By Randy Hurst
Anxious Ontario electricity consumers and investors, large and small, are looking at other Canadian and American jurisdictions where electricity deregulation is taking place and are wondering what the future holds for Canada's largest deregulated electricity market.
Ontarians could see higher electricity costs in the short term -- as Albertans have already seen -- after deregulation opens the market later this year or early next year to competition, according to Tom Adams, executive director of Energy Probe, a national environmental and consumer group.
The service problems Alberta had -- shortages and brownouts -- could happen in Ontario if investors decide they don't want to put out significant resources due to uncertainty in the market, Adams speculated.
"That's a situation we could find ourselves in here in Ontario," he said. "The recent behaviour of the Ontario energy minister makes me very concerned that that's exactly where we're headed."
Other than postponing the opening of the Ontario market from a proposed start date of November 1st , the government also tabled legislation that would restrict the efforts of municipal utility companies to raise distribution rates, a factor that investors included in their business decisions. Earlier this year, the Ontario Energy Board disallowed Toronto Hydro a large rate increase. This action has alarmed many investors who were eager to invest in a market where potential price increases would make electricity generation and retailing a lucrative venture.
The newly tabled legislation hasn't broken policy because Energy Minister Jim Wilson had told the industry he would protect energy consumers from unreasonable price increases even if he had to use legislation to do so, according to Michael Krizanc, spokesman for the Energy Minister.
"The whole idea of electricity competition is to provide the lowest possible rates to electricity consumers," Krizanc said, adding that there's been $3 billion worth of new investment announced in Ontario's hydro industry, which supposedly shows investors want to be part of this market.
But potential investors in the Ontario market are watching and holding their collective breath and funds. Policy shifts have altered the rules of deregulation, causing concern for some investors. There may be a potential problem if fewer companies enter the market, it will be less competitive despite being opened up, there will be less supply -- and that means prices are more likely to go up.
For instance, uncertainty over the electricity market in Ontario has caused the Ontario Municipal Employees Retirement Board to put any prospect of further investment in the market on hold until Ontario legislation tabled last month is completed, according to Jane Courtemanche, manager of corporate communications for OMERS.
In March, the $35-billion pension fund bought a 10 per cent stake in Hydro Mississauga, just west of Toronto, and expressed an interest in acquiring stakes in other municipal utilities. However, those plans are on hold until there's more certainty in the market, Courtemanche added.
"With all the changes that came about in June, it does have a negative impact on us as an investor," she said. "We're waiting to see what's going to happen" to see if this is the type of investment the pension fund wants to keep pursuing.
TransAlta Corp., a major Alberta power producer, will wait until the Ontario market is fully deregulated before it makes any moves in Ontario, according to Sue Le Breton, TransAlta's manager of corporate communications. Meanwhile, it's focusing its energies on deregulated markets such as Mexico, Australia and some locations in the U.S.
Investors watching the industry may be heartened by the fact that Ontario Power Generation finalized its deal recently with British Energy to operate the Bruce Nuclear Power Station near Kincardine, according to Ian Howcroft, vice-president of the Ontario region for the Alliance of Manufacturers and Exporters Canada, whose members purchase large amounts of electricity.
"We've been waiting for a while. We've seen the opening of the market delayed and there's been a lot of concern," Howcroft said. "This is good because it pushes the agenda forward and is also going to inspire some confidence and show that there is some direction finally."
There are no guarantees that competition will bring lower electricity prices to the province, but a competitive market is the best option, Howcroft added.
The Alberta Experience
In Alberta, where electricity industry deregulation is under way, consumers have seen electricity shortages, higher costs and brownouts last year as demand outpaced expansion.
June's electricity rate in Alberta hit the highest level since the province began deregulating the industry four years ago.
While explosive economic growth in Alberta contributed to the level of demand for electricity and subsequent rate increases, policy shifts and uncertainty of the rules in the market have delayed the entrance into the market of some investors.
Dan Macnamara, executive director of the Industrial Power Consumers and Cogenerators Association of Alberta, said Ontario should delay opening the market as long as necessary to be certain it will be a smooth transition.
Meanwhile, the Alberta association is calling for a investigation into soaring electricity prices and expressing grave concerns about the impact of electricity deregulation in Alberta.
