Energy Probe

Cheryl Kim
Dow Jones Energy Service
October 27, 2000

TORONTO -(Dow Jones)- Atlantic Canada should aim for a regional power market as it moves toward liberalization, rather than doing things province by province, an energy industry thinktank said Friday.

"An interjurisdictional market reduces the grip of politicians," as seen in the experience of PJM and Australia, said Tom Adams, executive director of Toronto-based Energy Probe. A broader market will also have practical advantages, including spreading out set-up costs, Adams said.

Speaking before a electricity deregulation conference in Halifax, Adams detailed the ongoing trials of deregulation in Ontario and mistakes Atlantic Canada shouldn’t repeat.

"Several deficiencies of the Ontario market reform process relate directly to the problem of politicians no wanting to lose their power," Adams said. He pointed, for example, to the Ontario government’s failure to privatize the successor companies of the old Ontario Hydro monopoly, and the decision to retain directive power over the Ontario Energy Board.

As reported Thursday, east coast utilities including New Brunswick Power Corp. (X.NBP) and Nova Scotia’s Emera Inc. (T.EMA) are discussing forming an eastern Canada regional transmission organization that may also include Maine.

It is also important, Adams said, to define a public-interest mandate for power liberalization, because electricity reform processes are easily co-opted by interest groups such as major industrial power customers and selected producers.

Reformers should also work to develop investor confidence, Adams said, pointing to the Californian and Alberta markets which have seen slow investment in new supply. He warned that Ontario is at risk for the same problem.

Investors will be attracted by real competition, financial accountability and arm’s length regulation, in practice, not just words, Adams said.

The Halifax conference comes when New Brunswick, for one, is preparing a comprehensive energy policy that will include direction for electricity competition in the province.

Tom Adams and Michael Hilson
National Post
November 17, 2000

Two weeks ago, and four months late, Ontario Electricity Financial Corp. (OEFC) — the bailout agency for the old Ontario Hydro — released its first annual report. Despite government pledges to restore financial responsibility to the revamped power sector, the flood of red ink pouring from Ontario’s electricity system is rising. Although OEFC’s mandate is to service and retire the former Ontario Hydro’s liabilities, the liabilities are mushrooming. The new Hydro is running amok, and taxpayers are worse off by more than $1-billion.

Until it collapsed in 1998 under the weight of its financial woes, Ontario Hydro was the most powerful Crown corporation in Canada. Believing that demand for power would rise, rates would fall, and nuclear reactors could produce cheap power, Hydro persisted in its nuclear expansion program long after all other power utilities in North America abandoned theirs.

The reality was dramatically different. Darlington, Hydro’s last nuclear station, came in at $14.4-billion (about 3.7 times the original estimate, after correcting for inflation). Hydro had signed deals to buy overpriced power from private generators for up to 50 years. And it had signed other deals to sell discounted power to major corporations, especially big power users. Rates soared 20%, demand for power fell, and Hydro’s pretence of being a well-run corporation was shattered.

Three key factors allowed these disasters to occur. Inaccurate accounting allowed the company to pretend it was profitable. Parliament provided loan guarantees that relieved lenders of the need to be diligent. And Hydro claimed commercial confidentiality to avoid releasing details. The public was kept in the dark about Hydro’s irresponsible management and precarious finances, and the result was bankruptcy. The Ontario government now estimates that Hydro’s net value when it was wound up was negative $20.9-billion.

The Ontario government claims the power sector could never again run out of control. Ontario Hydro was reborn as two commercial Crown-owned companies, Ontario Power Generation (OPG), which owns the generating stations, and Hydro One (H1), which owns the transmission lines. Energy Minister James Wilson claimed this would provide "greater accountability to taxpayers and ratepayers." The Harris government’s restructuring plan assumed that the debts of the old Ontario Hydro could be paid down with payments to OEFC from OPG and H1, the new, presumably financially prudent, commercial companies. The plan also assumed that future asset sales would help pay down the debt.

