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Perspective

Why Ontario needs a competitive market.
Fortnightly Magazine - May 2004
  • subsequent default supply auction begins.

Those eager to eliminate the role of the market need to recall that one of the main justifications for relying on the market is that it allocates risks to those most capable, and incentivized, to manage them. As current experience with OPG shows, provincially owned companies that fail are slow to change management, and their losses are borne by the taxpayer. Ultimately, relying on market forces is the best stick the Ontario government can use to bust open the power sector piñata and ensure that the benefits of sustainably priced, reliable electricity supplies rain down on Ontario consumers.

Endnotes

  1. OPG incentives to increase prices were intended to be moderated by the Market Power Mitigation Agreement (MPMA), which provided that OPG would rebate revenues in excess of Cdn. $0.038/kWh to consumers on 90 percent of its hypothetical output. While the agreement provided for a variety of exceptions whereby OPG could benefit from higher prices, OPG faced fewer commercial constraints than would a private company when bidding lower than competitive levels. Thus, a strategy designed to lower peak prices and increase shoulder prices would have been unaffected by the MPMA, but could have been an effective deterrent to entry by peaking plants, for example.

 

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