Macnamara said his association members want the Power Pool of Alberta to investigate and issue a public report explaining recent price volatility.
Association members consume about half the power generated in Alberta. In recent weeks, Power Pool prices have fluctuated wildly, in some cases ranging from $12 per megawatt hour to more than $700 per megawatt hour in single 24-hour periods.
The Power Pool is the central clearing house for electricity in the province. Power Pool officials indicated they "routinely monitor market activity" and are not planning any additional action. The association also said it will fight TransAlta Corp.'s recent attempt to garner Alberta Energy and Utilities board approval to increase electricity prices by 25 per cent.
Last month, TransAlta said it would ask the AEUB, which currently regulates power prices in Alberta, for permission to increase rates by 25 per cent "temporarily" because of high natural gas prices, which had soared to more than $5 per thousand cubic feet.
"It is simply wrong of parties to suggest these significant price increases are primarily due to increases in gas prices. We also don't believe these price increases are temporary or that electricity prices will decline when prices go down,". Macnamara said.
When it introduced plans to deregulate the province's electricity industry in 1995, the Alberta government promised consumers that increased competition would bring lower prices.
However, independent consultants like Calgary based Optimum Energy Management Inc. have warned that electricity prices in Alberta will increase with deregulation for at least the next few years, and that industrial customers will be hardest hit by the increases.
Mr. Macnamara said that if TransAlta's application for a 25 per cent increase is approved, association members will have seen their electricity bills soar by more than 60 per cent in one year. "You can imagine the serious negative impact these increases are having on company positions in world markets," he said.
Price Shocks and Electricity Shortages Mark California's First Taste of Electricity Deregulation
With California's power grid strained to the breaking point and customers outraged over soaring bills, angry officials have urged a "ratepayer rebellion" to challenge the industry in America's first deregulated electricity market.
California's top utility regulators, after hearing the complaints of consumers whose bills have doubled or tripled this year, approved a $100-million US rebate for electricity consumers in San Diego, the city worst hit by the power crisis.
Moments later, officials who had come to the meeting from San Diego said the action by the Public Utilities Commission was too little, too late, and urged customers to refuse to pay more than they paid a year ago.
"It is starting here, it is starting now. It is a ratepayer rebellion," said San Diego Supervisor Dianne Jacob. "We're telling people to go back to paying what they did in July 1999. What can they do? There are three million of us."
Power grid areas in New England and New York had similar strains on electricity management in early June. But California is in particular trouble because its growing tech industry has sharply increased demand.
Patrick Dorinson, spokesperson for California's Independent System Operator, which co-ordinates power sharing between utilities, said California's energy deregulation hasn't worked smoothly in conjunction with other traditionally regulated states.
"If you deregulate in California and your neighbours haven't, you've got a lot of different systems out there," he said.
A population boom in places like Phoenix has diminished the amount of power California can import from the Southwest. And in the Pacific Northwest, where Bonneville Power wholesales power to western states, water has been diverted this summer for such things as salmon runs.
High demand and tight supplies mean higher prices -- particularly in San Diego, the first area in the U.S. to buy power in the open market.
In San Diego and a slice of southern Orange County served by San Diego Gas and Electric Co., bills have jumped 200 per cent in some areas.
Deregulation wasn't supposed to work this way. A complex 1996 state law sought to boost competition in the state's $20-billion electrical power industry, then pass on the expected savings to customers.
The law will be phased in gradually, from south to north. The state's largest utility, Pacific Gas and Electric Co., is expected to join deregulation by 2002.
The law, signed by former governor Pete Wilson, was generally supported by the electrical industry but viewed with suspicion by consumer groups.
"It was ramrodded through the legislature in two weeks by utility companies who donated more than $3 million to lawmakers that year," said Harvey Rosenfield, an activist with the Foundation for Taxpayer and Consumer Rights in Santa Monica.
This year's cost hikes and continuing power shortages during the summer hot spell have spurred demands of a repeal.
Under deregulation, private utilities were required to sell their power plants, open their markets to electrical resellers and buy power on the open market, paying an amount that may fluctuate from day to day.
With Files from CP, AP, Edmonton Journal, National Post.