Provincial Commission Recommends Dissolving Utility's 90-Year Monoploy
By Richard Douglas
The groundwork has been laid for the possible dismantling of the largest electric utility in North America.
On June 7 the province's Advisory Committee on Competition in Ontario's Electricity System delivered its findings to the public, and it recommended the dissolution of Ontario Hydro's monopoly on electricity generation and transmission.
"As a committee we recognized Ontario Hydro's historic importance to Ontario, but we also believe that the province's existing electrical system is no longer compatible within the economic context in which Ontario operates today," said Donald Macdonald, committee chairman. "There is no longer a sound economic rationale for allowing a large monopoly to dominate the electricity system."
The committee recommends the province's 69 hydro electric plants and nine fossil fuel plants be sold to private concerns. Because of "heritage concerns" generating stations along the Niagara River and the province's 20 nuclear reactors, because of the debt load associated with them, would remain in the public domain. They would, however, be treated as separate entities competing with each other in an open market.
Competition will give consumers a greater choice of service, lower utility prices and free tax payers from high levels of electricity-related debt, Mcdonald said. The former federal cabinet minister continued to say consumers who may be wary of the change will be reassured by the more effective and efficient system that would result.
The ultimate ownership of these stations would have to be resolved by the government and the market. The committee recommends, though, that hydraulic plants on a single river or waterway be owned by a single operator. This would prevent tampering with water levels which could affect downstream competitors.
The selling of generating stations was rejected as foolhardy by the province's 15,000-member Power Workers Union. President John Murphy questioned why any company would consider selling off what he called its most valuable assets.
"I can't imagine, if you have a private sector company and you set up a committee to look at restructuring and it came back to the shareholders...saying we're going to sell off the most valuable assets which are the 69 hydro electric plants," Murphy said.
The union has actively campaigned against any move to privatize the utility, even mounting a bumper sticker campaign asking Premier Mike Harris to reconsider any plan to sell off parts of utility.
Outline For A New Market
The commission suggested the creation of neutral institutions - a system operator, an electricity exchange and a transmission company - which would be independent from all other parts of the system and would oversee the competitive market.
The system operator would dispatch electricity over the transmission system, oversee the delivery and co-ordination of electricity supplies in the province and ensure the security of supply.
The electricity exchange would be a non-profit entity with a membership made of those who supply or purchase power through the system: generators, energy service companies, specified purchasers, agents, brokers and marketers. With the use of bilateral financial contracts it would establish a futures market for electricity.
Ontario Hydro's current transmission assets would be used to create a transmission grid company under the Ontario Business Corporations Act. It would maintain and manage the province's high-voltage transmission grid.
An open market will also provide access to transmission lines for power suppliers from Manitoba and Quebec.
"From what we've seen, we think Ontario is a pretty competitive power producer," Macdonald said. "Undoubtably there will be niches they (out-of-province producers) can gain and we'll have to take that competition."
The committee recommends a phased-in competition of the generating sector in a wholesale market for municipal utilities and industrial users.
"Ultimately we also recommend that Ontario move toward adopting full competition in the retail level or individual consumer level," Mcdonald said. "At the end of the transition we believe that electricity consumers in Ontario will be able to choose their preferred power supplier."
The committee also said there should be fewer distribution utilities in the province.
This was one item that did not sit well with Municipal Electric Association president Bob Davey. He said his 306-member agency, comprised of the province's municipal and regional distributors, would not support a reduction in their numbers.
"The utilities, basically and in most cases are debt free," Davey said. "Any taking away of their assets to incorporate them in one huge corporation is wrong."
The decision on how many distribution companies there will be should be left to local communities, Davey said.
"That's because geographic areas and a number of other things have an impact on how you service customers. I think we have to tackle what is required to service the electricity customers in a particular area."
He did support the idea of Ontario Hydro leaving the retail business, which was also recommended by his agency.
Lower Rates Questioned
One area of the report which drew the wrath of Murphy and other union members was its suggestion that competition would mean lower electricity prices for the consumer. When asked by the media if the committee could guarantee better rates, Macdonald said there was no guarantee.
"The analysis the committee did indicated that during the interim period the prices could be not only maintained... but brought down," he said.
It's believed that a drop in rates would be aided by a reduction of Ontario Hydro's debt, estimated to be about $28 billion, by shifting it to companies created through privatization and levying a temporary surcharge for the use of transmission lines.
John Wilson, representing the scientists, engineers and professional staff at Hydro, said every study that has investigated pricing after privatization has showed higher rates. Macdonald contends that his committee's study showed a reduction.
Davey agrees with the committee's findings.
"Competition in generation, which is 70 per cent of the price of power, will in fact move the prices down, " he said. "I think it's excellent for the consumer."
Murphy said ratepayers should demand to know exactly what they will be paying before any decision is made to sell assets.
"I think the average consumer is being taken for a ride," he said.
He said the committee's recommendations are opposite of industry trends, and will end up costing the consumer.
"(The electrical industry in) the United States is going through massive mergers and they'll probably end up with six generators," Murphy said. "What are we doing in Ontario, we're fragmenting. It's exactly opposite the trend that is happening in the U.S., a potential big competitor for this province."
Consultation Period
Despite the committee's findings, the provincial government is in no rush to act on them, said Brenda Elliot, minister of environment and energy. She said a consultation period will be held over the next few months with the industry and consumers. When this stance was seen by some as a softening of her position, Elliot said the committee was never charged with privatizing the utility.
"The mandate of this committee was to look at restructuring," she said. "The vitality and the strength of the electricity industry is fundamental to our ability to be vital in this province."
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