Paul Vieira
National Post
October 10, 2002

A major credit rating agency says it may have to downgrade the power utilities doing business in Ontario unless the Conservative government refrains from intervening in the electricity sector and flaws in the market are fixed.

The statement from Dominion Bond Rating Service Ltd. is the latest blow to Ontario’s $10-billion power market – this one two days after the province launched a review of the Ontario Energy Board, the agency that regulates the market, and an independent panel warned of a "serious shortage" of electricity that could lead to California-style rolling blackouts next summer.

Any move by DBRS will hit consumers, because a downgrade increases the utilities’ cost of raising cash – and those increased costs will be passed on to consumers through higher rates. Consumers are already reeling after receiving their recent hydro bills, which have doubled or tripled from the last statement.

"It’s unavoidable. That’s the consequences," said Tom Adams, executive director of Energy Probe, an industry watchdog.

In its statement, DBRS said political interference in the power market has come with a price.

"The combination of political intervention in the Ontario electricity market since the spring of 2002, certain market design flaws and various regulatory issues has created disincentives to investing in the Ontario market. If political intervention continues either directly or through the OEB, such that the financial position of those companies whose operations are concentrated in Ontario is materially affected, rating downgrades could be warranted."

The rating agency added that political interference creates uncertainty about the market, and "reduces the incentive to invest in Ontario, which could exacerbate the tight demand-supply conditions over the medium term.

"Any situation that causes electricity prices to remain high could result in further government intervention at the expense of electric utilities," the agency said.

Mr. Adams said the DBRS statement highlights the flaws in the government’s electricity policy.

"This is a perverse situation because [Premier] Ernie Eves is taking these panic measures to try and protect consumers. But his approach is like throwing a boomerang – it is coming back to harm consumers."

John Baird, Ontario’s Energy Minister, played down the DBRS statement. "I think we’d all like to see a greater degree of certainty [about the market] and that’s something I’m working on."

Companies affected include Crown-owned giants Ontario Power Generation Inc. and Hydro One Inc., and a number of local utilities that distribute electricity throughout the province. "These distributors are already stressed to meet capital and cash flow requirements," Mr. Adams said. "This news from DBRS will make a bad situation worse."

Since last spring, when Ontario’s market was opened to competition, the government has "intervened frequently" in an effort to protect consumers, DBRS said. The moves include: a decision to kill the privatization of Hydro One, the transmitter; the review of the OEB; and statements from Mr. Eves indicating OPG will have to pay out rebates promised to consumers even if the Crown utility’s revenue drops through the sale of assets – a requirement under the market regulations.

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