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Perspective

Fortnightly Magazine - March 1 1997

Prospects look good for cheaper, independent electrical power in Ontario. The market is forcing an end to the current impasse on energy policy. Reforms are apt to include "wholesale access," which should arrive in the province before the year is out. Otherwise, Ontario may lose jobs to neighboring provinces and states. April 1997 seems a likely target date for decision, coinciding with the start of the next Provincial Government budget.

In Ontario, however, any discussion of electric industry reform must naturally begin with Ontario Hydro, the province's huge, provincially owned, vertically integrated and self-regulated electric utility. A government report has proposed a regulatory scheme (em perhaps even including a company breakup (em but Ontario Hydro is not going quietly.

The company already has dismissed recommendations that it be broken up into several smaller units, saying that North America needs a major player in Ontario. And the company has the clout to back up its stance.

Enormous economic pressures are building. Quebec is already moving to strengthen its private generating sector, adding urgency. If Ontario should succeed in breaking the impasse, a clear signal of progress would be the end of self-regulation and the creation of a government regulator to oversee the provincial electricity industry.

Internal Trade Barriers

"Wholesale wheeling" denotes the transfer of electricity between two providers of electricity, to match excess supply with unsatisfied demand. "Retail wheeling" is the channeling of electricity from one particular provider to an individual customer. In the U.S., the Federal Energy Regulatory Commission has used the idea of wheeling to craft a transmission access policy as a battering ram to open up markets (em as if scaling the walls of a medieval fortress.

North of the border, the need for change was voiced in the June 1996 MacDonald report from the Advisory Committee on Competition in Ontario's Electricity System. It recommended alternatives to state-owned, vertically integrated Ontario Hydro and called for a regulatory scheme for electricity.

"Fairness, stability and transparency are touchstones for the new electricity market. Many important benefits of enhanced competition in Ontario's electricity system can be captured at an early stage (wholesale competition)," the report said.

But Hydro did not initially embrace the recommendations for open access, or for breaking up of the company into a transmission grid and division of the company into several competing generating stations. Instead, the company says the province requires a major North American player. It prefers to keep its head office in Ontario and compete throughout North America as a large privatized Genco (or generating company).

In November 1996, Ontario Energy Minister Nor Sterling announced that privatization of Ontario Hydro would not take place until the next provincial election, which could be called any time within the next 3 years.

Nevertheless, open access, or "wheeling" probably will be legislated soon. Already a critical mass is driving wholesale access in other Canadian Provinces. For example, British Columbia is implementing wholesale access. BC Hydro and West Kootenay Power have concluded FERC-approved agreements with Regional Transmission Groups (RTGs) in the Pacific Northwest. However, BC Hydro was recently refused a power

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