Rafe Mair Online

While the article below is about Ontario, you’ll see from the highlighted portions that it foretells what will happen in BC as BC Hydro is forced to pay private companies double the price of what they can sell that energy for.

KAREN HOWLETT
Globe and Mail
Jan. 08, 2010

Ontario has a power problem.

A strategy to subsidize the province’s nascent green energy industry is
starting to sting businesses and many households that find themselves
paying the biggest markups on electricity pricing in the country.

Even as electricity demand – and market prices – dropped last year with
the global economic downturn, electricity bills have risen steadily on the
back of generous contracts signed by the province’s power planning agency.
Now, the government of Premier Dalton McGuinty is preparing for a looming
political backlash.

What’s at stake is an industrial strategy that’s on a collision course
with a century-old policy of delivering electricity to consumers at the
lowest possible cost. After the loss of hundreds of thousands of jobs in
the manufacturing heartland, Mr. McGuinty vowed to create more than 50,000
new ones through the Green Energy Act. But he is building this new sector
– and burnishing his green credentials – by ratcheting up electricity
costs.

The average market price for electricity in Ontario is at its lowest level
since the market was opened up in 2002. It was 3.3 cents a kilowatt hour
yesterday, compared with a record high average of 9.97 cents in September,
2005. But customers are not reaping the benefits of lower prices because
the government is recovering the cost of new projects from power users.

The government is luring green-energy investors with the promise of
generous long-term contracts that include a guaranteed revenue stream.
Every time a new deal is inked with a gas-fired plant, a wind farm or
solar-panel manufacturer, the costs go up for customers. During several
months last year, rates for large industrial users jumped nearly 20 per
cent. The question emerging is whether this is politically sustainable.

The government is sitting on a “political time bomb,” said Toronto energy
lawyer Peter Murphy. “While renewable energy is a great thing for the
environment, it’s also expensive.”

Mr. McGuinty’s government began eyeing the development of new, clean
energy sources in 2006, when the province was facing a shortage of
electricity. He intrinsically linked the province’s economic fortunes to
combatting climate change, saying it is not a matter of choosing between
prosperity and the environment.

Former energy minister George Smitherman was the driving force behind the
strategy, pushing renewable energy projects with little regard for cost,
according to industry sources. He resigned to run for mayor of Toronto,
leaving his successor, Gerry Phillips, to deal with the fallout from that
strategy.

Mr. Phillips is acutely aware that electricity prices are a growing issue.

“We are not as clear as we need to be about the price of the production of
electricity,” he said in an interview.

Ontario does not have the highest electricity costs on the continent, but
it stands out for the gap between the market price of power and the price
charged to consumers. Toronto ranked in the middle of the pack among North
American cities, according to a study of consumer prices done by
Hydro-Québec last April. But industry observers say prices will increase
substantially in Ontario over the next two years as the cost of higher
priced renewable energy flows through to consumers.

The Ontario Power Authority, the government’s planning arm, says it
managed 47 large-scale electricity supply contracts worth a total of
$14.1-billion last year. Contract holders receive a fixed price over 20
years for the electricity they produce – 13.5 cents a kilowatt hour for
on-shore wind farms and up to 80.2 cents for solar power. While wind and
solar make up only a small portion of electricity supply today, the rates
are well above the average of 4.5 cents that government-owned Ontario
Power Generation receives for most of its electricity output.

“Somebody has to pay the price of subsidizing an energy policy that this
government seems bent on pursuing for largely political reasons as opposed
to energy supply,” said Ontario Progressive Conservative energy critic
John Yakabuski.

Electricity consumers pay for these contracts through what is called a
global adjustment – which covers the difference between the market price
for electricity and the rates paid to companies under the guaranteed
revenue contracts. As the market price falls, the global adjustment rises.
The global adjustment averaged 2.91 cents a kilowatt hour in 2009, on top
of 3.16 cents for the electricity itself.

Adam White, president of the Association of Major Power Consumers in
Ontario, said the situation is not sustainable because it will leave
companies paying higher rates than competitors in other jurisdictions.

For most residential consumers, the cost of the global adjustment is
hidden because it is rolled into the electricity rate set by the
province’s energy regulator, one that has risen only modestly in recent
years.

But homeowners who signed contracts with electricity retailers are getting
hit hard. Retailers are now passing on the global adjustment, which is not
included in the contracted fixed rate for electricity. A typical customer
who used 1,000 kilowatts of power in December would have paid an extra
$38.

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