Instead, the new Hydro companies are less prudent than the old one. Rather than paying down their debt expeditiously, the new companies are keeping most of their profits for themselves: Of the $903-million they made in their first year, the companies released only $285-million to pay down the debt.

Rather than slimming down by selling off unneeded assets, these companies are acquiring new assets feverishly, and financing them with $1.6-billion in new borrowing. The old Hydro managed to cut its debt by $5.4-billion between 1994 and 1998 — more than $1-billion per year. In their first year, the new Hydro companies needed an additional $834-million in taxpayer-backed debt, which now sits on OEFC’s books, pushing its debt above $32-billion. OEFC’s assets? Debt from OPG, H1 and the Ontario government.

OEFC’s accounts are even less transparent than Ontario Hydro’s. Although it’s not disclosed anywhere in OEFC’s books, officials in the provincial auditor’s office reveal that the new power system is not recovering its costs from power consumers: In addition to providing loan guarantees, taxpayers directly contributed $235-million to cover its debts last year.

Whereas the old Hydro’s books report in some detail the assumptions behind its multi-billion-dollar nuclear waste disposal and decommissioning liabilities, OEFC’s books contain none of this information.

All told, taxpayers face a new $1-billion-plus liability earmarked for ill-advised projects by OPG and H1.

With the public writing the cheques, H1 is buying 88 municipal distribution utilities at premium prices — twice their value, according to industry analysts.

Meanwhile, OPG’s main investment activity is refurbishing the laid-up Pickering-A nuclear station. The old Hydro also refurbished that station in the 1980s, and lost approximately $2-billion for its effort. But even if the new Hydro’s nuclear engineers are more capable than the old Hydro’s — an unlikely prospect — and even if the new Hydro escapes without cost overruns — also unlikely — the venture makes no economic sense. Used nuclear capacity in working order is available in the United States for less than half the price OPG plans to pay to refurbish Pickering-A.

OPG’s investments make even less sense for society. Ontario has not learned from California and Alberta, where governments have discouraged investment in new power plants, leading to widespread power outages. The prospect of competing against an expansionist public-sector near- monopoly with access to public funds has driven most private generation investment from the province.

OEFC — the legal successor to Ontario Hydro — was created to be the agent through which the irresponsible legacy of Ontario Hydro was finally put to rest. Instead, it has become an agent to give the new Hydro unprecedented access to the public purse, setting the stage for a new and unprecedented experiment in electric monopoly empire- building.

Ontario’s budget balancing act

"Mr. Speaker, the budget is balanced," Ontario Finance Minister Ernie Eves said triumphantly in bringing down his budget at the Ontario legislature in March. "Never in the history of this province has a government at the end of five years in office been able to say that everything was paid for and that the net debt had been reduced," he said, quoting Ontario Premier Leslie Frost in his balanced-budget address of 1948. "As we approach our government’s fifth anniversary, I am proud to stand before you and say that, once again, the budget is balanced and the net debt has been reduced."

Not quite. Although Mr. Eves reported that day that Ontario had generated a surplus for the 1999-2000 year, the figures weren’t all in. Behind the scenes, the successor to Ontario Hydro, Ontario Electricity Finance Corp., was making mockery of the provincial accounts and proving as unreceptive to fiscal discipline as its predecessor. Ignoring its legal requirement, OEFC would not report for months.

On June 27, the provincial auditor met with OEFC’s government-dominated board to discuss the corporation’s financial position for the year ended March 31, 2000. The auditor recommended that the loss be rolled in to the province’s consolidated statements for the year ended March 31. Doing so would have resulted in the province reporting a $47-million deficit for the year, making a liar of Mr. Eves.

OEFC’s board and the Ontario government refused to accept the auditor’s recommendations. Instead the numbers were massaged: When the audited statements were finally released on Nov. 1, the provincial auditor’s report showed a much smaller loss. As a consequence, the government was spared the embarrassment of retracting its claim that the budget had been balanced.

