John Ibbitson
Globe and Mail
January 25, 2001

Even the most inflexible free-market ideologue must feel some compassion for Ontario Premier Mike Harris and his Energy Minister, Jim Wilson.

The Ontario government has spent 5½ years carefully laying the groundwork for an open market in electricity. After numerous delays and course corrections, the province is almost ready for the big bang of deregulation, ready even for the outrage from homeowners when they see their energy bills shoot up.

And then along come the troubles in California, the unpleasantness in Alberta, and everything has to go back on hold.

Which is why the Premier took pains yesterday to emphasize that, while an open market in electricity is coming in Ontario, it might well not come this year.

"There is not an urgency for Ontario," the Premier emphasized. "There is no artificial deadline that I can see."

There used to be a deadline, a quite specific one of Nov. 1, 2000. Then it was moved to sometime this year. And now?

"Don’t expect us to lead into any uncertainty," the Premier warned, in his unique English. "Expect us to logically think through this process and be able to move at the right time."

Blackouts in California and price spikes in Alberta have left the Tories fearful of the political fallout from deregulation. The problem, as they know full well, is that the longer they delay, the worse the impact on the typical homeowner will be.

Electricity is just stuff, the way wheat is stuff, cars are stuff, clothes are stuff. But people think of it as something else, as a basic entitlement, like penicillin. After all, electricity is stuff no one can afford to be without.

All North American jurisdictions are moving or have moved toward deregulation because it makes sense: Publicly owned utilities do the job poorly. (Ontario Hydro managed to bequeath a debt of $20-billion before it was restructured.) All jurisdictions are also trying to protect consumers from increased electricity bills as a result of deregulation. This is impossible.

In Ontario’s case, about half of the typical homeowner’s energy bill is composed of delivery, administration and debt charges. Because the government has subsidized these charges in the past, they will go up under deregulation. One informed guess, from the industry watchdog Energy Probe, predicts an increase to the total energy bill in a typical household of about 7 per cent a year for three years.

The rest of the bill — the cost of the juice — will go up or down, depending on the cost of juice. In theory, deregulation should lower costs, as private investors build plants and compete for our energy dollar.

But new generator construction might not keep up with demand, leading to price increases (Alberta). There might be no new generators — or even financially viable utility companies — at all, if governments cap rates below fair market value (California).

The Ontario plan suffers from a bit of both evils, but not enough to be fatal. The greatest threat is delay. The sooner the province moves to an open market in prices, the sooner private investors will start building plants that ultimately lower the province’s energy costs. The longer the delay, the greater the risk that energy companies will build elsewhere.

One reason that electricity rates in Ontario are bound to go up under deregulation is that they have been frozen since 1993, while the real world has moved on. One way or another, the freeze must be lifted. The alternative — to retain our publicly owned utilities, with rates frozen — will only lead to decaying plants and staggering debt.

Nonetheless, this is politically an impossible time to move ahead with deregulation. Consumer fear is simply too high. But the government must signal its intention to move soon, preferably within the year.

Otherwise the province will not be another Alberta, or even another California.

It will be the worst place of all: Ontario.