Canada Energy Market Report - December 2017

Electricity Hedging Strategy: What a year of change in electricity markets - Ontario saw all-time high increases which prompted the government to step in and artificially reduce power rates for the first time since the market opened. This time, only small residential and commercial customers will benefit from the lower prices. Mid-size industrial and commercial ratepayers that do not have access to the Class A Global Adjustment rates have been squeezed the worst as they do not get the benefit from the lowered rates and pay the full class B GA rate.

The rate subsidy program is set to run for another three years, at which point all of the deferred costs will be transferred back to ratepayers, plus interest. Five months into the program, the variance accounts that holds the deferred costs is already over $1bn. For reference, the value of electricity transacted on the wholesale market is approximately $15bn/year. 2018 could be another year of sea change in the electricity market as the election of a conservative government could significantly reshape the way the market is structured.

Natural Gas Hedging Strategy: Natural Gas had a record-setting up and down year. We reached a new all-time low for prices in October at a paltry $0.65/GJ due to export constraints and inventory surplus piling up. Even if cold temperatures persist in the east, our high inventory levels should absorb any demand shocks. Supply-side factors should have the greatest influence on prices going forward, as a cold winter could eat away inventory that may not be refilled in time for next year’s heating season if production declines.

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