INDEPTH: ENERGY
Uneven grid
How energy prices are regulated across the country
CBC News Online | Oct. 26, 2005
Checked out your power or heating bill lately? They're not just going up – they're getting a little more complicated to read, as well.
That's mainly because much of the country is slowly moving towards a deregulated – or less regulated – system of delivering commodities like electricity and natural gas.
Take your electric bill. Used to be, once a month – or once every two months – somebody would come by and read the meter on the side of your house. A few days later, you'd get a bill that clearly stated how much you owed your utility, which may have been owned by the municipality you lived in.
All that utility was allowed to do was to recover the costs of providing you with the power you used.
For many Canadians, things have changed.
There are at least three components that make up the electricity prices you pay: generation costs, transmission costs and distribution costs. Generation costs apply to the actual production of the electricity. Transmission costs are the costs of using those high-voltage lines to get the electricity from the power plant to the companies that distribute the power. Distribution costs are the costs of delivering low-voltage electricity so you can run your big-screen TV or your supermarket can keep the milk and eggs you have to pick up on the way home fresh.
Generation and transmission costs are generally regulated by provincial governments and distribution costs by either municipalities or provincial governments.
In fully deregulated jurisdictions, electricity prices move up and down according to the demands of the market.
Most of the electricity produced in Canada is generated by harnessing the power of flowing water. Sixty per cent of all power is produced this way. It is also the cheapest way to produce electricity. Quebec, British Columbia and Ontario are the country's major hydroelectric producers.
Nuclear power – produced in Ontario, Quebec and New Brunswick – is the next cheapest way to generate electricity. Producing electricity in coal-fired plants costs more than nuclear – but less than using natural gas. Coal-fired plants operate in Alberta, New Brunswick, Nova Scotia, Ontario and Saskatchewan.
If you live in Ontario, you're also paying a certain amount each month to help pay off the multibillion-dollar debt the former Ontario Hydro incurred as it built nuclear power plants in the 1970s and 1980s – and began repairing them in the 1990s.
Only Alberta and Ontario have introduced some form of private management of the electricity grid. In those provinces, theoretically, the price for the power you pay varies depending on the demands on the system.
British Columbia and Saskatchewan have considered deregulation. New Brunswick opened part of its market to competition in 2003. Nova Scotia and Newfoundland have privatized parts of the electricity supply – but there is little competition.
The Ontario government backed off fully deregulating the electricity market months after introducing an open market in 2002. Prices soared, sparking a public outcry.
In reality, there was little choice in Ontario. Very few independent power generators had entered the market, meaning there was little competition in the production of power. Several companies were selling contracts to deliver electricity. Some were using high-pressure tactics to lock in customers for long terms.
Ontario has been subsidizing residential customers since rethinking deregulation. It introduced a two-tiered pricing system in May 2005, charging 5 cents per kilowatt-hour for the first 750 kWh of electricity consumed in a month and 5.8 cents for each kWh above that. The province said prices would be adjusted twice a year thereafter. Those adjustments are expected to go in one direction – up.
The Independent Electricity System Operator determines how much electricity will sell for on the wholesale market in Ontario. Prices vary from hour to hour and can be tracked on its website.
In Alberta, electricity prices are set every three months and are posted on the Customer Choice website.
The natural gas market has been deregulated for two decades across the country. The only parts of your gas bill that are regulated involve the delivery of the product to your home.
If you've signed a gas-delivery contract with a private company, you're locked in to a certain price for anywhere from one to five years. If you've stuck with your local utility, the price you pay for your gas is the same price your utility pays. That price is set periodically – usually every three months. It's similar to opting for a variable rate mortgage on your house.
Canada produces twice as much natural gas as it needs. Despite that, prices can spike even after events that don't directly affect the Canadian market. Hurricanes Katrina and Rita in August and September 2005 wreaked havoc on international oil and gas markets.
"It's all one marketplace and it's all inter-connected," Michael Cleland, president of the Canadian Gas Association, said. "If you're in Seatlle, you're getting your gas from B.C."
It's the same principle that drives oil markets.
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