Paul Vieira
National Post
May 9, 2002

A group representing Ontario’s local electricity utilities is recommending the provincial government spin off Hydro One Inc.’s distribution business because the company’s current structure does not promote competition and may lead to higher power bills for households.

The report, from the Electricity Distributors Association (which counts Hydro One as a member), says that allowing the Crown-owned utility to continue operating in both the transmission and distribution fields will likely result in higher costs and significant disadvantages with regard to price, regulation and competition in Ontario’s electricity sector.

"If you have a transmission, plus a big chunk of [local] distribution, there’s substantial risk for price distortion," said Adonis Yatchew, a University of Toronto economics professor and a study co-author.

As a result, "certain prices are going to get driven up, like generation prices, and that will be reflected in your bottom line bill," Mr. Yatchew added.

The EDA report echoes recommendations made by other industry observers, including Tom Adams, executive director of Energy Probe, and Donald Macdonald, one of the architect’s of Ontario’s restructured power market.

However, Eleanor Clitheroe, Hydro One’s chief executive, disagreed with the study’s findings.

In a letter to Charlie Macaluso, EDA’s CEO, Ms. Clitheroe said the report had the "interests of small distribution utilities in mind – not their customers." She added there are savings to be had for ratepayers by running transmission and distribution. Hence, splitting the operations "is a step backwards and would serve only to add costs to consumers at a time when they can ill afford them."

The Crown-owned utility operates Ontario’s high-voltage transmission grid. And over the past few years, it has acquired 88 local utilities, or distributors. In a preliminary prospectus filed in connection to its planned initial public offering (now on hold because of a court ruling), Hydro One said it wants to be a consolidator in the local distribution sector.

The EDA represents 90 local distributors, which own and operate the low-voltage wires that distribute electricity to homes, businesses and public institutions in their respective municipalities.