PUC letter to the City

The following is the full text of a memorandum sent by Brian Curran of PUC Services Inc. to the City of Sault Ste. Marie.

****************************************************************** MEMORANDUM

To: City of Sault Ste. Marie, Mayor and Councillors

From: H.J. Brian Curran, president and CEO, PUC Inc.

Date: September 30, 2002

Subject: Future Electricity Rate Increase

**************************************************************** The Mayor has requested that I make a presentation to Council on October 7th on the matter of rate increases and what measures can be taken to mitigate future increases as the result of the restructuring of the electricity market.

Attached are copies of the power point slides that I will be using with my presentation to Council. I understand that my presentation should be about 10 minutes with questions to follow.

In my presentation I will be giving information on our current relationship with Great Lakes Power. This relationship has been a beneficial one for for GLP and local electricity consumers.

Over the decades that GLP has supplied power to residents and businesses of Sault Ste. Marie, they have received hundreds of millions of dollars in revenue.

These funds have allowed the company to develop hydro projects in the region to meet the growing demand for electricity.

During this period, local consumers have saved tens of millions of dollars by paying electrical rates that have been lower than what other consumers have been paying in the province.

Although it was evident in the late 90s that the electricity market was going to be restructured, both GLP and the Public Utilities Commission believed that there was benefit in maintaining the electricity supply arrangement.

Consequently the supply agreement between the two parties was extended in 1998 to December 31, 2008.

Both parties agreed to negotiate the supply price and, if agreement on the price could not be agreed to by December 31, 2002, the agreement would terminate December 31, 2003.

The Ontario Energy Board recognized the benefit of the contract with GLP and allowed PUC Distribution to have GLP to continue to supply electricity to consumers who elected to be served under the Standard Supply Service (SSS) option.

In most other areas of the province consumers who elect for the SSS option pay the spot market price for electricity.

The average spot market price for electricity was forecasted to be 4.3 cents/kWh for the first year of the open market.

The calculated price for electricity supplied by GLP is 4.1 cents/kWh.

The benefit of lower electricity prices for electricity consumers in Sault Ste. Marie was expected to continue to at least December 31, 2003.

Regardless of whether we are able to extend the benefit of the existing contract with GLP, a longer term benefit from our historical relationship with GLP will continue.

The debt retirement charge (DRC), that has been imposed on electrical consumers to allow the province to pay off the stranded debt of Ontario Hydro, is 0.7 cents/kWh in most areas of the province.

Customers of PUC Distribution pay only 0.2 cents/kWh. This represents a collective annual saving of approximately $3.5 million. This benefit continues until the stranded debt is eliminated.

The average spot price from the May 1st market opening to September 17th is 5.2 cents/kWh.

The attached chart indicates how the weekly average spot market price has grown from early May and into the summer.

As the air conditioning load in southern Ontario increased electrical demand, the cost of supply has grown.

The highest average weekly price was approximately 11 cents/kWh or almost 4.2 times higher than the lowest weekly prices.

As we move into the colder weather electrical demand will diminish and so should the average spot market price, barring any significant reduction in generation.

When the heating season starts, demand will grow and the average spot market price will again increase.

Most consumers that are supplied under the SSS option pay the average spot market price for their billing period. Consequently, they will have seen significant fluctuations in their electrical bills.

The impact of the high prices is compounded by the fact that higher air conditioning requirements would drive up consumption, further contributing to higher bills. Some utilities have chosen to charge the anticipated average spot market price of 4.3 cents/kWh and then settle up the variance between this rate and the average spot market price paid by the utility at some point.

If the rate charged to consumers is higher than the spot market prices, they would receive a rebate until the variance amount is eliminated.

If the rate were lower, consumers would be charged an additional amount to make up for the shortfall to the utility. Both arrangements can produce unpleasant surprises for consumers.

There are several scenarios for PUC Distribution and irs customers past 2003:

******************************************************************** To read the conclusion of Curran's letter, please click here.