Ontario breaks even on power

- Ontario's new electricity pricing system for consumers and small businesses broke even, or a little better, in its first month of operation.

That's the good news. The bad news is it will cost most householders $5 to $9 a month more.

Consumers are already starting to get bills increasing the energy portion of the cost of electricity from the previously frozen price of 4.3 cents per kilowatt hour. The energy portion is about half the total bill; the remainder pays for the wires that carry the power, the cost of operating the wholesale market and other costs.

The Ontario government raised the price for householders and small businesses effective April 1 to 4.7 cents per kilowatt hour for the first 750 kilowatt hours of electricity used each month. They pay 5.5 cents per kilowatt hour for any power used beyond that.

Electricity generators still receive the prices set by the wholesale market, and the province is on the hook to make up any shortfall.

Luckily for the government, the price of power averaged slightly more than 4.7 cents per kilowatt hour in April, so consumer billings will cover the full amount, with a bit to spare.

Final figures on electricity use aren't available, but a rough calculation shows that slightly more than 3 million megawatt hours of power will be billed at the 4.7 cent rate, more or less breaking even.

Slightly less than 3 million megawatt hours will be billed at the 5.5 cent rate, yielding a gain over the wholesale cost of roughly $23 million.

The previous Conservative government experimented with market prices for electricity, then quickly retreated to a fixed price of 4.3 cents when the price jumped in the summer of 2002 and consumers revolted.

But the Tories were embarrassed when their fixed price of 4.3 cents turned out to be far below the wholesale price of power, which in some months averaged as much as 8 cents a kilowatt hour.

Subsidizing that artificially low price cost the province about $50 million a month, which was simply added to the unfunded debt left over from the breakup of Ontario Hydro. The debt, which has been growing steadily, stood at $21 billion a year ago when financial statements were last released.

Tom Adams, executive director of Energy Probe, noted that interest on the Ontario Hydro debt is probably costing about $125 million a month. The profit the province made with the new price of power in April is tiny in comparison, he said.

"We're getting approximately 20 cents on the dollar in terms of recovering the interest," he said in an interview.

"It's getting worse, not better," he said.

If prices rise above the current fixed levels, as they are likely to do during the summer, the monthly profit could disappear or turn negative, he added.

On the bright side, with luck prices this summer may not be as volatile as they were during the hot summer of 2002.

Several nuclear-generating units have returned to service in the last year, and some new natural-gas-fired units have also increased the supply of electricity in the province.

The new pricing system brought in by the government is a temporary one. It's expected to last about a year while the Ontario Energy Board devises a new pricing system that's supposed to be stable and predictable, but somehow high enough to attract new investment.

The brunt of the new pricing will be felt by small businesses.

Businesses generally use more power than householders, so a larger portion of their electricity use will be billed at the 5.5 cent rate.