1 Summary & Overview 9

Introduction 9

Report structure 9

2 Introduction to Ontario Electricity Deregulation 11

Introduction 11

Market participation 12

Conclusions 15

3 Ontario Demographics & Energy Fundamentals 16

Introduction 16

Ontario electricity demand 16

Generation assets 17

Ontario and the Canadian economy 19

Ontario's power system and requirements 22

Energy demand forecasts 24

Conclusions 27

4 Ontario Deregulation Legislation 28

Introduction 28

Breakup of Ontario Hydro 29

Market power mitigation agreement 29

Conclusions 30

5 Market Operation 31

Introduction 31

IMO-controlled grid 32

IMO-administered markets 32

Sources of bids and offers 33

Price determination 35

Practical example 35

Hourly intertie energy price 40

Price settlement 41

Physical bilateral contracts 42

Real-time market transaction settlements 43

Embedded electricity purchases 44

Distributor purchases 44

Dispute resolution 45

Buyers’ remorse 46

Conclusions 46

6 Recommendations & Conclusions 47

Introduction 47

Recommendations and conclusions 47

Appendix 1 Load profiles 49

Introduction 49

Conclusions 73

Appendix 2 Registered Marketers 74

TABLES

Table 1: Ontario installed generation, 2000 18

Table 2: Canadian population data, 1997-2001 20

Table 3: Historic winter/summer peak Ontario electricity demand (MW), 2000-2011 25

Table 4: Potential Ontario generation projects, 2002-2004 26

Table 5: Market participant involvement with pricing 41

Table 6: Ontario Electricity Market Applicants, 2001 (a) 74

Table 7: Ontario Electricity Market Applicants, 2001 (b) 75

Table 8: Ontario Electricity Market Applicants, 2001 (c) 76

Table 9: Ontario Electricity Market Applicants, 2001 (d) 78

FIGURES

Figure 1: Ontario electricity end user sector demand, 1999 16

Figure 2: Ontario annual primary electricity demand, 1994-2000 17

Figure 3: Ontario generation by type, 2000 17

Figure 4: Ontario employment growth forecast, 2000-2011 19

Figure 5: Ontario population centers, 2002 21

Figure 6: Ontario’s transmission system, 2002 23

Figure 7: Ontario electricity demand, 2000-2011 25

Figure 8: Ontario Electricity Control Area 32

Figure 9: "Stacking" bids and offers to determine price 35

Figure 10: Operating Reserve example, before 38

Figure 11: Operating Reserve example, after 39

Figure 12: Settlement statement timeline 43

Figure 13: Invoice and payment terms 44

Figure 14: Small Industrial: Farms, Forestry & Fishing 49

Figure 15: Small Industrial: Mines & Quarries 50

Figure 16: Small Industrial: Food Manufacturing 50

Figure 17: Small Industrial: Clothing Manufacturing Plants 51

Figure 18: Small Industrial: Wood Products Manufacturing 52

Figure 19: Small Industrial: Primary Metals 53

Figure 20: Small Industrial: Fabricated Metals 54

Figure 21: Small Industrial: Machinery Industry 55

Figure 22: Small Industrial: Transportation Industry 56

Figure 23: Small Industrial: Electrical & Electronics 57

Figure 24: Small Industrial: Non-metallic Minerals 58

Figure 25: Small Industrial: Petroleum & Chemicals 59

Figure 26: Small Industrial: Other Manufacturing 60

Figure 27: Small Industrial: Construction 61

Figure 28: Commercial: Food Stores 62

Figure 29: Commercial: Other Retail Stores 63

Figure 30: Commercial: Services 64

Figure 31: Commercial: Wholesale Warehouses 65

Figure 32: Commercial: Offices 66

Figure 33: Commercial: Health Facilities 67

Figure 34: Commercial: Education 68

Figure 35: Commercial: Hotel & Accommodations 69

Figure 36: Commercial: Recreational Facilities 70

Figure 37: Commercial: Religious Institutions 71

Figure 38: Commercial: Multi-Residential 72

In May 2002, the Province of Ontario will deregulate its electricity market. Deregulation will create new opportunities for both consumers and suppliers of wholesale and retail electricity. For the consumer there is the potential for lower prices and enhanced customer service. In addition, the market also offers great potential for firms supplying electricity in North America.

By marketing power in the region, firms will have the potential to increase their geographic supply "footprint" and optimize their revenue potential.

To provide a greater understanding of Ontario’s electricity market, both its fundamentals and operation, Utilis Energy has produced this report using data obtained from various

Canadian government agencies, market participants and associated parties. The report is designed to give the reader a firm understanding of the unique characteristics of Ontario’s electricity market and facilitate informed strategic investment and marketing decisions.

Chapter 2 provides an introduction to electricity deregulation in Ontario. Important events, such as the 1996 Macdonald report, and other dates in the creation of competitive markets are introduced. In addition, past examples of unsuccessful deregulation attempts in California and Alberta are noted, along with why these deregulation efforts differ from the Ontario market design. The concept of the Independent Market Operator (IMO), and its functions for the Ontario market are also introduced. Finally, the requirements to participate in the deregulated markets are outlined.

Ontario’s demographics and energy fundamentals are analyzed in Chapter 3. Current and future energy demand and production are examined. The chapter also looks at the Canadian economy and projections for power demand to the year 2011. The seven different types of market participants outlined along with the requirements that must be met to actively participate in the deregulated Ontario market.

Chapter 4 reviews deregulation efforts and legislation within Ontario since 1996 when the Macdonald report was published. Key features of deregulation legislation, such as the Energy Competition Act and Market Power Mitigation Agreement are introduced.

Market operation specifics are provided in Chapter 5. The IMO’s role in providing reliable and efficient electricity markets is highlighted, along with how and when the marketclearing price of power is determined. Examples are provided to illustrate how supply and demand in the competitive market influences price and the dispatch of operating capacity.

Conclusions and recommendations are provided in Chapter 6. These outline why the economic and energy characteristics of the deregulated Ontario electricity market make it an attractive environment in which to offer power marketing services to commercial and industrial firms.

The study includes two appendices. The first looks at load profiles for both commercial and industrial entities, from various sectors, throughout Ontario. Data used to construct these charts is available from Utilis Energy. The second appendix lists the suppliers that have met or are in the process of meeting the requirements to participate in the Ontario electricity market when it is deregulated in May of 2002.