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Ontario faces energy crisis, critic warns

Liberal policies could provoke spiralling electricity costs, report says

Gloge and Mail - August 23, 2004
by Richard Mackie


Ontario consumers will be at risk of soaring electricity prices and power shortages under the government's planned reorganization of the province's $12-billion-a-year electricity industry, according to an internationally recognized energy expert.

Voicing widely held criticisms of the policy, Steve Thomas, a senior research fellow at the University of Greenwich in London, argues that the province should go back to its proven practice of mandating a government agency such as the old Ontario Hydro to ensure adequate power supplies. He makes his analysis in a report that takes on added importance because it is to be presented today to a legislative committee by the Society of Energy Professionals, the organization representing the 6,000 engineers and technicians who actually operate all of Ontario's major generating plants.

"To abandon the old publicly owned monopoly model, which, despite some faults, has a good record of ensuring supply security over many decades, in favour of a model with, at best, a mixed track record seems unduly risky," Mr. Thomas says in his report.

Over the past 25 years, he has analyzed the electricity and gas industries in Mexico, Brazil, Britain and elsewhere in Europe. He was worked on regulatory projects in Brazil and in Russia. The European Bank for Reconstruction and Development appointed him to study the replacement of the Chernobyl nuclear power plant.

His comments are expected to spark intense debate about whether the government's plans can work. His analysis reflects the private opinions of many who work at high levels in the electricity industry but who cannot challenge the government publicly.

Mr. Thomas also tells Dalton McGuinty's Liberal government to abandon its cherished dream of shutting down the province's coal-fired generating plants within three years.

"Retaining the coal plants at least for a little longer than is currently planned may help smooth the demand for a new generating capacity, while many of the nuclear plants will soon need to be either refurbished or closed," he says in the 21-page analysis, a copy of which was obtained by The Globe and Mail.

Mr. Thomas contends that the Liberals are repeating a mistake made by the previous Progressive Conservative government in believing that the private sector will provide it with abundant supplies of affordable power if only it is allowed into the market. This strategy has failed in numerous other jurisdictions, he says.

"It seems likely that few, if any, non-Canadian companies will be interested in building plants in Ontario and careful assessment is needed to ensure Canadian companies can meet the required investment needed," he cautions.

Mr. Thomas also predicts that, because of the risks involved, Canadian companies would have to pay a large premium to borrow the money to build the needed plants. This would push up the cost of power ever further.

The Conservatives spent much of their eight years in office trying to turn the energy industry over to the private sector. But, in the face of a public outcry, they backed off from attempts to sell Hydro One and its grid of transmission lines to private-sector investors for $5-billion. And the Tories ended an attempt to let the competitive market set electricity prices when soaring rates forced even the party's own MPPs to demand a price freeze.

The Liberal government inherited a system that for years had lost billions of dollars and has not invested in any major new generating capacity despite the deterioration of existing plants.

In the spring, Energy Minister Dwight Duncan produced a plan to rely on the private sector to build the urgently needed new generating capacity, to reintroduce competition at the retail level and to have different operators of generating plants sell into a wholesale market where prices would be determined.

A new agency, the Ontario Power Authority, would be established to monitor supply and demand and, where necessary, to commission the construction of new facilities to ensure the security of the necessary supplies.

In addition to warning that this system will not work, Mr. Thomas insists that there is no time left to delay in ensuring there is enough power to go around. Shortages are looming as soon as 18 months from now.

"Decisions are urgently needed on the future of the coal and nuclear plants," he says.


Here is a copy of the report: The Ontario Government's proposals on electricity restructuring, Public Service International Research Unit, August 2004.


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