By Randy Hurst, Publisher
Some time ago, I wrote an editorial expressing my concern about the breakup of Ontario Hydro and the eventual 'reformation' of electricity in Ontario. I asked at the time: "Who sought these changes and who benefited from such changes?" I thought at the time that the dismantling of Ontario Hydro and the shift from a power planning philosophy of 'power at cost' to a philosophy motivated by profit would benefit specific interests more than the public good. The 'public good', as I saw it, was the stability of price, the reliability of supply, the payment of a $25 billion publicly-financed debt, and the sustainment of economic benefits from an investment of almost 100 years of building a utility and power system that has become the envy of the modern world.
Well, I was taken to task. I was roundly criticized by many, including independent power producers, for my position. I was told my thinking was out of step with the times and these times are certainly changing.
I listened to my philosophical opponents and took to heart their interest in making a contribution to our next generation power system. I thought at the time that I was perhaps premature in my skepticism and I pulled in my horns. I have been silent since then about this important issue. That is, until now.
Since then, I have had more time to study these changing times, talk with utility industry leaders, independent power producers and power consumers, many of whom feel disenfranchised and ill considered. Power consumers are being sold the benefits of electricity reform with little guarantee of benefit: chiefly price and supply.
I fear we are entering a period in Ontario and Alberta (see article this issue) of unprecedented regulatory change, price instability, and perhaps power system supply instability because we are trying to do too much too soon with a power planning philosophy that pays less consideration and respect for our national traditions, our heritage and our public investment than for the interest of those who seek a lucrative return in a market where prices are only increasing. Success has a thousand fathers and failure is an orphan and those who support reformation only do so in a market where prices and profits increase. If not, then private power producers will lose interest and power planning, construction and generation/delivery will fall back into the hands of government whose interest should never be profit over purpose.
Also, I believe that our reforms are not Canadian solutions to Canadian problems. I think we are too quick to apply an American power planning philosophy (and hence solution) in a Canadian context where several important differences exist between our country's heritage, demographics, geography and socio-political structures. In a sense, the 're-regulation' of electricity in Ontario means the abandonment of our traditional, Canadian experience of power planning philosophy for an imported one. In this sense, Ontarians, whether they see it or not (and I think not) are taking another in a series of subtle yet dramatic steps toward economic continentalism. I am not anti-American. I just don't think we understand, appreciate and respect enough each others' differences. Canadians often criticize hallowed American traditions and institutions such as the health care system, foreign policy, trade issues, natural resource policy, health and safety standards and private gun ownership....and vice versa.
I am concerned that the abandonment of the old and reformation of the new power planning philosophy in Ontario may be as dramatic to Ontario citizens (rate payers) as the adoption of an OHIP-style health care system would be to the citizens of New York State (tax payers).We live in the shadow of a large and powerful nation with ten times our population and little if any regard for our heritage, our experience, our interests, and our contribution to everything from health care planning to power system planning. That is not their responsibility, although many Canadians whine about it. It is our job. We, as Canadians and as Canadian power consumers and producers, have the responsibility for knowing better our experience, what we want for ourselves, and what is good for us. If our politicians are terrible at standing up to dominant American political interests, they are even worse at creating, maintaining, re-inventing and energizing our own political and economic institutions, and in a sense this is where our national identity is fostered most and where we lack leadership the most. I believe Canadian legislators and regulators in Ontario and Alberta have been actively seduced by those interests peddling the popularity of 'sustainable development', 'privatization', 'electricity competition' and 'deregulation' and are rushing to build a new power system through 'deconstruction'. They call it 'reform'. I think the best Canadian (Ontarian or Albertan) power system is one that is inclusive of our heritage and not alienated from it.
In terms of electricity generation and supply, the philosophies of alternative generation technologies, distributed generation, deregulation and competitive electricity trading, are attractive in the United States in electricity jurisdictions where prices are much, much higher than in Canada. Also, where the supposed benefits are being promised to consumers in terms of less public capitalization of utilities, a greater electricity supply and all at a lower price than traditional means and ways, these benefits have yet to be fully realized in the U.S. where there is a much higher rate to work with.
In order to adopt and benefit from these new power system strategies and technologies, it is solely contingent that the alternative is less expensive than the status quo and that is the case in the United States where retail electricity rates are perhaps three times what they are in Canada.
In order to finance the deconstruction and 're-regulation' of electricity in Canada, rates will invariably have to increase. Does anyone ask why the reformation of electricity generation and supply in Canada is taking place only in Ontario and Alberta? One of the answers is that these provinces are where prices are highest in Canada and where the price is forecasted to greatly increase in the future.
Does anyone ask: "Why not in Manitoba, Quebec, Saskatchewan and New Brunswick?" The answer is that in those provinces (who maintain their traditional philosophies of public ownership, investment and hence control over economic development) the price of electricity is so low that alternative suppliers and technologies cannot compete successfully. (This was the case in Ontario also, until a few years ago when successive NDP and Liberal governments allowed the price to increase dramatically.) When Ontario is short of supply in the future, these neighbouring provinces will be eager to generate and export electricity to Ontario and Alberta where the price (and hence profit for those exporting provinces) will be much greater.
More to the point, on a "level playing field" and in a truly "North American" power pool, competition will be paramount. And ironically, it may be consumers competing for supply. Power consumers in Ontario may be forced to compete (through much higher rates) with American power consumers for generation supply as power flows to the highest bidder, regardless of ownership. This is exactly what "deregulation" has brought to the people of Southern California since "deregulation" forced San Diego Gas and Electric to sell off its generation assets and in a tight supply market (this summer especially), purchase spot market generation from other utilities whose sole interest is to sell electricity to the highest bidder, even if it means a doubling of the price to rate payers in San Diego (see article this issue).
Listen to this comment from Ron Osborne, president of OPG at a recent Millennium Electricity Conference in Montreal (see article this month's issue):
"Under the old monopoly regime we were driven by an obligation to serve. We drove that to extremes and ended up with 16,000 MW too much capacity. Going forward, our only obligation will be to make money. In fact, we will make more money when we are unable to serve everybody than when we were able to serve everybody, ironically."
Frankly, I thought that under the old power planning philosophy in Ontario, capacity was built in anticipation of future domestic demand and any excess capacity was designed to be exported to the United States and sold at a higher price than in Ontario, thus creating a profit that would assist our balance of trade and help to subsidize electricity rates in Ontario (keeping them lower than in the U.S.), so as to foster an industrial competitive economic advantage for Ontario industry.
Ironically, under the future new power planning philosophy, Ontario Power Generation will sell off, swap, and otherwise decontrol 65 per cent of its generation assets in Ontario (and presumably control more generation assets in the United States) and then sell electricity to whoever will pay the highest price in order that OPG can make the most money. And the price of electricity in Ontario will double or triple to allow other suppliers (American and Canadian) to generate and sell electricity in Ontario at enough profit to satisfy their shareholders.
Do I have a problem with this? Yes.
Randolph Hurst
Publisher
rwh@istar.ca