Background Information

by: Michael Hilson and Tom Adams

November 17, 2000

The raw financial data reported in the article and this note are draw from "1999-00 Ontario Public Accounts (November 1, 2000)", found at 1999-2000 PUBLIC ACCOUNTS OF ONTARIO.

This note addresses two areas of the column. First, the details of the difference between the Province’s recognition of a $354 million electricity sector loss and our contention that taxpayers are now $1.069 billion worse off, and the resulting difference between the Province’s reported budget surplus of $668 million and our calculation of a $47 million deficit. All figures below are in millions.

Second, it details the items in the Province’s and OEFC’s accounts, eventually accepted by the Provincial Auditor, with which we disagree.

1. Reconciliation of Electricity Loss

1. The Province has included the net income of OPG and H1 ($512 and $391 respectively) in its consolidated revenues. We argue that only the cash dividends paid of $285 ($114 and $171 respectively, Ontario Public Accounts Vol. 2 Schedule 7) should be included.

2. The Province has accrued $383 (which is the above net income in excess of its $520 interest cost on notes payable to OEFC) as a payable to OEFC. If the Province reported income on a cash basis this would be unnecessary. See 3.

3. OEFC reported a net loss of $554. This reflects $383 in OPG and H1 profits to be forwarded from the Province (See 2.). In arriving at the "Net Impact of Electricity Restructuring to Be Recovered from Ratepayers" which is reflected in the budget surplus/deficit, the Province has added back $200 in deferred taxes which were recorded by OPG and H1 in arriving at their above net incomes. Apparently, their position is that the amounts are ultimately recoverable by the province. Our measure of the electricity sector "net impact" reflects the net increase in the government-guaranteed debt of OEFC from $31,230 to $32,064, or $834.

The net impact on taxpayers, in our view, is the $235 in cash ($520 interest paid to OEFC less $285 in OPG and H1 dividends) plus the $834 in new guaranteed debt totalling $1,069. Of this, the Province has reported only $354 for a difference of $715, which exceeds the reported budget surplus of $668, leaving a net deficit of $47.

2. Accounting Treatment by Province

The Province has excluded the guaranteed Hydro debt from its accounts. The "Public Accounts" document explains accounting treatment for OEFC as follows :

Given that:

• revenues are derived strictly from the electricity sector and not the taxpayer;

   

• these revenues can only be used to service and retire OEFC debt and liabilities;

   

• under the Act, the dedicated revenue sources to the OEFC continue until debt is defeased, at which point, a decision to dissolve the OEFC may be made;

   

• the financial statements of the Province have reflected the impact of the electricity restructuring as a $354 million charge to be recovered from ratepayers. The stranded debt from electricity restructuring to be recovered from ratepayers of $19,787 million is shown after net provincial debt. This disclosure recognizes the fact that ratepayers, not taxpayers, are responsible for the stranded debt of the former Ontario Hydro.

In other words the Province’s position, which was, after reversal of its original position, approved by the Provincial Auditor, is that notwithstanding the guarantees, and the fact that the debt has resumed growing, electricity ratepayers are legally responsible for the debt and therefore its potential impact on taxpayers can be disregarded. As noted above, the claim that OEFC’s revenues are derived strictly from the electricity sector and not taxpayers is falsified by OEFC’s actual experience in 1999-2000.

The Province has a secret plan to ensure that the debt is repaid by ratepayers between 2010 and 2017. Development of the plan appears to have been a qui pro quo to get the Provincial Auditor to reverse the position it held at the June 27th meeting of OEFC’s Board. Oversight of the plan was provided by Ernst & Young, the same firm that had oked Ontario Hydro’s books for decades.

