From a position of power

John Wilson
Toronto Star
January 28, 2004

Negotiating from a weak position is a bad idea, especially if you don’t have to. And yet, our provincial energy minister has announced this is exactly what he intends to do.

Although the freeze on electricity rates doesn’t show it on our bills, prices in Ontario’s unregulated electricity market are high.

This isn’t a position that would allow our government to negotiate reasonable contracts for more electricity production. Unless we make changes that enable us to negotiate from a position of strength, Ontarians stand to lose billions of dollars because of bad deals.

Energy Minister Dwight Duncan announced last week he is beginning the process of contracting out new electricity supply. He also acknowledged that these contracts would involve substantial sums of money, but declined to say how much.

In 2001, Californians ended up signing electricity contracts under duress when they faced high prices. Later, S. David Freedman, then head of the California Power Authority, told me those contracts would have to be either renegotiated or changed in the courts.

Californians were able to renegotiate some of the contracts and to use the courts to change others, but they still ended up losing billions of dollars. Energy Probe‘s Tom Adams has noted that because California signed contracts when prices were peaking, the state paid double what it should have.

Here in Ontario, our high electricity prices are caused by our uncompetitive market.

Almost no new production has been built for a decade. As a result, we now face a supply shortage for many years to come. In a supply-short market, prices are high – much too high. Negotiating when prices are high puts us at a disadvantage and virtually guarantees we will pay more than we ought to.

Premier Dalton McGuinty acknowledged this situation when he said, while still in opposition, "the market is dead." Ontarians listened and voted the Tories out. Now it’s time for McGuinty to earn our trust by beginning to bury the money-eating market. This would allow the government to negotiate from a position of strength.

The first step is to announce a closing date for our uncompetitive market that will signal to producers that the time for high prices is over. This will radically reduce the price we would have to pay for future electricity production.

Next, we should negotiate supply contracts with producers with the understanding that these contracts are part of a transition back to regulated prices set by a public power authority at arm’s length from the government.

Most Canadian provinces and most American states regulate electricity production prices. Provinces and states with regulated production have electricity prices that are significantly below those of their unregulated counterparts.

For almost a century, before the Tories foolishly put us at the mercy of the market, regulated prices provided Ontario with low-cost, dependable electricity.

Unless our government sets itself up with the leverage it needs to negotiate for Ontario’s electricity future, we will all lose. We will lose because Ontario’s economic edge depends on reliable, relatively inexpensive electricity.

Losing our competitive advantage would soon make us look like a U.S. rust-belt state without the money to assist struggling schools and hospitals.

Fully regulated production prices combined with an aggressive efficiency and conservation program and the building of clean, public electricity production would provide Ontarians with the least expensive and most reliable electricity possible.

John Wilson is a former board member of Hydro One and former chief negotiator for the Society of Energy Professionals.

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