Ontario Power Generation

FORWARDS AND SWAPS

What are Forwards?
Forwards let you buy a fixed amount of power at a fixed price for a specific time period starting on a future date, no matter what happens to the market in the meantime. So if energy prices soar, you're protected - the price you pay for power remains constant for the term of the agreement. You still receive your actual power from Ontario's Independent Electricity System Operator (IESO) or your Local Distribution Company (LDC).

What are the Benefits of Forwards?
A fixed price for some or all of your needs reduces exposure to price fluctuation. Planning your budget is much easier when you know exactly how much you will be spending on energy every month. You still have the freedom to buy additional power from other suppliers or the spot market when it works to your advantage.

What is a Swap?
A Swap is the same as buying a Forward except the settlement process is different. You agree to a buy a fixed amount of power, at a fixed price, for a specific time period. You still receive your actual power from Ontario's Independent Electricity System Operator (IESO) or your Local Distribution Company (LDC). If the average spot market price that you pay your LDC/IESO during that term exceeds the agreed-upon fixed price, OPG will pay you the difference on a monthly basis. And whenever the average spot market price is lower than your agreed upon price, you must pay OPG for the difference. This is why Swaps are also known as "contracts for differences." So even though you're buying energy from a third party at fluctuating prices, your costs ultimately remain fixed.

What are the Benefits of Swaps?
Your budget and cash flow are protected from market volatility through a fixed price, or shared exposure to price risk.

Cash flow is affected less by Swaps than by other financial products, since only net values are settled, not the total value of the energy (as with Forwards).