David McArthur
Natural Gas Market Report
March 19, 2001

In another development related to the opening of the new Ontario power market, the Ontario government recently dumped an outspoken, reform-minded critic of the province’s electricity system from the board of directors of the IMO.

Tom Adams, the Executive Director of Energy Probe, an environment and public interest group based in Toronto, was the only one of several IMO board members not reappointed in February by Jim Wilson, the Ontario minister of energy. James Baillie, the IMO chair, had approved Adams’ reappointment.

Before his IMO appointment, Adams was a member of the Market Design Committee, which had laid the ground rules for the new power system. Adams sees his lack of reappointment as a test of how far the government is going to allow the IMO to be independent.

“I took the independence of the IMO very seriously and recognized that some of my comments could make it difficult for the government to reappoint me,” he told NGMR. He noted that recent actions of the Ontario Government have reduced the independence of the IMO and the OEB.

Concerns are also being expressed that delays in opening Ontario’s competitive power market could cause electricity shortages, as in California.

Robert McLeese, President of the Independent Power Producers’ Society of Ontario, and others, have urged that Ontario not further imperil investment in new power projects with further delays and regulatory uncertainty.

Ontario’s recent electricity demand growth requires substantial new generation capacity each year, equivalent to a large, new generating station, which would likely be fuelled by natural gas.

Ontario headed in wrong direction?

These developments all relate to fundamental problems in the new Ontario market structure, which as planned, promises to be an unwieldy command and control form of regulation, designed primarily to pay down Ontario Hydro’s stranded debt, while allowing the corporate offspring of Ontario Hydro to be free to exploit their monopolies while slowly moving towards competition (NGMR, March 5).

Ontario’s new market structure has been greatly hampered since Ontario Hydro’s generation division was never broken up and sold off, as in other jurisdictions, which recognized that that was the only way to allow actual competition.

Rather than allowing immediate and efficient competition and customer choice, and deregulation, the new Ontario structure actually shares many similarities to the problem-plagued California market structure.

The very features which the regulators of the ungainly Ontario market structure hope to use to cope with and mitigate the market power of OPGI, and to pay down Ontario Hydro’s legacy of stranded debt, appear to be greatly contributing to the complexity of the new Ontario market, and the difficulty and slowness by market participants in preparing for market opening.

Thus, Ontario’s market system may be obsolete and prone to problems at birth, by being based on early British-inspired electricity market systems, which have had a tendency towards market abuse, high prices, and inefficiency. The world’s most advanced and most enlightened power market is scheduled to open shortly in Britain. The revolutionary New Electricity Trading Arrangements (NETA) has been given the go-ahead to commence March 27.

The system will use multiple power exchanges, and treat electricity as a commodity in fast-paced bilateral or multilateral buying and selling of power. It will dispense entirely with the questionable practice of awarding the highest, or marginal cost, to all power suppliers in power auctions, as in Ontario, California and elsewhere.

NETA was designed to lower costs, increase trading efficiency, and prevent market abuse. Ontario could do well by carefully studying NETA’s design, rationale and performance, and adopting a NETA-like system right from the start in its new power market.