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Ontario may repeat California's energy woes, critics February 23, 2001

By Scott Anderson

TORONTO (Reuters) - As California and Alberta stumble around in the dark trying to shed light on their electricity deregulation failures, some experts say Ontario seems destined to follow in their footsteps.

The province -- Canada's most populous and the nation's economic engine -- has already pushed back its previous deadline of November 2000 by one year to sort out its deregulation problems. But analysts say Ontario's problem isn't its timetable, but the path it's chosen to create an open and competitive electricity market.

``We want to see this market open up as soon as possible but there is a growing list of barriers to getting there. We are very concerned about the current direction and urging the politicians to smarten up so we don't end up where California and Alberta have gone,'' Tom Adams, executive director at industry watchdog Energy Probe, told Reuters.

``We need competition in here. We need new investment so that we can make a rapid transition to a more stable situation. But rather than follow the model of successful jurisdictions we seem intent on going down the road of California and Alberta.''

Many contend that Ontario, like California and Alberta, does not have the necessary generating capacity in place to keep up with demand. That shortage pushed California into a dramatic series of blackouts and has help add to Alberta's sky- high energy bills.

Although Ontario needs to build plants that can supply the province with an additional generating capacity of 1,000 megawatts, only one 450 megawatt plant is in the works at present.

Compounding the problem is that between 1994 and 1998 the province and the former publicly owned utility, Ontario Hydro, shut down about 5,000 megawatts of nuclear generating capacity, creating a hole in the power system.

ADEQUATE SUPPLY SEEN AS KEY

``We could find ourselves in a California situation where we could have too much demand chasing insufficient supply,'' said Sean Conway, energy critic for Ontario's opposition Liberal Party.

``We have to, in this province, make sure that if we are going to have a growing economy, we are going to have to make sure we have an adequate supply of electricity.''

However, Ontario Power Generation, which supplies about 85 percent of the current Ontario market, says it has an operating capacity of 26,000 megawatts, more than Ontario's peak demand of 23,000 megawatts.

OPG is the generating company formed from the break-up of Ontario Hydro.

``We have more than sufficient supply for the Ontario marketplace. If you look at California, their big issue was one of lack of supply,'' said John Earl, spokesman for OPG. ``The big supply/demand curve tells you what happened there.''

Power demand from California's industries and 32 million residents has increased dramatically, but the state has not seen any new generating capacity added in about 10 years.

The crisis has been blamed on California's own 1996 power deregulation law, which required utilities to buy energy on the spot market, where prices have skyrocketed, but maintained caps on the rates they could charge consumers.

The problem was then compounded by California's own surging demand, resulting in the rolling blackouts and voluntary power cutbacks over the past months.

Alberta is running into similar problems as demand has come dangerously close at times to outstripping supply. Both industrial power users and private households have been sharply critical of the deregulation process and the issue has turned into a political hot potato for the ruling Conservative party, which introduced deregulation at the start of this year, as Albertans head to the polls in a provincial election next month.

KEEP PROCESS ``OPEN AND FAIR''

While supporting overall deregulation of the industry, Ontario's opposition Liberal party is calling for the deregulation process to be ``open and fair.''

The party is calling for a ``transparent market'' in which there is a mix of public and private partnerships in a fully competitive.

The Liberals are also calling on Ontario's Conservative government to strike an all-party committee to oversee the process to ensure it benefits all.

``Today most people are in the dark about the government's regulation plans. Far-reaching and important decisions about our electricity system need to be made. Right now they're either not being made or they're made in secret,'' Liberal leader Dalton McGuinty said in a speech to the Ontario Natural Gas Association recently.

``These decisions will affect every Ontarian, so there should be some ongoing legislative oversight.''

As the provincial government nears the end of the deregulation process, it is treading cautiously in the wake of California's and Alberta's deregulation woes.

``Clearly the one thing we've learned from Alberta and California is that we need to get it right the first time and if that involves a delay because some of the circumstances aren't in place, then we're certainly going to look at that type of delay,'' Shane Pospisil, a spokesman for the Ontario Ministry of Energy, Science and Technology, told Reuters.

But critics say the longer the government stalls, the longer the it puts off the implementation of the plan, and the more cautious private investors will become.

There is also a real risk that investors will simply lose patience and migrate to other, more attractive, jurisdictions.

``Private investors are looking to know. They want some certainty as to what the rules are going to be before they commit very substantial resources here,'' energy critic Conway said.

http://www.individual.com/story.shtml?story=d0223140.703

-- Martin Thompson (mthom1927@aol.com), February 25, 2001