Why Ontario needs a competitive market.
A.J. Goulding is president of London Economics International LLC.
For the past two years, the Ontario power sector has resembled a piñata at a children's birthday party, batted this way and that by the stick of public policy. Since the competitive wholesale market opened in 2002, the government twice has intervened to manage prices to final consumers. The first attempt (Bill 210), less than nine months after market opening, capped selected end-user prices at a rate below the wholesale cost of power and accelerated the build-up of stranded debt. The second, under a new government, adjusted pricing mechanisms to better reflect wholesale costs and provide moderate incentives for conservation. The next blow at the piñata is expected this summer, in the guise of new legislation intended to establish a new framework for the Ontario power sector.
Prior to Bill 210, the wholesale market appeared to be operating reasonably well. Prices were not dissimilar with those found in neighboring regions, fluctuating consistent with changes in plant availability, fuel prices, demand, and demand forecast errors.