Ontario braces for power price shock

Ontario electricity pricing faces increases as time-of-use rates, Critical Peak Pricing, and smart meters drive demand response; HST, renewable energy build-out, and coal phase-out raise marginal costs while conservation and pollution pricing reshape bills.

Every flick of a switch will get more and more expensive in the future as the days of cheap electricity in Ontario are gone forever.

Experts across the sector - not to mention Premier Dalton McGuinty - are continuing to warn consumers to brace themselves for an increase, as seen in the recent 12% price jump across Ontario, in the cost of keeping their lights on and their flat screens humming.

And some are even calling for prices to go much higher, with a hydro hike here to stay over the long term to encourage conservation, pay for new generation and cover the cost of pollution.

“If the marginal price was higher, at all times, consumers would use less and some capacity expansion would be avoided,” a report from the C.D. Howe Institute released earlier says.

Time-of-use pricing, reflecting how Ontario power rates will vary for many users, is a good start but should be complemented by something called Critical Peak Price, the report says.

Utilities could declare a certain number of CPP days per year when power use spikes - with the price going up five times the regular peak price - now just over 9 cents a kilowatt hour.

“Greatly increasing the price on a small number of critical peak days would further reduce peak demand on days when demand threatens to exceed supply,” the report says.

“This would give every consumer an incentive to reduce peak demand vigorously on critical days, saving capacity expansion costs.”

Most Ontarians will be moved onto TOU pricing this year as local hydro companies gradually turn on smart meters that have been installed recently.

The C.D. Howe report says the price consumers pay for electricity should reflect the real cost of electricity including building new generation and cleaning up from the pollution and greenhouse gases that generation produces.

Much has changed in Ontario’s energy sector in the past few years, Independent Electricity System Operator president Paul Murphy said in a recent speech - from progress on reducing coal use, to the dramatic increase in renewable generation, where more renewables mean higher prices for consumers, sparked by the Green Energy Act.

“One thing that hasn’t changed significantly in the electricity sector over the past years is the total price that consumers are paying for electricity,” Murphy said.

“That isn’t likely to last given what’s on the horizon - with a power rate hike shock looming for many customers, cleaner, but higher priced power, new transmission facilities, new distribution infrastructure - not to mention the impact of HST on electricity bills.”

Starting July 1, Ontario’s new Harmonized Sales Tax will effectively tack on an additional 8% onto any part of your electricity bill currently subject to the federal GST, alongside a potential green tax on power bills under discussion.

McGuinty said that a large part of the upward pressure on price is the cost of cleaning up from coal and moving to more expensive but greener forms of generation.

“The kinds of policies we have in place are designed to help us get ready for the carbon constrained economy,” McGuinty said.

“As carbon pricing comes into place in North America, driven principally by President Obama, it will drive up the price of energy of carbon intensive forms of electrical generation.

“So when we switch to those other kinds of things, we’re actually putting in place a buffer that prevents us from having a dramatic rise.”

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