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Tories' electricity plan spells financial disaster

Toronto Star - April 30, 2001
By Myron Gordon and John Wilson

Electricity deregulation in Ontario will double our bills, increase the cost of everything from burgers to cars, cause industry and businesses to shed jobs and raise our taxes. In addition, the chances of blackouts will increase.

Ontario is moving toward a financial disaster that Canada's other big electricity exporting provinces will avoid.

Electricity deregulation in Ontario will double our bills, increase the cost of everything from burgers to cars, cause industry and businesses to shed jobs and raise our taxes. In addition, the chances of blackouts will increase.

Ontario is moving toward a financial disaster that Canada's other big electricity exporting provinces will avoid. In the Throne Speech and accompanying announcements, the government demonstrated a failure to understand deregulation with four mistaken claims. Premier Mike Harris and Energy Minister Jim Wilson state that deregulation will (1) lead to the lowest possible cost, (2) provide sufficient supply, (3) not repeat California's mistakes. And they say that (4) the government will allow a start date of May, 2002.

Ontario produces enough electricity to meet its own needs but not enough to meet the needs of both Ontarians and Americans. Deregulation will integrate the Ontario and American markets and allow wealthy, electricity-hungry Americans to deplete Ontario's supply. This will increase the chance of blackouts in Ontario.

The government appears to understand that an efficient market may reduce the average price of electricity. However, it doesn't know that it will drive the price up where it is low and down where it is high. Unfortunately for Ontarians, our price is relatively low while the price for electricity in New York state is one of the highest in the United States. Forcing us to bid against wealthy New Yorkers to buy our own Ontario-produced electricity will double electricity prices in Ontario and reduce them in New York.

Also electricity pricing will affect the overall economy in a way that pricing for potatoes and softwood lumber doesn't. Electricity is used in making almost all commodities. This means that everything Ontario produces will cost more as electricity prices rise. deregulating electricity in Ontario will devastate our economy.

Ontario is repeating the big mistake that California made, forcing its resident electricity company to virtually give away most of its generation to foreign companies. To hastily privatize the generation plants, the government has transferred $20 billion in debt from the plants to the government. The provincial auditor says taxpayers are at risk for this outstanding debt.

The government has mandated that Ontario Power Generation (OPG, most of the old Ontario Hydro) to sell off 60 per cent of its generation. As in California, the buyers of OPG's generation will pay little for the acquisitions and will make spectacular profits to send out of province to their shareholders.

The first giveaway proposes handing over 25 per cent of OPG's generation, eight nuclear reactors, to British Energy. If the deal is finalized, high and rising U.S. electricity prices could enable British Energy to make a profit that exceeds $68 billion over the life of the plants. Currently, generating profit flows to Ontarians, but this extraordinary benefit will be lost if the government, according to their schedule, signs the deal this summer.

This deal calls for British Energy to pay Ontarians a measly $625 million and a small annual payment of $150 million to $200 million. This money won't even pay to decommission the eight nuclear reactors. This contrasts with a New York Times report that says nuclear plants in the U.S. are selling for 10 times their prices a year ago.

In addition to planning to complete the British Energy deal this summer, OPG and the government are moving to sell another 35 per cent of OPG's generation to foreign companies.

Harris and Wilson have selected May, 2002, as the deregulation start date. They say that this is when "the conditions necessary to open the electricity market to competition will exist." The claim that they are in control of the market opening date may not be true.

In fact, the North American Free Trade Agreement (NAFTA) could require opening the Ontario electricity market to Americans after the first privatizing deal is finalized. The government and all Ontarians could be - most horribly surprised to discover that by this summer Americans have irrevocable access to Ontario's electricity whether or not the government has mandated it.

The government and OPG have remained silent on whether NAFTA will mandate American access to our electricity after the first privatization. An OPG executive has admitted ignorance on this question. The government needs an expert legal opinion on this matter to know when Americans get access to Ontario's electricity.

Canada's other big electricity exporting provinces have wisely decided not to tie their supplies to a volatile high-priced American market. Quebec, Manitoba and British Columbia are maintaining low, stable electricity prices for their residents, businesses and industry. They achieve this result by retaining their provincial electricity companies, selling their excess electricity to Americans for huge profits and using the gains to finance health, education and other government services.

Unless the Harris government changes its direction, Ontarians will soon experience a financial disaster that its provincial neighbours are easily avoiding. The government must not sign the deal with British Energy or complete privatizations with other foreign companies. And it must not deregulate the Ontario electricity market. Ontario's residents, businesses and industry deserve inexpensive, reliable electricity, not competition with the playing field tilted to advantage Americans.

Myron Gordon is professor of finance emeritus at the Rotman School of Management, University of Toronto. John Wilson is former president of the Society of Energy Professionals and a former board member of Ontario Hydro Services Company (now Hydro One).

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