This plan covers all of the guaranteed bonds, net obligations on NUG contracts and nuclear liabilities. Only the cash flows required to extinguish the bonds can be quantified exactly. The cash flows come from the following sources: interest on debt carried by OPG, H1, and the Province, proxy taxes from OPG, H1, and MEU’s, earnings in excess of the province’s interest costs, a debt retirement charge (tax) on electricity consumption, and the market values of OPG and H1 themselves (they could either be sold or would provide their own security for financing). Some of these cash flows can be forecast and controlled by the Province. However, the market values of OPG and H1 are a variable component. If they are allowed to retain and reinvest money earmarked for debt repayment, the plan loses precision and the amount of stranded debt becomes less predictable.

The plan may provide for higher power prices, whether by ratcheting up the Debt Retirement Charge or higher regulated transmission revenues for H1, should the other cash flows be insufficient. For taxpayers to have been saved harmless in 1999-2000, power prices would have had to been raised by 10%.

By allowing OPG and H1 to expand and gamble, the government is betting that OPG and H1 will earn a good return on these investments, and even if they don’t, ratepayers will be able to absorb more increases without a death spiral. The history of Crown power sector investing through Ontario Hydro does not support the government’s approach.

-30-

John Spears
Toronto Star
December 1, 2000

Utilities, major electricity users fail to file plans

More questions arose yesterday about how people and businesses in Ontario will buy electricity when some major players showed they’re not ready for the new power market in the province.

Some utilities and big power users failed to file plans by provincial deadlines to prepare for the new, competitive electricity market.

Kevin Dove, a spokesperson for the Independent Market Operator, set up to run the new market that was originally due to open a month ago, said it likely won’t be ready until May 1.

“It’s more chaos, more confusion, more uncertainty for consumers,” said Tom Adams of Energy Probe. “It’s not a good sign, but it’s not a new sign.”

The lights won’t go out despite the market’s teething problems.

But it leaves in limbo what your electricity bill will look like, and how much you’ll pay.

Long-term, fixed-rate electricity contracts that some consumers have signed recently can’t take effect until the market opens.

Under the new system, private generating companies are free to sell electricity in Ontario. Private retailers can also act as middlemen between customers and generating companies.

But some municipal utilities missed a deadline yesterday for filing rate applications with the Ontario Energy Board.

As of 2:30 p.m. yesterday, just 40 municipal utilities out of nearly 100 across the province had filed rate applications as required by the Ontario Energy Board.

About 15 others had informed the board that they’ll miss the deadline, said the board’s assistant secretary, Peter O’Dell, and “I imagine more will be flowing in.”

Energy board officials weren’t available at the end of the day to say exactly how many utilities made the filing deadline.

It will take months for the board to review all the applications and approve the rates, which must be set before the competitive market can open. The longer it takes to receive the rate applications, the longer the market’s opening could be delayed.

The municipal utilities own the wires that deliver power directly to customers. They’ll charge a rate, regulated by the board, to deliver the power.

Customers will be charged a separate amount on the same bill for the actual energy they use – which can be bought from a retailer or through the local utility.

Most of the large utilities have filed applications for somewhat higher rates. Toronto Hydro, for example, is asking for increases totalling 6 per cent over the next three years.

In addition to filing their rate applications, local utilities and big power users must meet a second deadline today.

That’s when they are supposed to have plans filed with the Independent Market Operator, which will co-ordinate buying and selling of power across the province.

The plans are needed so the Independent Market Operator can start testing its complex systems to track and co- ordinate purchases, sales and flows of energy across the power grid.

Ian McKinnon
Financial Post
December 1, 2000

Richest market: Alberta, California act as models of what not to do

Chaos in Alberta and a possible taxpayer revolt in California are instructive examples in how not to deregulate a multi-billion-dollar industry, but participants in Ontario’s soon-to-be competitive electrical sector are split over whether the lessons are being learned as the province opens up Canada’s largest and richest market.

