Joe Schneider
Bloomberg.com
April 15, 2004

Ontario Power Generation Inc., the province’s biggest producer of power, will have the price of its hydroelectric and nuclear energy regulated by the provincial government to reduce the volatility in consumers’ monthly bills.

Electricity from Ontario Power’s other energy sources as well power from other producers can be sold on the open market, Ontario Energy Minister Dwight Duncan said in a speech in Toronto.

"We’ve looked at moving to a fully competitive market, but couldn’t find one that worked anywhere in the world," Duncan said. "Our aim is not to limit options, but in fact to improve them."

About 46 percent of the electricity produced in the province will now be sold at a fixed price because Ontario Power generates about 70 percent of Ontario’s power and two-thirds of that comes from hydroelectric and nuclear plants. Companies with hydroelectric and nuclear operations, such as Brascan Corp. and Bruce Power LP, can choose the fixed price or the spot market, Duncan said.

The pricing plan will be part of new legislation the government will introduce later this year, and which, if passed by the legislature, will take effect early in 2005, Duncan said. Duncan’s Liberal Party has the majority of seats in the legislature.

Ontario Power had a net loss of C$491 million ($365 million) last year and the company’s earnings between 1999 and 2003 of C$2.1 billion missed its own target by C$1 billion as higher operating costs and delays and cost overruns in refitting nuclear reactors cut profit.

CEO Search

Former Canadian energy minister Jake Epp, who has been Ontario Power’s interim chairman since Duncan fired former Chairman Bill Farlinger and Chief Executive Officer Ron Osborne in December, will keep the post on a permanent basis, Duncan said.

The government also plans to appoint nine new board members within the next few weeks. A search for a new CEO, to replace interim Chief Executive Richard Dicerni, has also begun, Duncan said.

Ontario faces a power shortage as early as 2006 as the province begins shutting coal-fired plants to reduce pollution. Closing the looming gap between supply and demand will cost between C$25 billion and C$40 billion over the next 15 years, Duncan said.

New Authority

The government plans to create a new agency, called the Ontario Power Authority, to oversee the construction of new plants and offer long-term contracts to companies, if necessary.

The minister’s proposals are similar to a system already in place in New Brunswick, where the government also regulates the provincial utility, said Tom Adams, executive director of researcher Energy Probe.

Since the regulation was put in place on New Brunswick Power Corp. its debt has gone up, Adams said.

"The rates are controlled but the costs are not," he said.