Power to the People

Commentary, Energy, Frontier Centre

The opening of Ontario’s electricity market this week is a milestone, but it’s one that perplexes many Ontarians. It’s time for those of us who favour a free, competitive electric power market to explain why it’s good for the province.

Many opponents attribute support for competition to ideological fervor, a mysterious cabal of influential plutocrats or personal greed among a few people who could get rich from the sale. Nothing could be further from the truth.

The market opening is a response to Ontario’s electricity needs. The old Ontario Hydro situation — a single producer with massive debt — led to the doubling of electricity prices in the late 1980s and early 1990s, with no guarantee that the upward spiral could ever be controlled.

Ontario Hydro’s central planning methods and lack of serious accountability left this province’s residents with a $38-billion debt. At some point, this had to stop. The need for change was recognized by a wide range of organizations, including not just the major industrial power consumers, but also the Toronto Board of Trade, the Independent Power Producers Society of Ontario, Canadian Manufacturers and Exporters, Ontario Mining Association, Canadian Federation of Independent Business and the Greater Ontario Hotel/Motel Association.

Many environmentalists have also had the foresight to understand that competition in power can foster more innovation in energy conservation and a greater need by the competitors to live up to environmental standards — otherwise consumers will shop elsewhere for their electricity.

Will prices go up or go down under competition? We who support competition can’t promise lower prices, but those who oppose it can’t either. The consumer and energy organizations pushing for market opening never lived under the illusion that a competitive market would lead to lower prices forever. At least now, we will have the right to choose from a variety of suppliers to ensure that the most competitive pricing would be available. The law that paved the way for market opening, the Energy Competition Act, received broad support when it passed in 1998.

Competitive pricing was a key goal in establishing a real market — if there is competition, prices can fluctuate, and competing producers have an incentive to offer the best prices, to beat their competitors. But pricing wasn’t the only reason to establish a competitive market. Accountability and innovation were also key objectives.

Ontario Hydro had been an unaccountable monopoly. Over the years, Ontario Hydro was repeatedly criticized for its lack of accountability to the Ontario legislature or any other body. The white paper released by Energy, Science and Technology Minister Jim Wilson in 1997 pointed out that there was “an ambiguous relationship” between Ontario Hydro and the Ontario government. All three parties have criticized this relationship. In an era when corporate governance is increasingly considered important, this kind of relationship is inappropriate and untenable.

The Energy Competition Act established independent regulation of the Ontario electricity market and all its participants through the Ontario Energy Board and the Independent Market Operator. This represents a very significant victory for consumers. The era of backroom regulation is now over.

The lack of financial accountability has left consumers with a practical problem — the obligation to pay down more than $22-billion in “stranded debt” left by Ontario Hydro. Decades ago, the utility’s central planners went ahead with their plans, paying little heed to how the costs of building giant facilities would be paid back. Now we know — and we will pay. Consumers will be paying 0.7 cents per kilowatt-hour for the debt retirement charge necessary to pay off this stranded debt, and it will show up on our bills.

It’s easy to say we should have just kept going the old way, but we couldn’t — sooner or later the debt-holders want to be paid, and that time has come. Opening the market is a response to this mess, not a cause; in the new market, Ontario Power Generation and its competitors will be responsible for their own debts and will not be able simply to leave consumers with the tab for future decisions.

An open electricity market will also encourage smaller scale, environmentally friendly power generation. This is, in part, why Energy Probe, the Independent Power Producers’ Society and other environmental organizations have supported a competitive market.

Large public monopolies are seldom leaders in innovation. The competitive electricity market will open the door for new ideas. Already, we are seeing new projects coming forward, such as wind power, small-scale hydro generation and energy efficiency systems.

Looking further ahead, the opening of the Ontario electricity market holds a great promise for the Ontario economy, including Toronto. The city has the real potential to become the electricity centre for North America, in the same way that Calgary is Canada’s oil and gas centre.

At a time when there is concern about the long-term economic future of Toronto as a financial headquarters, it has the chance to become our power headquarters. The Greater Toronto Area is the head office location for the Independent Market Operator, the Ontario Energy Board, Hydro One and Ontario Power Generation, and the city is also the North American headquarters for Centrica and British Energy.

This head office concentration brings with it a critical mass of additional economic activity — the financial, engineering, consulting, accounting and law firms with expertise in energy. Proposals are now being discussed for establishing North America’s first electricity exchange in Toronto, as well as creating a “centre of excellence” in energy technology.

In all, an open electricity market promises major economic benefit to the province. It will ensure that Ontario consumers obtain competitive electricity prices, it will establish clear accountability, and it will open the door to innovation.