The most important lesson from controversial programs in Alberta and the Golden State is the need for clear and consistent rules, something missing from both areas, Tom Adams, executive director of Toronto-based Energy Probe, said yesterday.

"The best protection for consumers is to have a reliable, secure investment climate for the generators," Mr. Adams said. "If generators are nervous because there are artificial barriers to entry, a lot of confusion or threats to real competition, then it’s consumers who ultimately pay. We’ve seen it in Alberta, we’ve seen it in California and we’re not getting the message in Ontario."

Blair Peberdy, a vice-president with Toronto Hydro, agreed regulatory stability and clarity are critical to ensure a smooth transition as Ontario breaks up a 100-year-old monopoly. Originally scheduled to occur this month before being delayed last June, Ontario has promised to introduce competition in electricity sales in 2001.

Shane Pospisil, a spokesman for the Ontario Ministry of Science, Energy and Technology, said the province is tweaking its regulations, but not making any major changes. However, he said it is paying attention to developments in Alberta and California, where soaring utility bills have generated a considerable political backlash.

"Ontario’s healthy electricity supply outlook and investment outlook for new generation projects put us in a much different situation," he said. "We always try to learn from the other jurisdictions that have gone first, and I guess one of the things that we’ve learned here is that we need to make sure that we take the time to do it right."

Ralph Klein, Premier of Alberta, on Tuesday unexpectedly froze electricity rates for 2001 while the province reviewed the fairness of rising prices, which have nearly tripled this year as Alberta prepares to open the market starting Jan. 1.

In California, some consumer activists are pushing to put an initiative favouring regulation of the electrical sector on the 2002 ballot.

Dale Hildebrand, a vice-president with Optimum Energy Management Inc., a Calgary consultancy, said California and Alberta both tried to deregulate the wholesale and retail sides of the electrical industry at the same time, a mistake he hopes Ontario will not repeat.

"Retailers and marketers have to have the ability to buy and sell electricity in a competitive market before you then expose consumers to that market," he said. "Now [Alberta officials] are opening it up to retail competition at the same time they’re opening up the wholesale market, and it’s just chaos. It’s the same thing that happened in California. If you try to do them both at the same time, it doesn’t work."

Erik Peters
Financial Post
December 4, 2000

This article contains a number of factual errors and, as a result of these errors, it makes several baseless allegations.

The authors’ allegation that rolling the OEFC loss into the province’s financial statements would have resulted in a $47 million deficit for the year is not based on generally accepted accounting principles. Rather, it appears to be the result of the authors of the article cobbling together numbers to suit their purposes.

The Ontario Electricity Financial Corporation and the Ministry of Finance ultimately recorded OEFC’s loss both in the financial statements of OEFC and of the Province for the year ended March 31, 2000. My auditor’s reports on each set of financial statements indicate that the financial statements are fairly stated in accordance with applicable generally accepted accounting principles.

Regarding economic dependence, OEFC’s financial statements also disclose the following in note 3 to OEFC’s Financial Statements:

OEFC does not have its own credit rating and is, therefore, dependent on the Province to borrow and on-lend the funds required to refinance maturing debt and to cover any cash shortfall in the Corporation. It is also dependent on the long-term plan to defease the unfunded liability (stranded debt) described in Note 9. Based on the Province’s support in refinancing maturing debt and the long-term plan, OEFC is considered a going concern.

As well, Note 1 to the Province’s financial statements refers to the fact that because the long-term plan is based on assumptions, it is subject to uncertainty.

The statement that "the provincial auditor’s report showed a much smaller loss" is simply wrong. Such an auditor’s report does not exist.

In summary, the surplus of the province for the year ended March 31, 2000 is fairly stated and includes OEFC’s loss. In note 1 to the financial statements of the Province, the reader is informed that the long-term plan is subject to uncertainties and therefore the reader is referred to OEFC’s complete set of financial statements, which clearly disclose the corporation’s dependency on cash from the province and the future success of the long-term plan.

