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Hydro deregulation urged

Ontario prices would fall, report says
More power plants also predicted

Toronto Star - October 26, 2004
by John Spears

Electricity prices in Ontario would drop by up to 8.3 per cent in five years if Ontario deregulated its power system, argues a new analysis by the Fraser Institute.

The conservative think tank says that if other provinces emulated Alberta's market-based system, prices could drop even more than in Ontario, saving Canadian householders about $1 billion a year in total.

Deregulating the market would prompt investors to build more power plants, the analysis says.

The paper, by Toronto-based Mark Mullins, acknowledges that power prices in Alberta, where electricity trades on a daily market, have in fact increased 1.5 per cent annually since 1997.

But it attributes the price rise not to deregulation, but to the high price of natural gas, which fires Alberta's price-setting generating stations; high import prices; and low reserves created by underinvestment in past years.

The paper notes that Alberta has been much more successful than Ontario in attracting new generators.

The amount of generating capacity per person in Alberta increased 1.7 per cent a year from 1997 to 2002, Mullins notes. In Ontario, capacity per person declined 0.5 per cent a year over the same period.

Comparing jurisdictions in Canada, the United States, Britain, Australia and New Zealand, Mullins says increased deregulation has generally led to lower prices and more generating capacity.

Ontario opened a competitive electricity market in May, 2002, but the Conservative government froze prices for householders and small businesses six months later after rising prices provoked a consumer backlash.

The province has asked the Ontario Energy Board to devise a formula that will lead to stable consumer prices but also cover the full cost of producing electricity.

When Ontario did deregulate its power system in 2002, relatively few private firms built new generators.

In an interview, Mullins said investors were hesitant because they were getting mixed signals from politicians about how serious the deregulation effort really was. Market opening was delayed repeatedly, he noted.

Meanwhile, other countries were moving much faster and investors looked elsewhere, Mullins said.

"I'm not surprised that people wouldn't step up because at that moment in time there were lots and lots and lots of other opportunities," he said. "A lot of these companies are looking around the globe. ... We just don't come up as a big green light saying: `Come here, we're serious, we'd like you to do business in the province.'"

Power companies have been telling the province they'll build if the province will give them long-term contracts at fixed prices.

Mullins said the best system is a market-based one, in which investors assume the business risks for new power projects. But investors sense the Ontario government isn't serious about wanting a true market, he said.

"So why would you cheerlead for it?" he said. "It's going to get you nowhere."

Site Typists Note: Mark Mullins is the economist who was behind the research used to justify Mike Harris's "Common Sense Revolution" document, and Mike Harris is a Senior Fellow of the Fraser Institute. These were the same people who previously falsely claimed that Ontario's deregulation of electricity would lead to falling prices when in fact they led to skyrocketing prices.

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