Market's open! Now what?

That muffled roar you heard on May 1 was the sound of five million Ontario consumers, a dozen generating companies and a handful of marketers making the transition to an open market in electricity supply. From that moment on prices will not be set by a provincial regulator but by the consumers themselves, who for the first time can decide how much they are willing to consume at what price.

How will you, as an Ontario consumer, be affected?
It bears some thought, because you are no longer a spectator; you are one of the drivers of the competitive process. Drive carefully, you could get sideswiped.

Expect the lights to stay on.
The same generating plant, transmission and distribution systems will continue to produce and move electricity to your home and workplace. The chances of a blackout or brownout will be exactly the same as they always have been.

Expect volatile prices.
Electricity cannot be stored. The laws of supply and demand mean that you will see hourly, daily, seasonal and 3- to 5-year cyclical fluctuations in the price of electricity. The commodity portion of your electricity bill, which is about half of the total, will sometimes be as low as 2 cents per kWh, at others as high as 50 cents. Even on a monthly (weighted hourly average) basis, your total bill will vary over the course of a year by as much as 30 percent. A wild ride? Perhaps, but it will average out - expect prices over the year to average 4.5 to 5.5 cents.

Expect to see high prices some days this summer.
Low-cost supplies could well be tight during the summer and winter peak periods. Depending on how hot the weather is, we could see record demand and price spikes for several hours over a few days this summer.

Expect to see some consumer panic.
When prices spike, users will begin to worry. When it happened in Alberta many businesses locked into long-term contracts. They should have waited - only a few months later they found they were paying three times the going rate. Don't panic. Decide on the level of risk which is acceptable to you, and if you really can't handle fluctuating prices take a close look at the fixed prices offered by competitive retailers.

Expect some glitches and finger pointing.
The lights will stay on but there may be delays and confusion in billing and payments. If prices rise suddenly and stay high there may be confusion over who or what is to blame, and how the situation can be fixed. Despite an eighteen month delay in market opening many consumers are not prepared for their new role in the market.

Expect less than the ultimate.
Development of the best possible free-functioning market may take longer that expected. Already several previously announced investments in new generating facilities appear to be stalled. Some successful bidders in the OPG auction have yet to receive bank financing. Some generating companies have withdrawn from bidding because they were unsure whether price ceilings might be imposed, or that OPG might operate to hold prices below a level at which they could make a profit. Some marketers have withdrawn because they could not meet the prudential requirements of the Ontario regulator. As a consequence, we may not see sufficient competition to achieve minimum prices for the consumer.

If stability is important to you.
Sign a long-term contract with a competitive retailer or wholesaler, but be prepared to pay a premium for peace of mind.

If long-term lowest average price is important to you.
Select "Supply Service" from your local distribution company, but be prepared for a roller coaster ride.

If you need advice on how to proceed.
Acres staff have been involved in all aspects of market development from initial studies to market design, including market preparation for generators, distributors, transmission companies, investors, regulators and policy-makers. We have the experience, the analytical tools and the professionals to help you make the right business decisions. We can put our insights to work for you.

For more information, contact Jim Bracken at Acres Management Consulting: Tel: (416) 542-5807, E-mail: jbracken@acres.com Visit us at www.acres.com

Meanwhile, back at the Falls
Every year Acres holds a seminar to commemorate the founder of the company, Harry Acres. The theme of the seminar changes, but it is always an issue of pressing current interest. On April 11 this year, at Niagara Falls, 100 or more invited guests met to consider aspects of "Enhancing Competitiveness in an Open Market" - the market in question being electric power. Sixteen speakers, from the industry and from Acres, shared their special experiences and contributed to panel discussions. Subjects for study and debate included Industry Reform, Asset Productivity, and Planning and Operations issues. It was a long day, but a rewarding one.