The regulated price plan: is it really good for your organization?
By John Voss
Ontario’s Energy Minister announced a one-year extension for large power consumers included in the regulated price plan (RPP). This would include municipalities, universities, schools and hospitals. These large (designated) power consumers were originally scheduled to exit the RPP in the spring of 2008. But is the extension favourable for them?
By John Voss
The justification for the extension is the perceived confusion surrounding this issue and the pending change. The extension is designed to accommodate an educational campaign for consumers. In light of the perception that there is a lack of information in the market, we felt it would be worth doing a little "RPP Myth-Busting."
Myth 1: "The RPP is managed by the Ontario Energy Board, so it must be a good thing and I want to continue to be on it."
For all but a few non-residential users currently on the conventional RPP, you’re better off outside the RPP.
The total revenue collected from all participants in the RPP is designed to cover the true cost of all the electricity, but not all participants in the plan contribute equally to the cost. Because RPP prices are based on the amount of energy used, larger designated consumers pay a higher average price and effectively subsidize residential consumers.
It’s like going out for some fast food with a group of people. You all order the Special for $5.40 but you and a few others have to pay $5.90 while most of the group only pays $5.20. Getting out of the RPP allows you to pay the actual Special cost of $5.40.
Myth 2: "I’m slated to stay on the RPP but energy retailers are telling me my electricity price will jump when I get a Smart Meter."
We’ve heard that some energy retailers are claiming that "you’re paying 5.9 cents but when you get a Smart Meter most of you consumption will be at 7.0 or 8.7 cents." This is a self-serving blanket claim. The Smart Meter RPP in fact has three different prices, with the third being a low 3.0 cents. The average price paid will vary from consumer to consumer, depending on how and when you use electricity. Look before you leap! Some load analysis will help you to determine the true cost impact before you sign any long term commitments.
Know your risks and your options
Consumers who are leaving the RPP need to understand how electricity pricing works, including the operation of some complex price regulations that affect the net cost of power. Consumers then need to understand how movements in electricity market prices will affect their actual cost. By comparing the price risk you are exposed to and the price risk you can tolerate, you can decide what actions may be required to control electricity price risk.
By John Voss. Voss is president and managing director of Aegent Energy Advisors. For more information visit www.aegent.ca.