Frequently Asked Questions (FAQs)

Who regulates electricity prices?

Usually it is provincial or territorial authorities that regulate consumer electricity prices, generation, transmission and distribution. In the provinces with municipal utilities (Ontario and Alberta), the distribution portion of the rates paid by consumers are set after receiving municipal approval.

Why does the price of electricity vary across regions in Canada?

Consumer prices are mainly set by the provinces and territories so prices will vary. The biggest factors contributing to pricing differences are generation availability and cost. Differences in transmission and distribution costs play a smaller role.

Why do electricity prices keep going up?

Energy prices have been high and volatile in recent years, especially for oil and natural gas. Rising fuel costs have contributed to near double-digit electricity rate increases in some jurisdictions (e.g., Nova Scotia and New Brunswick). Hydro-based jurisdictions (Québec, Manitoba, British Columbia) are experiencing moderate rate increases due to rising operating costs and the cost of new generation. Because of different generation technologies and supply/demand balances in the provinces, electricity prices vary considerably by region.

With the increased use of natural gas for electric generation, short term upward pressure on electricity prices will result from a tight supply and demand balance in the natural gas market over the longer-term.

The development of generation that uses alternative and renewable resources (such as wind, biomass, solar, small hydro) could also move prices higher, although costs have decreased considerably over the last two decades due to technological advances. Such pressure could result from a combination of displacing thermal resources and the cost of new transmission development. Overall, it might be argued that increased costs are offset by environmental benefits and a more diversified generation portfolio.

How does the price of electricity in Canada compare to other countries?

Canada has some of the lowest prices for electricity in the world, mainly due to Canada's natural resources, such as inexpensive hydro (i.e., water resources) and a vast coal supply (see Figure 1).

Figure 1 - Industry and Household Electricity Prices in Select Countries
- 1^st Quarter 2007

International Energy Agency - Key World Energy Statistics (2009)

Does the NEB regulate electricity exports?

Yes. Following an application from an exporter, the Board may issue an electricity permit, typically for a ten-year period with a five-year limitation on sales contracts. The maximum term for a permit is 30 years. In an export application, there are no restrictions on quantities, prices or destination but the quantity must be specified in the application.

If, after due consideration, the Board believes that the project warrants a more detailed regulatory assessment, the Board may recommend to the Governor in Council (GIC) that the application be designated for a public hearing, and deal with the application as an application for an export licence. If an electricity permit is issued and an export occurs, the exporter is required to file this and other information with the NEB.

What is electricity restructuring?

The Canadian industry was previously made up of integrated companies that performed all functions from generation through to customer distribution. Restructuring refers to the reorganization of electric utilities from integrated monopolies (companies that own generation, transmission and distribution facilities) into separate generation, transmission and distribution service companies. This separation, or unbundling, is intended to promote competition among generators and new entrants to the market and provide more open access to the transmission incumbent systems ("wholesale access"). Unbundling also increases competition in the marketing of electricity ("retail access") making more choices available to consumers (e.g., choice of supplier, expanded metering services, options with respect to green power).

The extent of restructuring across Canada varies because the provinces and territories are examining their unique regional circumstances and issues. Alberta has moved the furthest in restructuring its market. Ontario has adopted a hybrid market, combining elements of regulation and competitive markets. British Columbia, Québec and New Brunswick have wholesale access and limited retail access to electricity, while Manitoba and Saskatchewan allow wholesale access.

Restructuring of the electricity industry has been underway around the world for the past 10 to 15 years. In Australia, New Zealand and the United Kingdom, government-owned monopolies were unbundled. In the U.S., unbundling has been pursued in a number of jurisdictions, including California, New York, New England, Texas and Washington.

How might the restructuring of electricity markets affect prices?

As restructuring proceeds, the generation component of electricity rates is based more on market forces, as new generation competitors are attracted to the market. The price at which enough supply becomes available to satisfy consumer demand sets the pool or market price. The power pool is administered at arm's length from the generation companies and electricity buyers. Transmission and distribution largely remain subject to regulation.

Inter-provincial and Canada-U.S. trade may have more influence in setting local prices in a restructured market than in the traditional market structure, since regions which have relatively high electricity costs will now be able to gain access to lower cost electricity from other regions. Increased trade is facilitated by open access to transmission systems.

Whether prices in a given region will be higher or lower on a long-term basis is a matter of debate. This will depend greatly on the market's response to price signals to build enough generating and transmission capacity to meet demand.