I will be commenting on various aspects of the electricity sector restructuring, including the potential risk to the taxpayer, in my upcoming Annual Report to be tabled on December 5, 2000.

Erik Peters, FCA
Provincial Auditor

Martin Mittelstaedt
Globe & Mail
December 26, 2000

"Bills higher in Toronto and Mississauga, but it’s hard to see benefit for consumers."

Consumers in two of Ontario’s biggest cities are starting to get a look at what electricity deregulation means for their power bills.

But it isn’t easy to see the full picture.

On the surface, it does not look so bad. Residential electricity rates in Toronto went up about 3 per cent as of Dec. 1, while those in Mississauga were up 2.6 per cent, effective Dec. 15. Similar hikes are pending over the next two years.

But hidden from view are the effects of two little-noticed rulings from the provincial energy board that effectively grant an enormous windfall to Toronto Hydro and Enersource Hydro Mississauga.

Under provincially imposed deregulation, these former non-profit agencies are supposed to behave like private companies and earn a profit. As a result, they now can raise their prices for distribution, only one segment of a consumer bill that also includes charges for the amount of electricity used and transmission costs.

The two municipally owned utilities will pocket the entire increase paid by consumers from this month’s raised rates. For Mississauga Hydro, that’s an extra $8.3-million. The impact of the extra money will be eye-popping for the utilities because their fees account for only a fraction of the amount on electricity bills, typically between 10 per cent and 20 per cent.

Energy Probe, a non-profit public-interest group, estimates Mississauga Hydro will be increasing what it takes from residential customers by 88 per cent when the higher rates are fully in place in three years and Toronto Hydro by about 50 per cent.

Since the big increases affect only part of the final electricity bill, the overall increase seen by consumers on their final bills might work out to about 10 per cent over the next three years.

The price trend is significant because the provincial government, in its push for deregulation, presented it as an opportunity for increased market competition — and lower prices.

Instead, it appears that deregulation is leading to increases in costs.

Mississauga Hydro spokesman Ken MacDonald confirmed the utility will receive a sizable increase.

"I don’t have the actual number. It could be up there, there’s no question," he said. "More than 50 [per cent,] probably, 88 [per cent] sounds a little high. But it’s going to be a sizable number."

He said the increases are required to allow the company to operate like a private business. Until now, local utilities ran as non-profit co-operatives, charging customers only enough to cover their own costs and to have a small cash cushion available for emergencies. The government order for them to operate like private-sector businesses means they have to raise the price of their services.

Dozens of other local distribution utilities supplying customers elsewhere in the province have also applied for large rate increases, and these are pending.

Tom Adams, head of Energy Probe, says the price rises are "completely unacceptable, [they represent] outrageous contempt for the public interest."

For the public, figuring out the price implications of deregulation is a challenge. Consumers can’t tell from their bills that these power distributors, most of which are owned by their local governments, will be raking in enormously more money under the government’s plan. That’s because the items that make up consumer electricity bills have been bundled together as one sum on monthly statements. Customers are not aware of the amounts paid for the electricity used or for the delivery of the power to their homes or businesses.

The province has ordered utilities to list all the electricity, transmission and distribution costs, but until the switchover to the new format is in place, there is no way for consumers to know which component of their bill is increasing.

Currently, the average Ontario residential customer pays about $15 a month to the local distribution utility for its services, essentially the wires on local streets and power meters on homes. Consumers pay about $70 to the companies that produce the power and move it on high-voltage transmission lines to local communities.

When the new billing format is in place, electricity bills will resemble natural-gas statements. Consumers pay a pipeline company for delivering the fuel and pay a separate charge for the quantity of gas used.

The price rise at local electric utilities could be a harbinger of other increases to power bills as the province adopts competition.

One source of upward pressure on rates is the need for companies to earn profits and make tax payments for the first time. Almost the entire Ontario electricity sector had been government-owned and operating on a non-profit basis.

