Economist predicts dramatic power price hikes

Benjamin Tal, a senior economist at CIBC World Markets Inc., said in a recent report that electricity consumers should be bracing to pay about 8 cents a kilowatt hour by 2015. They have been paying an average of 4.9 cents a kilowatt hour since January 1.

For the average consumer who uses 1,000 kilowatts a month, the cost of the commodity alone would jump to $80 from $49 a month.

Premier Dalton McGuinty has pledged to close the coal plants by 2014 to help the province slash its greenhouse-gas emissions to 6 per cent below 1990 levels. The province's four remaining coal plants account for about one-fifth of its electricity generating capacity. This plan is do-able, the report said. "But electricity prices will have to rise."

Some of the new supply to replace coal will come from projects already under way, including the refurbishment of two idled nuclear reactors at the Bruce nuclear station on Lake Huron, which should return to service in 2010.

But a significant portion of the new electricity will come from natural gas, the report said. And global warming is expected to push natural gas prices higher as other jurisdictions also seek to reduce their reliance on coal, it said.

"The combination of increased reliance on natural gas as a source of new electricity and higher natural gas prices is a sure recipe for higher electricity prices in Ontario," it said.

A spokesman for Energy Minister Dwight Duncan dismissed the report as "just one forecast." Steve Erwin acknowledged that coal is a cheap source of power, so eliminating it will make electricity more expensive. But he said the CIBC report not only overstates how much the province will rely on natural gas to replace coal. The report's forecast for natural gas prices also tends to be higher than that of some other market watchers.

"Natural gas in isolation can't be used to analyze the coal-replacement strategy," Mr. Erwin said.

Mr. Tal was unavailable to comment. A spokesman for CIBC World Markets acknowledged that the firm is more bullish than many others on oil and gas prices. He said that is because many jurisdictions are trying to reduce their reliance on coal and that will only put upward pressure on gas prices as demand rises.

An electricity industry executive said the assumptions in the report are logical because the province will be replacing low-priced coal with natural gas, whose price is volatile. With coal plants, fuel costs account for half the cost of producing electricity, the executive said. With natural gas plants, fuel costs account for 70 per cent of the cost.

Mr. McGuinty came under fire for backing off the deadline of an earlier plan to shut down the coal-fired plants. He said the Ontario Power Authority has said the province can close the coal plants by 2014 without compromising electricity reliability. The Premier's latest pledge has the force of law.