This is chapter 7 in a series by Parker Gallant: Chapter 1; Chapter 2: Chapter 3; Chapter 4; Chapter 5, Chapter 6, Chapter 8
The saga continues and for this chapter we visit Hansard on June 15, 2004, the day the Liberals introduced the Electricity Restructuring Act which created the Ontario Power Authority.
First out of the box was Energy Minister Dwight Duncan as he spoke about all the wonderful things that this Act would bring the people in Ontario. Here is part of his address relating to the creation of the Ontario Power Authority:
Dwight Duncan: “The power authority would assess adequacy and reliability of electricity resources and forecast future demand. It would also prepare an integrated system plan for generation, transmission and conservation, to be reviewed by the Ontario Energy Board. In addition to its planning functions, the power authority would have the power to procure new supply and demand management initiatives, either by competition or by contract. When necessary, it would use a competitive and transparent procurement process which would foster innovative and creative approaches to meeting our supply needs.”
This “power authority” that Duncan spoke of that day in the Legislature became the Ontario Power Authority (OPA) It did produce an “integrated system plan” or as it was called the IPSP which did find its way to the Ontario Energy Board only to be thrown in the waste bin by George Smitherman, when he was appointed the Minister of Energy & Infrastructure and brought in the Green Energy Act (GEA). The OPA under the direction of Jan Carr did create competition and contracts were executed after a transparent bidding process but the GEA killed that competitive process when the FIT and MicroFIT programs were established.
The Minister, Dwight Duncan, went on to say the following:
“Under the proposed legislation, the wholesale electricity market would continue to operate but there would be several changes in the oversight mechanisms. The Independent Electricity Market Operator, or IMO, would be renamed the Independent Electricity System Operator, or IESO. It would continue to operate the wholesale market and be responsible for the operation and reliability of the power system.”
The “wholesale electricity market” that Duncan spoke about has continued to be operated by IESO but what we have seen is that because of all those FIT generation contracts the wholesale market has shrunk and the hourly Ontario electricity price (HOEP) which averaged $49.40 per MW in June 2004 has fallen to an average of $31.50 for 2011 (a 38% drop) yet ratepayers now pay over 100% more for their electricity per kWh. Additionally the available “unregulated” electricity has been severely impacted as that electricity has been usurped by contracted intermittent renewable generation depleting the revenue stream for Ontario Power Generation (OPG) by over $1.8 billion in only the last 4 years (2007-2011). This has extended the period of time that the “stranded debt” will remain on the ratepayers electricity bills.
More from Minister Duncan in his presentation to the Legislature that day:
“Under the proposed legislation, consumers who do not wish to participate in the regulated rate plan would have other options, such as purchasing their electricity from energy retailers.”
By eliminating competition while shrinking the available supply of energy traded in the wholesale market the role of the “energy retailers” was reduced to one of simply guessing what the future price of electricity was going to be and adding a large margin. Retailers were left with almost no ability to hedge their future electricity purchases because they had no ability to hedge the Global Adjustment (GA) but their contracts allowed them to pass this on to their customers. In 2005 the GA was a credit of $7.48 per MWh (megawatt hour) and in 2011 was a charge of $40.10 per MWh (4.01 cents per kWh). So the option available to ratepayers to purchase their electricity from retailers became simply an option to pay higher prices than they would through their local, municipally owned, local distribution companies. Summing up his speech Mr. Ducan said:
“The proposed legislation is a start. By ensuring a reliable, sustainable and diverse supply of power at stable, competitive prices, and creating a conservation culture, we are delivering the real, positive change that Ontarians need and deserve.”
The ratepayers, big and small, in Ontario have seen the “change” that Duncan spoke about that day but it has been far from positive with 300,000 manufacturing jobs gone, electricity prices 100% higher and forecast to climb another 46% (per the Ministry of Energy forecast) by 2015.
Later in the Legislature the observations by Mr John O’Toole (Durham) spoke ominously of the future when he said:
“Minister, The consumers of Ontario should be put on notice today by you and this government that you have no intention of keeping any promises. This is yet another broken promise, because you are raising electricity prices.
Minister, you should know that your false commitment to shut down the five coal plants, which are laudable objectives, was hasty and reckless. You simply can’t remove 7,500 megawatts of generating capacity out of the system with no plan. How long is it going to take you to replace that lost generation capacity? The people of Ontario should be concerned, because at the end of the day, you, the consumer of Ontario — that’s you and I — are going to pay the price.”
It would appear that MPP O’Toole saw the future and didn’t like what he was seeing and perhaps didn’t even realize how much truth he spoke.
Later on during this legislative session the following exchange (abbreviated) between Howard Hampton and Dwight Duncan caught my interest:
“Mr Hampton: Public power does not rule out energy efficiency; in fact, it accommodates it. It does not rule out alternative energy; in fact, it accommodates it. I just want to point out to you: After California got in trouble with the privatization and deregulation move, what did they do? They created the California Power Authority, but it hasn’t brought power rates down. California is going to continue to pay those very high rates for many years.
So I ask the minister again, how do you think you can make this any more affordable than it was under the Conservatives when people’s hydro bills skyrocketed? How do you plan to make hydro privatization look different now?
Hon Mr Duncan: Unlike California, we’re regulating price and we’re using our hydroelectric and nuclear assets to do that. I would say to the member opposite, the Ontario Clean Air Alliance has endorsed our plan, the Consumers Council of Canada has endorsed our plan, and Constellation NewEnergy has endorsed our plan. We have had letters of support from the Dominion Bond Rating Service Ltd. What do you have against them?
I’d also say to the member opposite, somebody who opposes our plan was Tom Adams. He was a full supporter of the previous government’s plan.
As one can see from the foregoing exchange, the Minister of Energy received endorsements of his plan from a foreign energy company, a rating agency and the Ontario Clean Air Alliance (OCAA). We can probably assume that the energy company was “in it for the money” and the OCAA were endorsing their view that Ontario should shut down “coal generation” because it was reputedly costing Ontario’s health care system billions of dollars and DBRS were simply expressing the view that competition was a good move. It would have been more satisfying if some “expert opinions” like those of “Tom Adams” had been accepted rather then rejected, however Dunan apparently preferred to rely on those with vested interests to support his legislature. Today we are paying the price for the Minister’s apparent lack of foresight and if the OCAA get their way in the future our nuclear plants will also be shuttered.
Later in the debate Duncan had this to say:
“Our party is moving to protect consumers with a blended, regulated price that protects consumers large and small, will provide security to the sector and will encourage new generation in Ontario, something that never happened under his government or the previous government. This policy will work.”
The stability, competitive prices, security of the sector and protection of “consumers large and small” forecast by Duncan back on that day in June 2004 were a figment of his imagination and a legacy that will impact Ontario for decades. The “policy” he alluded to has been an abject failure!
Parker Gallant, January 22, 2012