Why did the electricity industry change?
The provincial government passed Bill 35 in the fall of 1998. It created open and competitive wholesale and retail electricity markets in Ontario for the year 2002. The legislation also completely revamped the structure of the electricity industry.
One requirement of the legislation was that local electricity distribution companies, like Innisfil Hydro, become incorporated under the Ontario Business Corporation Act. On November 1, 2000, Innisfil Hydro Distribution Systems Limited was incorporated. The company operates as a commercial business, with the option of earning profit under the conditions of its license. It is licensed and regulated by the Ontario Energy Board.
As a local distribution, or wires company, we are responsible for maintaining the distribution network (the wires) which delivers electricity to the residents, businesses and industry in Innisfil. The owner and sole shareholder of Innisfil Hydro Distribution Systems Limited is the Town of Innisfil.
Ontario's competitive electricity market opened on May 1, 2002. The fluctuating commody price was quite volatile through the summer and early fall of 2002, but had become more stable by mid-fall. On December 9, 2002, the government passed the Electricity Pricing, Conservation and Supply Act, 2002, that set the commodity price of electricity at 4.3 cents per kilowatt hour for low volume consumers and other designated consumers.
In December 2003, the government introduced the Ontario Energy Board Amendment Act (Electricity Pricing), 2003, which put in place a new interim electricity pricing structure, replacing the 4.3 cent per kilowatt hour (kWh) price cap as of April 1, 2004. Under the interim structure, residential, low-volume and other designated consumers pay 4.7 cents per kWh for the first 750 kWh consumed per month, and 5.5 cents per kWh for consumption above that level. The Act called on the OEB to develop a new electricity pricing mechanism no later than May 1, 2005. On December 9, 2004, the Government of Ontario passed the Electricity Restructuring Act, 2004, (Bill 100) which reorganizes the province’s electricity sector. The new legislation amends the Ontario Energy Board Act, 1998, and the Electricity Act, 1998.
The purpose of the Act was “to restructure Ontario’s electricity sector, to promote the expansion of electricity supply and capacity, including supply and capacity from alternative and renewable energy sources, facilitate load management and electricity demand management, encourage electricity conservation and the efficient use of electricity and regulate prices in parts of the electricity sector.”
The Ontario Energy Board was responsible for developing a transparent mechanism for establishing electricity commodity prices for eligible consumers who have not signed contracts with electricity retailers. The Regulated Price Plan, took effect May 1, 2005, was intended to reflect the true cost of electricity, be stable, be supportive of demand-response and conservation, and not be a barrier to investment.
The price plan is offered to eligible consumers with prices adjusted and approved periodically by the OEB. The government established which consumers are eligible for the price plan. Eligible consumers, such as residential consumers, that do not wish to participate in the regulated price plan can purchase their electricity from energy retailers.
The Regulated Price Plan replaced the interim two-tier pricing of 4.7 cents per kilowatt hour (¢/kWh) and 5.5 ¢/kWh hour that was in place from April 2004 to March 2005. During this period, the cost to produce electricity was lower than had been forecast, which resulted in a rebate to customers in December 2005. This one time rebate was called the Ontario Price Credit.
Electricity costs for medium and large businesses reflect a combination of regulated and competitive market prices for electricity. These businesses could also opt to use energy retailers or financial hedging instruments to manage energy costs. These large business and industrial customers who are eligible for the Ontario Power Generation Non-Prescribed Assets (ONPA) rebate which will be in effect until 2009. More information is available on this rebate from the Independent Electricity System Operator at www.ieso.ca.
On March 28, 2006, Bill 2, the Energy Conservation Responsibility Act, 2005 received Royal Assent and established the framework for the installation of smart metering in Ontario homes and small businesses from 2007 to 2010. It also requires ministries, agencies and broader public service organizations to prepare and publish energy conservation strategies, including reporting on energy consumption, proposed conservation measures and progress on achieving results. The regulations that will provide the details of how this legislation will be implemented are in progress.
The Regulated Price Plan (RPP) ensures prices that consumers pay for the electricity they use better reflect the costs paid to electricity generators. The plan represents a stable and predictable approach to electricity pricing and encourages conservation. The prices under the plan relate to the “electricity” line on customer bills.
Since April 2004, most Ontario consumers have paid a two-tiered price for the electricity they use. Consumers on the RPP continue to pay one price for the electricity they consume up to a certain threshold and a higher price for any electricity consumed above that threshold. The prices for the two levels are determined based on an annual OEB forecast of:
- the cost to supply electricity to consumers over the next year
- recovery of the costs that were not recovered from RPP consumers during the past year.
The provincial government decided in 2004 that consumers should pay what it costs to supply their electricity and, as the electricity regulator, the OEB is implementing that policy through the Regulated Price Plan. This ends taxpayer subsidy of the cost of electricity and places the responsibility where it more appropriately belongs – with the users of the electricity. Paying artificially low prices that do not reflect the cost of supply gives no incentive for consumers to conserve electricity.
The Regulated Price Plan allows the Board to review prices every six months and those prices may be adjusted up or down depending on what has happened in the previous period and what we expect to happen over the future 12 months. Consumers should not assume that they will automatically go up.