$6B in hydro savings questioned

March 4, 2002

$6B in hydro savings questioned

Canadian Press

Toronto: Critics who believe the price of electricity will soar in Ontario under the soon-to-be deregulated market hotly disputed the government's claim that consumers will save billions.

The Ontario Electricity Coalition says Energy Minister Jim Wilson is wrong to conclude that electricity consumers can expect to save $3 billion to $6 billion over the next eight years, and that he is ignoring the experiences of California and Alberta.

"The experience in other jurisdictions where deregulation and privatization of electricity have been implemented has been skyrocketing rates, frequent blackouts and unscrupulous retail resellers," said spokesman John Wilson. "[Deregulation] doesn't save billion, it costs local economies billion."

The Ontario government is opening the $10-billion electricity market to competition May 1 and selling off the province's electricity grid to the private sector.

The energy minister cited a study conducted for the ministry by Fred Lazar, a professor of economics at York University, that says consumers could save $6 billion by 2010.

But the New Democrat Leader Howard Hampton said the study, which relies on projections from an American energy forecasting group, is based on assumptions that have not been substantiated. It also contradicts numerous other studies from around the world that show deregulation doesn't necessarily generate savings, he said.

Deregulating electricity markets should proceed, but in a "prudent, cautious matter," says a study prepared for the C.D. Howe Institute.

That study, by Mark Jaccard of Simon Fraser University, argues that investing in expensive electricity generating plants is inherently risky, so it's a good idea to invite private investors to bet their own money on these ventures.

But after examining what went wrong when California and Alberta opened their electricity systems, Jaccard concludes that unfettered free markets aren't perfect, either.

"Blind faith in markets is just as dangerous as blind faith in central planning," says Jaccard. He notes that electricity markets are especially tricky because supply and demand must be balanced minute by minute. This can lead to sudden shortages and big price spikes.

Dofasco Inc.'s John Mayberry expects electricity rates will soar after the market opens up in May, saying it will take several years for true competition to develop.

He estimates that the increase in rates could cost the Hamilton steelmaker between $20 million and $40 million in higher bills to power its steel-making furnaces and other operations.

Mayberry said that while he backs more competition in the power industry, he fears the Ontario government has underestimated the impact of deregulation on electricity prices.

"I don't believe they should have gone to market opening until they had true competition in place," Mayberry said.

Jan Carr, an industry consultant and managing director of Barker, Dunn & Rossi, said there may be short, sharp price swings after the market opens, but said they won't last past the summer months.

Carr said the wholesale price of power on the spot market will average between 4.5 cents and 5.5 cents a kilowatt hour for the next five years. That compares with today's cost of about 4.3 cents a kilowatt hour.

A study by Toronto Dominion Bank economists predicts prices will rise, due in large part to higher distribution costs.