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Perspective

Fortnightly Magazine - March 1 1997

to profit from lucrative southern markets. The move by Ontario Hydro to functionally unbundle its rates will allow it to establish transparent prices to sell surplus electricity to the U.S. But Ontario Hydro knows that once these sales are allowed to happen, Americans will take a hard look at the company, which regulates itself and ignores the current rubber-stamp powers of the Ontario Energy Board. Reality of access to U.S. transmission systems will mean special rules no longer will apply.

Although cheap electricity from Quebec appears attractive to U.S. consumers, industry interests may seek antitrust protection if they can prove that Canadian rates are unfairly subsidized. A likely candidate involves massive Churchill Falls dam in Labrador, which sell power to Hydro-Quebec under a 1969 contract that is grossly undervalued. In fact, the Newfoundland-Labrador government is seeking renegotiation of this one-sided arrangement with Quebec. The commercial importance of this move is a trend towards increased scrutiny and transparency in rates.

Every city in Ontario has a municipal electric utility (MEU). These MEUs usually are hamstrung, by current legislation, from dealing with its assets in a meaningful way. Major MEUs want to escape captivity from Ontario Hydro. These local utilities are nonprofit organizations with huge assets that are not earning an economic return. Meanwhile, provincial funding to cities is being cut back by the Ontario government, which is encouraging decentralization of services.

The imminent legislation will free the shackles from MEUs. Municipal owners will be able to run the utility as a profit-making business. Mergers and acquisitions will eventually take place.

In Ontario, the vertically integrated system is an anachronism of self-regulation by Ontario Hydro. The Provincial Government historically has used Ontario Hydro as a strategic tool in promoting provincial policy, even to the point of over-staffing. How else could Hydro have axed thousands of jobs and still have provided good service?

The Ontario government confronts a dilemma. On the one hand, failure to end political control of Hydro spells loss of industrial jobs in a tight employment market. But, on the other, allowing competition risks alienating a mercurial electorate. t

Alexander J. Black, BA(Hons); LL.B, Dip. Petrol. Law, LL.M, member of the bars of Alberta and Ontario. He lives in Oakville, Ontario, where his is an international energy consultant. He lectured law for seven years at the University of Glasgow, Scotland and has published extensively on Canadian, U.S. and European energy law and policy.

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