December 19, 2001
‘100% convinced’: Premier puts faith in benefit of market deregulation.
Ontario will officially open its $10-billion electricity market to competition on May 1 and Mike Harris, the Premier, says he is “100% convinced” it will result in cheaper power for consumers.
“We are taking this bold historic step because I believe opening the market will lead to more choice, to greater savings and better customer service for the people in Ontario,” said Mr. Harris at a media conference yesterday at the province’s legislature. “I am convinced … rates will be substantially lower than they would have been had we not taken this decision.”
When pressed on whether the price of power will be cheaper come May 1, Mr. Harris said that was difficult to say – just as it is hard to predict what a department store will charge for its goods on a particular day.
“I can tell you that having competition … not only will get the efficiencies of a marketplace, but you will get lower rates – and this will be a competitive advantage for the people and businesses in this province.
“I am 100% convinced,” he said.
Industry experts and opposition politicians, however, were skeptical .
“I don’t see a scenario where Ontario electricity prices are going to go back to when the industry restructuring started” in the late 1990s, said Tom Adams, executive director of Energy Probe, a think-tank and watchdog of the power sector.
He estimated consumers’ electricity bills could climb by 20% due to a number of factors – most notably an average 70% increase in distribution costs granted to local utilities in 1999 and 2000.
Some of those increases have been implemented, with the bulk of them to be phased in by 2003, Mr. Adams said.
Howard Hampton, leader of Ontario’s New Democratic Party, said the history regarding electricity deregulation suggests prices are headed up. “In every case where they looked to deregulate and privatize the electricity system, prices are now higher. In some cases, 40% higher before deregulation.”
The opening of the Ontario power market has been six years in the making. After years of committee reports and recommendations, the Conservative government prepared for market deregulation by splitting the old Ontario Hydro monopoly – which increased rates 40% in the early 1990s and accumulated $21-billion in stranded debt – into five pieces. The most important two elements are Hydro One Inc., the transmitter that will be privatized next year, and Ontario Power Generation, which must reduce its control of the province’s power supply to 35% by 2012.
The market was set to open in November, 2000, but setbacks along the way, including deregulation debacles in Alberta and California, forced Ontario to wait until now.
The Independent Electricity Market Operator (IMO), which directs the flow of power, and the Ontario Energy Board, the provincial regulator, told the government the majority of municipal utilities and distributors are ready to operate in the new market. This is crucial because the utilities are required to issue new bills that show customers how much they are charged for, among other things, power, distribution and transmission.
The IMO also told the government there is enough power for the Ontario market for the forseeable future.
In the new Ontario market, consumers are free to buy their power from whomever they want. In essence, they have two choices.
– Either do nothing. Their current provider will continue to supply power at so-called market rates – which, like the price of gas and bananas, will float and be determined by supply and demand. This is the option recommended by Energy Probe, because rebates are available to customers if OPG pulls in revenue over a certain amount.
– Or sign a pact with one of a myriad of retailers scouring the province. The power retailers are offering rates locked in for a set period of time, generally three- to five-year terms.
Mr. Adams said rates are headed higher – but the opening of the market has much-needed benefits. Namely, it will attract new rivals to OPG; strengthen transmission connections with neighbouring jurisdictions in an effort to secure low-cost power; and help reduce the multi-billion-dollar debt the province is stuck with as a result of the old Ontario Hydro monopoly.