Scott Morrison
Financial Times of London
January 6, 2001

It was not long ago that California was held up as a model for electricity deregulation in Canada. Now, the state’s power woes have deepened Canada’s winter chill as the provinces of Alberta and Ontario watch California’s struggle to keep its electricity utilities from bankruptcy.

The two Canadian provinces are in the process of adopting competitive electricity markets. But critics are now questioning the future of deregulation amid growing alarm over Californian power shortages and the poor health of the state’s utilities.

"There’s a concern that maybe we’re headed in the same direction (as California), although the root causes are fundamentally different," says a Canadian consultant who has been closely involved in deregulation.

California’s power generation shortages have combined with sharply rising demand, unfavourable weather and record natural gas prices to create a financial crisis for the state’s utilities, which have been forced to buy power at record prices while being unable to pass on the extra costs to consumers.

Alberta is facing a similar problem, with a dearth of new generation projects and high natural gas prices blamed for virtually trippling wholesale electricity prices. Alberta’s government is partly to blame for this situation, having announced deregulation in 1994 but failing for several years to define how a competitive market would work. That prevented many generators from investing in new capacity.

The crisis prompted Alberta’s government, facing an election in several months, to introduce a rate cap for small retail customers. But businesses not covered by the rate cap will keep taking a hit in the form of higher electricity costs.

Rates are also set to rise in Ontario once the province moves to a competitive model, probably this year.

Ontario’s energy ministry argues the province is free of many of the conditions creating problems in California and Alberta. The government says Ontario has sufficient generation capacity to meet the province’s needs for the next decade. Moreover, Ontario’s generation capacity is much less dependent on natural gas.

In addition, about CDollars 3bn (Pounds 1.4bn) in announced generation projects indicate that investors are confident about Ontario’s deregulation process, a ministry spokesman says. But the Canadian deregulation consultant notes that Ontario’s market rules are not yet clear enough to provide potential investors with the confidence needed to follow through with their plans.

Ontario has already delayed the introduction of a competitive market, initially planned for last November. The government now says its target is "some time in 2001" after the organisations responsible for operating Ontario’s wholesale and retail markets said they needed more time to create the market frameworks.

Tom Adams, director of a watchdog group that supports deregulation, worries that Ontario’s transition has been erratic and he predicts that real competition will be further delayed. And he argues that retail electricity prices will rise by as much as 20 per cent over the next three years unless Ontario’s government moves decisively to set rules that will give investors confidence in the new market structure.

In the meantime, governments in Alberta and Ontario are likely to continue treading softly to avoid the political pitfalls of deregulation.

Martin Mittelstaedt
Globe and Mail
January 10, 2001

Several highly profitable companies, including Imperial Oil and Dofasco, are among the businesses receiving subsidized electricity rates from Ontario Power Generation, according to regulatory filings by the companies.

Other businesses that have been granted special low-cost electricity from the provincially owned utility include energy giant Amoco, forest products companies Kimberly- Clark and Bowater, and chemical producer CXY Chemicals.

In a statement yesterday, Energy Minister Jim Wilson said the special deals could be phased out in as few as two years if Ontario Power creates more competition by selling its generating facilities and reduces its near monopoly on electricity production.

In its filing to the Ontario Energy Board, Dofasco said a rate discount it was receiving should continue because it is in the public interest for the government to help highly successful companies, such as itself, compete on world markets. It also said that if it didn’t continue receiving the special rate, it might reduce its Canadian steel production.

"It is in the public’s best interest that those leading Ontario enterprises that have otherwise competed effectively be allowed to continue to do so," Dofasco said in asking for lower rates.

But some observers were critical of the steelmaker’s public- interest claim.

"They’re dressing up their private interest as a public interest. It doesn’t wash," said Tom Adams, head of Energy Probe, an environmental and consumer advocacy organization opposed to the special rate deals.

