“A Window on the Northwest”

November 24, 2005

Hydro Rates and Regional Pricing in NWO

 

With more announcement of plant closures due in part to the high cost of energy in Northwestern Ontario, the call for innovative solutions and a made in the North pricing policy is gaining ground, with the hope that it will soon reach a receptive ear at the provincial level. Given the region economy’s heavy reliance on power and the fall-out already occurring across local industries, failure in dealing with this very important issue is not an option. This article will deal with the concept of regional pricing and what it may mean for the North. 

 

Is Northwestern Ontario really self sufficient?

Northwestern Ontario region generates enough power to meet its demand for electricity. We actually feed excess power into the provincial grid. This, and the fact that we were spared during the blackout of 2003, has created a new source of pride for many people in the region. However, as the Manager of Thunder Bay Hydro explained at that time, it was largely lack that saved us. As long as we are part of the system, being self-sufficient does not protect us from future blackouts. There are times (not very often) when we actually import power to meet peak demand (usually in extremely cold winter days). The impression that has been created is that we do not need to curtail our consumption, and during the call for conservation last summer, power usage in our region did not come down as much as expected.

 

Being tapped into the provincial grid, also means that any new supply or generation of power coming from this region (remember this when new investments will be announced) will not directly translate into lower electricity costs for regional users since any new investor would not be obliged to sell to us when demand is out there from eastern Ontario and the U.S. The only way this would change is if the provincial government makes some adjustments to the way it views the energy market in Northwestern Ontario and the rest of the province. A case has already been made by large regional industrial and commercial power users who were shocked to find out that deregulation did not mean lower prices. With higher electricity costs hitting the bottom line hard, (i.e. the company is now less competitive) the chances of attracting new investments in this region decrease accordingly. A renewed call for regional pricing is now being made by political leaders across the North. 

 

Can a case for regional pricing be made?

The case that has been made with the Ministry of Energy is to look at regional pricing (Local Marginal Pricing) in order to benefit those areas like our region that are more self-sufficient. However, this concept is a double edged sword since it includes many price variables such as the contribution of lower cost nuclear power to the local system, the unreliability of the hydroelectric system during times of low water levels, and the announcement on phasing out fossil fuel generation. In other words, being tapped into the provincial grid gives us more price and supply flexibility if something was to go wrong. On the other hand, our self-sufficiency makes for a strong case for regional pricing. A Market Advisory Committee to look into this concept has been established for some time now, but in light of recent events, regional pricing should gain a priority position on their agenda.

 

Conclusion

Problems can also create opportunities, and a combination of new technologies that can be implemented fairly quickly such as clean coal (we should not be giving up on this one given its low-cost and importance to the regional power supply) wind, solar, biomass, co-generation, fuel cells, smaller generation units, and of course, long-term projects like new transmission lines connecting east and west and south to the US, would allow for more flexibility in the system (the benefits of tapping into lower-cost power from Manitoba have already been recognized and plans are moving forward in this area). Our ability as a region to now make a compelling case for our unique location and mix of power generating capabilities that are not only cost effective but environmentally friendly, can make the difference between becoming a model for new long term solutions to the problem, or just another forgotten part of the system.

 

Frank Pullia is the Principal of Pullia Accounting & Consulting and a former Councillor. He was the Budget Coordinator for Northwestern Ontario Hydro Region between 1987 and 1995. He can be reached at 474-8294 or via e-mail at frank@frankpullia.com