Paul Vieira
National Post
November 12, 2002

MISSISSAUGA, ON — The Ontario government said yesterday it will cap the price consumers pay for hydro power until 2006 – a move critics contend spells the end of the province’s electricity deregulation, adds billions in taxpayer-owed debt and increases the risk of California-style blackouts.

Ernie Eves, the Premier, said the price cap – at 4.3¢ a kilowatt hour – will be retroactive to May 1, when reforms kicked in to open the province’s $10-billion market to competition. Consumers will be refunded the difference between what they paid since May 1 and what they would have paid at the capped rate.

As a result, households and small businesses will receive initial rebates of at least $75 in the mail by the end of the year – or $300-million in total. The remainder will be credited through future electricity bills.

"There are a lot things you can do without – but electricity is not one of them," Mr. Eves said at a media conference held in a large house in Mississauga.

"It is unacceptable that families are being hit with hydro bills they can’t afford and businesses are facing cost increases significantly larger than they can handle. The problem requires immediate action and we are taking it," the Premier said.

Rebates were originally scheduled to be mailed starting in May, one year after the market was opened.

To make his point, Mr. Eves told the Hardatt family – who hosted the announcement – that a recent hydro bill would be $117.49 less under the new regime.

"For us, I know for sure we were second-guessing whether we would actually bother putting up Christmas lights," Meena Hardatt said. "This will make a big difference."

The price cap will remain in place until at least 2006 and until sufficient supply to meet Ontario’s hydro needs is assured, Mr. Eves said.

The province will fund the rebates through revenue recorded by Ontario Power Generation Inc., the Crown-owned utility that controls 75% of the power production market.

In essence, the government is banking that electricity prices will remain below 4.3¢ a kilowatt hour. Anything exceeding that cap will be subsidized by the province – which critics say is how the debt of the old Ontario Hydro ballooned to $38-billion.

Mr. Eves also said people who signed long-term fixed price contracts, usually at a price of 5.75¢ a kilowatt hour or higher, will be eligible to get the capped electricity rate. However, the province will pay the power retailers the difference.

Provincial Opposition leaders and industry watchers said the move will cost taxpayers billions of dollars.

"[The Tories are] prepared to do whatever it takes to buy the election," said Dalton McGuinty, leader of the Ontario Liberal party.

"Our kids are going to pay a heavy price for this government’s bungling."

"It’s a $1-billion-a-year coverup," Howard Hampton, leader of the New Democratic Party, added. "The government is going to now ask people to subsidize profit-driven hydro companies through the taxes we pay.

"Expect an election within three or four months before the tax pain of this comes out."

Ontario households have seen their hydro bills jump by roughly 25% since the province’s power market was opened to private-sector competition. Under the new system the price of electricity was set on the open market, and the jump in price was largely the result of heavy demand (as consumers cranked up their air conditioners to deal with a hot, humid summer) and acute supply problems (as OPG failed to return the much-troubled Pickering A nuclear facility to service before last summer as originally scheduled).

Deregulation was intended to attract private-sector utilities to Ontario to build power plants. This, in turn, would create competition and lead to lower prices for consumers.

But utilities have stayed away, due to a number of factors, such as delays in introducing deregulation and continued government interference in the market, such as the cancellation of the Hydro One privatization.

John Baird, Ontario’s Energy Minister, will announce as early as today ways the government plans to encourage and entice utilities to invest.

But it will be too little and too late now that the province has introduced a price cap for consumers, said Tom Adams, executive director of industry watchdog Energy Probe.

"Ontario is behaving like a banana republic," he said. "The liberalization of the electricity market has ended because, without a floating price, you have no market. . . . There’s going to be a huge retreat from any investment capital that was still looking for places to go to help solve our electricity problems."

Mr. Adams also warned rolling blackouts are in the offing because households have no reason to reduce power consumption with this new capped price.

"We just barely had enough electricity to make it through last summer. Now, by disconnecting the primary source of energy conservation signals to the market . . . the likelihood of blackouts this winter has gone way up. Not just this winter, but next summer as well."