The provincial government has refused to identify the companies receiving below-market rates for power.

It is also refusing to reveal the price of the rate deals, citing commercial confidentiality concerns.

About 8 per cent of the province’s peak electricity demand is sold to the companies at cut-rate prices. The exact number of companies receiving the subsidies is not publicly known.

But some of the companies involved gave testimony to an Ontario Energy Board hearing early last year that they should continue receiving some form of rate subsidy when the province’s electricity market opens for competition at an unspecified date to be fixed by the government later in 2001.

Under legislation passed by the Conservative government in 1998 setting up Ontario’s deregulated power market, the special rates were supposed to end when competition began.

The provincial energy regulator said in May, 1999, that continuing the low-cost sales to the big companies wasn’t in the public interest and would be a subsidy paid by all other electricity customers to the companies.

But Mr. Wilson ignored the board’s view and passed a regulation in June, 1999, granting the companies continued access to cheap power at a gradually diminishing rate for up to four more years, at which point the rate deals would end.

The low rates were introduced during the early 1990s when Ontario was enduring a business downturn and had an electricity surplus.

They were designed to help companies weather the downturn and create jobs, while helping the government- owned electricity system maintain demand for power.

Dofasco, the biggest industrial buyer of electricity in the province, told the energy board that a competitive market would cost it $7-million in extra power bills at its Hamilton electric arc furnance.

"As costs increase, the option of purchasing slabs from outside Dofasco (primarily non-Canadian sources) may become more attractive than in-house production," it said.

CBC online
January 14, 2001

TORONTO–With California struggling to avoid blackouts because of a severe shortage of electricity, critics say Ontario is in danger of making the same mistake.

The problem: deregulation.

In 1996, California introduced legislation some thought would become a model for other parts of North America.

The law allowed companies to sell power on the open market, with some of them making profits in the first few years.

But with several utilities on the brink of bankruptcy, consumers are now facing the prospect of no electricity in the state.

On Saturday, federal mediators continued a fifth day of talks in Washington to try to come up with a solution.

They met with California state regulators, utility executives, and out-of-state power suppliers to discuss ways of lowering the wholesale price of electricity.

The decrease would help bail out two major power companies, which must purchase their electricity on the open market before turning around and selling it to customers.

Alberta tried deregulation a few years ago, but the government had to step in recently and impose a cap on price increases proposed by private power companies.

Ontario, which has slowly replaced one giant provincial utility with private companies that run the power plants and distribute the electricity, is about to go one step further.

Consumers are already being bombarded with ads about "retail competition", a system that allows private companies to offer contracts to consumers who will be asked to shop around for the best deal.

Critics think the province is heading in the wrong direction.

"Ontario’s joining the losing team," says Tom Adams of Energy Probe, an environmental research group. "We’re in there with Alberta, with California. We’re making many of the same mistakes."

But advocates of deregulation argue that Ontario’s circumstances are not even close to California’s. In particular, they argue that Canada’s largest province has a power surplus, not a shortage, which makes blackouts unlikely.

Retail competition was supposed to be in place in Ontario last fall. Although the government delayed the move, the next phase of deregulation is expected by the end of this year.

counterSpin, CBC Newsworld
January 15, 2001

Tom Adams, Executive Director of Energy Probe will be discussing the pros and cons of deregulating electricity with other guests, and asking questions like: Should Ontario Hydro be resurrected, or was it a feudal fiefdom leading us to California-style blackouts? Whatever happened to conservation anyway? Can our power supplies keep up with the high-tech cyper-world driving our economy? What’s the future of energy in Canada and how will this impact Canadians, the economy and the environment?

To participate in our live studio (it’s free!), audience contact Carly Stasko at 416-968-0899 and leave your name and number to confirm your seat. The audience meets at 7:15pm at the CBC building (25 John St.) just inside the John St. entrance.

For more information about the show, visit the counterSpin website.