Ontario energy retailer shuts off
The Ontario government's dramatic change in energy policy has already forced one energy retailer out of business and left others scrambling to consider their options, which could include suing.
First Source Energy Corp. of Mississauga spent yesterday preparing to wind up its business, a day after Premier Ernie Eves announced that the government would freeze electricity prices.
"We're unemployed," said Carmine DiRuscio, a spokesman for First Source, which has nearly 200,000 customers. Mr. DiRuscio said Mr. Eves has effectively killed the retail energy market.
"We're looking at options right now and looking at how we are going to wind down the business," he said. "The sad thing about this whole thing is that the retailers were not at fault and yet we seem to be the ones punished. And it still does not resolve the generation problems that we have in the province."
Rebecca MacDonald, head of Toronto-based Energy Savings Income Fund, which owns Ontario Energy Savings Corp., said her company also is halting its electricity retail operations.
"We were just starting to sell because I wanted to make sure that whole market was functioning properly," Ms. MacDonald said, adding that the company had about 140,000 electricity customers. "Unfortunately, I didn't know that we have a Premier who is a complete lunatic."
Dominion Bond Rating Service Ltd. also announced that it is putting ratings for a group of power companies, including Ontario Power Generation Inc. or OPG, under review with negative implications.
On Monday, the government said that effective Dec. 1, retail electricity prices will be frozen at 4.3 cents a kilowatt-hour until 2006. The government's plan also includes reimbursement to residents and small businesses for any amount they paid over 4.3 cents since May 1, when the province's electricity market deregulated. The price has averaged 5.2 cents per kwh since May.
The rebate will cost around $500-million, based on supply figures from the Independent Electricity Market Operator. In September alone, Ontario residents and small businesses paid nearly $280-million more than the government's new fixed price. Analysts say that subsidizing energy prices until 2006 will cost billions of dollars.
Market deregulation had prompted the creation of several energy retailers, which sold customers long-term power contracts at fixed prices. About one million of Ontario's 4.4 million electricity customers signed fixed contracts with retailers. The three-year contract prices range from 5.69 to 6 cents per kwh. With the price now fixed at 4.3 cents, many retailers are trying to figure out what happens to their contracts and who pays the difference.
"It seems to me that the retail market has been completely eliminated," said Jan Carr, an electricity consultant at Barker Dunn & Rossi in Toronto.
"There is no business. The bottom line is that consumers now have no motive whatsoever to sign any kind of a contract for any kind of supply."
Paul Massara, president of Direct Energy Marketing Ltd., said his company is reviewing its options, including suing the government.
"I wouldn't rule anything in and I wouldn't rule anything out at this stage," Mr. Massara said, adding that he is waiting for more details from the province.
Direct Energy, a subsidiary of British Energy, is the largest retailer in Ontario with about 550,000 electricity customers. The company also has a substantial natural gas business.
"At the end of the day, we are back to the bad old days where Ontario consumers are going to be paying for it one way or the other," Mr. Massara added. "They may have 4.3 cents as a fixed-rate cap, but they are going to be paying for it through higher taxes."
Duncan Hawthorne, chief executive officer of Bruce Power LP,which operates eight nuclear reactors in the province, said the company will continue with plans to restart two shutdown reactors next summer.
He added that the extra capacity from Bruce and OPG, which also is hoping to restart a group of reactors next year, should lower electricity prices.
The Premier's announcement "was the only credible thing for him to do," Mr. Hawthorne said. That is to "look after the small person while he tries to regroup and see better progress in terms of new generation."
About 65 per cent of Bruce Power's production is sold under contracts to large customers, including retailers. Analysts estimate the company receives about 4.5 cents per kwh. Mr. Hawthorne said the government's announcement will not have a major impact on its contracts. Mr. Eves also announced plans to change OPG's board of directors and investigate delays at bringing the company's Pickering reactors on-line.
"I am surprised to some extent," Mark de Michele, an OPG director, said yesterday when asked about the announcement. He added that OPG has thoroughly reviewed the Pickering situation. "I can tell you these are very, very complex machines and it takes a while to get them all straightened away."
He added: "The freezing of retail rates would indicate that they have gone back to a regulated system. Certainly that would change things somewhat [at OPG]." |
