On the first day of May 2002 the Ontario electricity market opened its doors to a market of a competitive nature. The following report is an analysis of the Ontario electricity market and possible outcomes of its de-privatization. .
When considering demand and supply while pertaining to the increase in price and quantity from the months of June 2002 to august 2002 one must first consider the idea that supply in inelastic. Despite the obvious large increase in price the quantity supplied does not change in such a drastic manner. It is easy to conceive the idea that much more electricity would be demanded in the summer months due to the constant use of air conditioners, fans etc. In this case in particular the price increase is around 90% and the increase in quantity supplied is mere 6%. This substantial shift in the demand curve is therefore caused by consumer's tastes and preferences. The reason for such a small increase in quantity supplied is due to the fact that many Ontario electric corporations where forced to shut down generators both from low water levels (hydro-electric), and also due to air pollution (fossil fuel generators).
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Despite the constant demand for electricity, generating plants must schedule shut down periods in which maintenance issues can be dealt with. These shut downs are primarily scheduled for September because they will be most vulnerable after the hot summer months. Unfortunately September of 2002 was a relatively warm month causing air conditioners to be in continuous use. With the shut down of these facilities causing a decrease in supply, and while only a slight decrease in demand is occurring, an extremely high price was generated. The price of electricity in September rose from the August 2002 price of $69.41 to $83.11 MW/h while the quantity being supplied had remained around the June 2002 level of 12,185,138 MW/h when the price was just $37.10. The market for these changes can be seen on the graph below.