Thomas Adams
National Post
July 13, 1999

After having undergone one of the world’s largest-ever electricity restructurings, Ontario’s electricity system is still out of control, and still a grave threat to consumers, democracy and the environment. While new legislation has laid the foundation for a fully competitive system, so far the Ontario government has done little more than split the old Ontario Hydro monopoly into two separate, government-owned monopolies: Ontario Hydro Services Co., which runs the power grid, and Ontario Power Generation, which produces the power. If the Tory government, in its second term, doesn’t break with its centralizing ways, Ontarians won’t see meaningful improvements for years to come.

Because Ontario Power Generation — now a for-profit company — commands 80% or more of the market, it will be able to manipulate prices, despite regulatory and contractual band-aids the government put in place to control its excessive market power. Although a contract between the company and its government owner requires that percentage to decline, the old monopoly in its new clothes can maintain its hammerlock on consumers for at least five years. To create real competition — and real protection — for consumers, the government must break up this virtual monopoly. The regulators will have difficulty enough controlling Ontario Hydro Services Co., which has a natural monopoly over the power grid and cannot be controlled by competition.

Both commercial successors to Ontario Hydro are as political and secretive as Hydro ever was, only now their sole shareholder, the Ontario government, expects dividend cheques from them. This profit motive gives the Tory government a keen interest in hiding the companies’ gouging of consumers, and in capturing their monopoly profits for itself. Appallingly, the Tories exempted these two government-owned firms from the province’s Freedom of Information Act, to hide their activities from their ultimate owners — Ontario taxpayers. To aid Ontario Hydro Services Co. in acquiring the province’s municipal distribution utilities and expanding its grid monopoly, the government slapped a 33% transfer tax on private-sector bidders who might offer the municipalities a higher price. If the grid company succeeds in taking over the municipal utilities, the corporate concentration of Ontario’s electricity system will become greater than at any point in its history.

Customers aren’t the only ones who lose out: The environment is also a casualty of the Tories’ failure to break up and privatize the power-producing plants. In many categories of emissions, Ontario Power Generation is Canada’s largest or second-largest air polluter. Because it doesn’t want the expense of abating pollution from its huge fleet of coal-fired stations, the government is compromised by its conflicting interests as both owner and regulator. The Tories have yet to deliver on their 1997 White Paper, which promised environmental improvements along with their electricity reforms. In fact, far from curtailing coal-fired emissions, Ontario Power Generation is upgrading its largest emitter, a coal-burning station at Nanticoke on Lake Erie, to increase energy output.

The government’s failure to modernize environmental rules undermines investments in the power market by keeping potential competitors in the dark about whether the existing government-owned coal plants will continue to pollute for free. It also keeps out of the marketplace vast supplies of clean, gas-fired power, which would have boosted competition and put downward pressure on prices.

Toronto Hydro, Hydro Mississauga and many other electricity distribution monopolists are before the Ontario Energy Board today, seeking regulatory protection from the competitive market. They want to strike down proposed rules that would allow ordinary residential customers to buy straight from producers with virtually no middlemen. Instead, the monopolists and their allies — U.S.-based multinational Enron, the Independent Power Producers Society of Ontario and some unions — who want to sell to a captive market, argue the OEB should bind residential customers to municipal utilities, and regulate them, all in the name of protecting customers. To sugar-coat their monopoly pill, the utilities would make token purchases of green power: from a windmill here or a gas-fired station there. Much to the delight of these monopolists, some environmentalists are joining their effort to restrict customers in shopping for power, opting for this central planning approach in the absence of better environmental rules.

Many believe the public — primarily due to safety concerns — will not accept the privatization of Ontario’s nuclear plants. Yet privately owned plants are sure to face greater scrutiny, and to be held to higher safety standards, than has been the case under public ownership. Should private owners take over the nuclear plants, public pressure would likely force the government to weaken the federal Nuclear Liability Act, which exempts nuclear operators in advance from anything more than $75-million in third-party liability, and undermines the safety culture that is indispensable to running these inherently dangerous machines. Canada’s publicly owned nuclear operators have so far failed to provide for funded waste disposal and decommissioning reserves — a deficiency that a future privatization process should and probably would remedy. Only recently, due to concerns over potential changes of ownership of Ontario’s nuclear reactors, the Atomic Energy Control Board, the federal nuclear safety regulator, demanded explicit financial guarantees for decommissioning and waste disposal.

In a fully competitive power market, private owners would invest more rationally than would ever be the case under public ownership. Ontario Power Generation’s plans to invest in the restart of the Pickering A plant — it is poised to commit $750 million, plus unknown future amounts — is an example of a high-risk decision a purely private investor would probably avoid. More rational investments translate into less nuclear power.

Ontario’s new provincial government is well positioned to push for a better system, since all major stakeholders still support most of the pro-competition reforms. New legislation has created institutions equipped with regulatory powers designed to check monopoly abuse, and to provide fair rules for the competitive marketplace. But they will count for little in a system that remains centralized and politicized.

If we have learned anything from the experience with the old Ontario Hydro, it is that although public ownership looks superficially like public control, the opposite is true. Power privatization done right is in the public interest: It would improve the environment, prevent corporate concentration, lower rates and spare Ontario citizens more of the needless debt the old Hydro saddled them with. Until the provincial government untangles itself from ownership of commercial power businesses, the power business will remain out of control.

Thomas Adams is executive director of Energy Probe, an environmental and economic think tank.