Ronald Zajac
Brockville Recorder Times
April 23, 2002

ONTARIO — It’s a lot more complicated than throwing a switch.

As of May 1, Ontario residents will face the confusing and even frightening reality of a free electricity market.

Utility customers used to getting power from one company, be it convenient or irritating, will now have to choose between sticking with that company or signing with a licensed retailer promising deals that may or may not save them money depending on where the market goes.

Perhaps even more confusing will be the new, "unbundled" hydro bill, which will break down people’s electricity costs into different categories, only one of which is even affected by a retail contract.

It’s enough to make one throw up one’s hands and put off any major decisions.

Which is exactly what people should do, at least for the moment, says Tom Adams, executive director of Energy Probe, an environmental watchdog group that has been keeping a critical eye on the many changes to Ontario’s electricity market.

The way things are now, he thinks, Ontarians would probably save money by sticking with their current electricity provider, who will be required by law to sell them power at market prices.

"Eventually, it might make sense to sign with a marketer," said Adams.

"Right now, you should sit back, procrastinate and wait for things to settle down."

In fact, the commodity portion of the hydro bill – the part affected by deals with marketers – should be the least of people’s worries right now, said Adams.

The real worry, he believes, is in the transmission and distribution systems, or the poles and wires that bring the electricity to local communities and, ultimately, to people’s doorsteps.

Adams says that’s something customers across Ontario will be paying off for years to come in the form of higher electricity bills.

Perhaps so, says a provincial official, but things would have been a whole lot worse had Queen’s Park done nothing.

"Ontarians are going to pay lower electricity prices than they would have had we kept the old monopoly system in place," said Shane Pospisil, communications director for the Ontario Ministry of Environment and Energy.

"That doesn’t mean prices are going to be less; it means prices are going to be lower than they would have been."

Pospisil points to an often-cited study by the government and York University economics professor Fred Lazar, which claims introducing competition could save Ontario electricity customers up to $6 billion.

Both sides agree something had to change.

Under the old system, in which Ontario Hydro held a monopoly of the province’s electricity market, the provincially owned corporation racked up a massive debt of more than $38 billion.

The old system operated under a "power at cost" system, essentially user-pay, Pospisil noted.

That worked fine for decades, but things went awry in the 1980s and early 1990s, when Hydro’s expansion into nuclear power generation created huge cost overruns that ultimately trickled down to the users.

Ontarians were subjected to the highest electricity price hikes in the province’s history. Between 1983 and 1993, wholesale electricity prices in Ontario rose by 94 per cent. Distribution costs made that even more expensive for the average user.

Things started to change under the old NDP government of Bob Rae, which froze electricity prices in 1993. In 1995, the incoming government of Mike Harris froze them for another five years and set about fixing the system.

The result was Bill 35, the Energy Competition Act, the controversial legislation that would eventually lead to the sale of Brockville’s electricity utility.

In April 1999, it broke Ontario Hydro into five successor companies, including Hydro One, the firm that eventually bought the city’s electricity utility, which was once a part of the Public Utilities Commission (PUC).

The government sought to restructure the entire electricity market to make it more competitive. That’s a worthy project, but it has so far been poorly executed, according to Adams.

"At the outset, the project that was proposed made a lot of sense," he said. "[But] this thing has turned from a project that we could have been proud of into a nightmare."

That nightmare will take the form of higher electricity bills and a huge, taxpayer-backed debt left over from the old Ontario Hydro, he said.

"The reason," says Adams, "is disastrous leadership around the transition process."

For starters, the government decided to take the old electricity utilities, quasi-municipal bodies whose accountability structure was ill-defined, and turn them into more competitive private entities known as local distribution companies (LDCs).

Good idea, Adams believes, but for one crucial decision.

After figuring out what the utilities, built up by ratepayer dollars, were worth, the province turned them over to municipalities, in essence giving them a cash windfall that would have been better spent paying off part of Ontario Hydro’s debt.

That left municipalities, at the time, with the option of selling the utilities for a profit or making money running them.

Brockville’s cut of that transfer is the $12 million it made by selling the utility to Hydro One, a sum that remains in the bank until a public debate is held on how best to spend it.

Compounding the problem was Bill 100, further legislation introduced in 2000 that restricted the abilities of LDCs to make a profit. The legislation sent a chill to investors who were ready to snap up LDCs and run them for profit.

In Brockville, that legislation – which never became law – scuttled a lease deal with Enbridge.

That development, as well as a 30 per cent "transfer tax" municipalities would have had to pay to sell their LDCs to anyone other than Hydro One, essentially allowed the successor to the old Ontario Hydro to grow cancerously" by buying up former municipal utilities to the tune of $555 million, said Adams.

"Those acquisitions were all backstopped by taxpayers," he said. "It was a colossal mistake."

Adams believes the provincial government, while it set out to clean up the mess left behind by Ontario Hydro, caved in to pressure from the large firm and thus allowed its successor to grow.

Adams figures that, as a result of transmission and distribution costs and the repayment of the old Ontario Hydro debt, the average Ontarian will see that his or her overall electricity bill has risen by roughly 20 per cent compared to March 1999, the last month before the Ontario Hydro breakup.

"Signing with a marketer doesn’t give you any protection whatsoever from this," he said.

Complicating the situation even further is the more recent news that the province may not have the electricity supplies it had forecast for this year and possibly 2003, a situation that may lead to brownouts.

If Ontario has to buy more power from outside sources, that, too, can increase the overall electricity bill, Adams notes.

"It’s going to increase our prices," he said.

Pospisil denies the province pressured municipal governments to sell their utilities to Hydro One or stacked the deck in the company’s favour.

He notes there are 94 LDCs in the province operating independently from Hydro One. Out of Ontario’s 4.1 million electricity customers, Hydro One serves 1.2 million.

Meanwhile, the $555 million in acquisitions were made not by Ontario Hydro, but the new Hydro One, a firm set up to be a commercial entity that makes purchases on its own credit rating rather than any guarantee of taxpayer dollars, Pospisil said.

While electricity bills may rise, Pospisil believes the new system will protect consumers against unjustifiable increases.

All rate increases for things like transmission or distribution must get the approval of the Ontario Energy Board, an arm’s-length, quasi-judicial provincial panel, he said.

The province has designed the rules so that distribution companies – be they Hydro One or independent – cannot make more than an after-tax return of 9.8 per cent.

Adams concedes there are more safeguards built into the new system.

In fact, he takes issue with the term "deregulation," noting the old Ontario Hydro was subject to much less regulation than its successor firms.

He points to the OEB’s role, as well as the new Electrical Safety Authority, an arm’s-length provincial agency designed to keep the power system safe. In the old days, Ontario Hydro essentially performed that role on its own, he said.

But for the Ontario electricity user, the final test will not be on paper, Adams cautions.

"We’re going to have to see how these instruments perform," he said.