another way to cut costs is to operate sewage and water treatment plants at night, said Pearson.

These operations account for 30 per cent of a city's electric bill, so, again, the potential to cut costs is significant, she noted.

Energy specialists with the IESO have been meeting with municipalities to get a sense of their typical power use.

They were surprised to find almost half the municipalities have already started buying some power directly off the spot market, recognizing the financial advantages.

By reducing consumption during peak hours and encouraging energy efficiency and conservation, the need to build costly new generating facilities is reduced, said Pearson.

"We're an advocate of anything we can do to smooth out peaks."

Power consumption in the prov- ince peaked at 27,000 megawatts in the summer of 2006. Since then, the peak has been below 25,000 for all but 52 hours.

Shaving the peak further will allow existing generating capacity to do the job that much longer.

Pearson said the Orillia resolution, introduced by Coun. Maurice McMillan, an advocate of public power, overlooks the advantages of the spot market to cities that can be flexible.

IESO representatives would be happy to make a deputation to Orillia council explaining how municipalities can take advantage of deregulation, said Pearson.

"It's new. It's something they have to wrap their brains around."

McMillan, however, continues to be wary of deregulation, warning prices may begin climbing as generation shortages occur because of shutdowns.

With private companies and former public utilities now producing and selling power for profit, the price will be higher than in a system producing power at cost, McMillan said.

But Pearson said the open market is more stable than when it opened, setting the table for better energy management.

"We continue to believe in competition in the market," she said.