April 2005: NAFTA Could Double Ontarians' Electricity Bills

Ontario gov't hiding electricity privatization's ill-effects
April 1, 2005

When the Ontario government passed electricity restructuring legislation at the end of last year, it was bowing to Washington’s trade liberalization pressures by moving to conform the province’s electricity program to that of neighbouring American states.

The McGuinty government’s proposed new electricity system, which will be open to private ownership, could activate the free trade agreements Canada has entered into with the U.S. It could force us into bidding against American consumers to buy our own provincially-produced power.

The government seems bent on this course even though it has been warned by experts that exposing our electricity to the terms of NAFTA would remove significant pricing and export controls from the province. At the very least, one of our economy’s key comparative advantages would be jeopardized.

Ontario’s electrical energy system has long been connected to a grid with the nearest U.S. states. This has permitted the sale of excess capacity as exports, and has also allowed Ontario to import electricity when its facilities have been strained. But, for the past decade or more, this arrangement has been subjected to two thrusts of strong neoliberal pressure from Washington.

First, there is the Federal Energy Regulatory Commission (FERC), whose prime mission has been to deregulate and privatize state electricity utilities in order to open the U.S. market even more to the kind of under-regulated manipulations practised by giant energy traders such as Enron. This is what caused massive brownouts throughout California a few years ago.

At the same time, FERC is demanding that Canada’s provincial electricity entities such as Ontario’s system be opened up to private enterprise as a condition of retaining their right to export power to the U.S. This “reciprocity” requirement is a unilateral imposition on Canada’s utilities that has not been negotiated between the Canadian and U.S. governments.

The second political pressure is coming from the investment provisions of NAFTA, which give any U.S. company that gets a foothold in a privatized provincial electricity market such extraordinary rights that, once having been given, would be politically almost impossible to withdraw.

Despite numerous overtures by public advocates, the McGuinty government is refusing to discuss or make public how NAFTA and other free trade agreements would affect its planned electricity restructuring. It is concealing this information from the citizens of Ontario.

During legislative committee hearings on the government’s new electricity legislation, several presenters warned of these damaging trade deal effects. At one of the hearings, one of the authors of this article asked: “Does the government have a legal opinion about the effects that free trade would have on its proposed electricity program? If it has such a legal opinion, will the government make it public?”

To underscore the importance of this question, all members of the committee were provided with a legal opinion by Steven Shrybman of the firm of Sacks Goldblatt Mitchell which detailed the devastating consequences that free trade could have on the province’s planned new electricity system.

One of the committee members, MPP Donna Cansfield, parliamentary assistant to the Minister of Energy, undertook to obtain the government’s answers to these questions.

Three months later, the Minister of Energy finally made his position clear in a letter to one of the authors of this article, in which he stated that “there is no basis for seeking a legal opinion on the matter.”

This apparent indifference to the effects of free trade deals has alarmed many experts in the field of electricity.

Tom Campbell, former chair and CEO of Ontario Hydro, said he was disturbed by the McGuinty government’s “strange silence” on the implications of NAFTA. “Both NAFTA and the recent proposals by the U.S. under the WTO’s General Agreement on Trade in Services (GATS),” he said, “will ensure that the output of privately-owned electricity utilities can be sold to the highest bidder on either side of the Canada-U.S. border—even if there is a critical shortage of electricity in Ontario.”

Simon Fraser University professor Marjorie-Griffin Cohen, a well-known free trade electricity policy expert, confirmed Campbell’s statement, adding that U.S. Vice-President Dick Cheney has called for one combined North American energy market encompassing the U.S., Canada and Mexico.

Polls have found that most Ontarians are opposed to an integrated U.S.-Ontario electricity market that does not guarantee stable prices and environmental protection. They are entitled to a full and frank explanation from the McGuinty government about the danger that free trade agreements will undermine the province’s ability to control electricity prices and export levels, and to protect the environment.

Thanks to NAFTA, we must already compete against Americans for the gasoline to drive our cars and the oil to heat our homes. Just imagine having to bid against them to keep the lights on.

By condoning further privatization, the McGuinty government’s proposed new electricity program could drive our rates up to U.S. levels and devastate farms, tourism, and both small business firms and large industries, as well as our hospitals and schools that depend on a strong economy. The electricity bill of the average home-owner in the province could easily double.

It’s time for the government to stop misleading Ontarians and concealing the truth from them.

(Myron J. Gordon is Professor of Finance Emeritus at the Rotman School of Management, University of Toronto; and John Wilson, P.Eng., is an energy consultant and a former board member of Hydro One.)