Market Overview

The 2009 calendar year has shown record breaking electricity prices for Ontario. The market has seen prices fall as low as 1.84 cents per kWh in over the last nine months. These low prices are a reflection of moderate weather and the country’s economic downturn.

The weather, the slowdown in the manufacturing industries, and lower demand has increased the availability of base load generation. Lower demand has caused the spot market prices to reach record lows and for the government-set Provincial Benefit to reach peak prices.

The Ontario Provincial Generation (OPG) Rebate 3 year contract officially came to an end in April 2009. Launched May 2006 to offset high electricity prices for large end users, is now no longer available.

A potential price increase could result from Hydro One’s applications to the Ontario Energy Board that request an increase in operating revenues to the tune of an additional $153 million dollars. If this application passes, end users could see an increase of 9.5% to their transmission portion of a utility bill, which could equate to approximately 1.9% overall increase in costs.

Summary of Electricity Prices

Over the period of the last nine months the electricity spot market has seen various price fluctuations. January started out with extremely high prices, 29% higher than previous year, at an average of 5.32 cents per kWh. February prices took a sharp decrease closing at the lowest price for February since the market opened in 2002 at 4.72 cents per kWh. This quick turnaround is linked to the automotive and steel production industry slow-down and plummeting natural gas prices. Considering that February was record breaking enough, March closed at 37% lower than February at 2.89 cents per kWh. With mild weather and the recession looming, electricity prices shot down, setting the Provincial Benefit rate at the highest charge rate since the program started at 3.02 cents per kWh. The Provincial Benefit was introduced to provide price stability and control over the Ontario Power Generation.

To top it all off April, known as one of the shoulder months, averaged a price of 1.84 cents per kWh, which launched the Provincial Benefit rate to a record high of 3.98 cents per kWh. Due to the major increase in the Provincial Benefit rate it caused a portion of the end user’s costs to increase by approximately 15% per month.

June through August showed steady growth from April’s record low price. July’s spot market price was 36% lower from last year, mainly due to the cool and wet weather that was experienced. This reduction in demand was a key reason behind Bruce Power cancelling the plan to build two nuclear generating stations.

Late fall electricity prices in the forward market are breaking through the 3.00 cents per kWh threshold. As we continue into the fall and winter months, price levels for calendar year 2010 are modulating around the 4.00 cents per kWh, while prices for calendar 2011 are floating in and around the 5.00 cents per kWh threshold.

Quick Spot Market Outlook

Spot market prices through the first two thirds of calendar 2009 have registered some all time lows and the short-term trend suggests a similar pattern to the remaining third of the year. Table 1 represents a price comparison between 2008 and 2009 prices.

Table 1 – Monthly Arithmetic Average Spot Market Prices - ¢/kWh

As stated above, offsetting these low spot market prices has been the Provincial Benefit adjustments. Table 2 highlights the monthly Provincial Benefits Rates.

Table 2 – Monthly Provincial Benefit Rates - ¢/kwh

Note a negative (-) value would be a credit whereas a positive (+) value is a charge.

Electricity Prices Compared To Natural Gas Prices

Chart 1 – Ontario Electricity Forward Prices Comparison

Chart 1 illustrates the correlation between electricity prices trend with natural gas prices, which distinctly shows that both price levels are extremely low. The traditional bump up in natural gas prices, which is brought about by the increase in demand for gas fired generation needed for summer cooling, failed to materialize this year. More importantly the forward market has seen a drastic decrease in demand for natural gas due to a shrinking economy and the resulting demand destruction. However, trends show that we are witnessing a recovery in natural gas prices which will eminently put upward pressure on electricity prices.

Energy Advantage® will monitor the market closely as calendar 2009 comes to a close.

“IESO”. Monthly Market Update. IESO, 30th September 2009, http://www.ieso.ca/imoweb/siteShared/monthly_update.asp?sid=ic

“IESO”. Power Outlook: Fall 2009. IESO, 30th September 2009, http://www.ieso.ca/imoweb/siteShared/power_outlook.asp?sid=ic