March 2007: The Folly of Deregulation

Cost of losing control of our electricity is enormous
March 1, 2007

Many people were recently outraged when the Auditor-General told us about the money and perks bestowed on those managing Ontario’s two major public electricity companies—Hydro One and Ontario Power Generation. What most people don’t know, however, is that the money and the perks are “small potatoes” when compared to the multi-million-dollar compensation packages and perks that Premier Dalton McGuinty plans to include in Ontarians’ future electricity bills. Unless the government changes direction, there will soon be no way to control excessive executive earnings and outrageous electricity profits.

The McGuinty government’s deregulated electricity program forces the public supplier, Ontario Power Generation, to sell at near-cost and to restrain executive earnings while allowing private suppliers to bill us for unlimited profits and unrestrained executive compensation.

As the provincial government signs more and more contracts with big private-energy corporations, such as Calpine (U.S.) and Mitsui (Japan), electricity bills in Ontario will include executive compensation that runs into the tens of millions of dollars and includes perks such as corporate jets. Such unlimited profits for private suppliers will drive electricity prices much higher.

Remarks following the Auditor-General’s report by Ontario’s Premier and his Energy Minister about “reining in” and controlling compensation, perks and prices are merely a smokescreen to hide what is really going on until after the next election. McGuinty knows that, when most of our electricity supply has moved from public companies to private deregulated corporations, there will be nothing the government can do to control compensation or profit.

Canada’s free trade agreements, such as NAFTA, will prohibit the government from controlling deregulated prices, using subsidies, or reducing exports to the U.S.—even when Ontario faces electricity shortages.

Electricity prices are soaring in U.S. states that have deregulated, such as Texas, Illinois, Maryland, Montana, Delaware, and Connecticut. Many voices are being raised in protest as deregulated prices increase much faster than regulated prices. Some state legislators are even calling for the re-regulation of electricity.

American industry is also protesting the pain caused by surging deregulated electricity prices. The Electricity Consumers Resource Council (ELCON), the association of large U.S. industrial electricity users, has called for: 1) not deregulating in states that have not already done so (roughly two-thirds of states); 2) fixing markets in states that have deregulated rather than “staying the course,” and 3) returning to traditional regulation if deregulated markets can’t be fixed.

In Ontario, rising deregulated electricity prices—up 60% since the Liberals took office—are also causing damage. The Association of Major Power Consumers of Ontario (AMPCO) has estimated an annual loss of 100,000 jobs and $16 billion in GDP related to current and forecast electricity price increases. Ontarians are already witnessing the closing of electricity-intensive paper mills as the government’s belated and paltry subsidies attempt to move this problem beyond the coming provincial election.

Unlike most major U.S. media, Ontario’s leading newspapers have editorially supported the McGuinty government’s deregulated electricity program and thereafter provided little coverage of the rising job and business causalities caused by deregulation. They stopped providing balance in the form of opinion articles by those who oppose their editorial positions, even though surveys show that most Ontarians also don’t want deregulated electricity. [You would never find an op-ed like this in a major Ontario paper.]

In addition, some of Ontario’s major media are mindlessly echoing the government’s misleading designation of Ontario’s electricity as “regulated” in its speeches and on its official government websites. The rest of the world’s news media acknowledges that Ontario electricity is deregulated and that consumers must now pay whatever the market determines. However, McGuinty hopes to fool the voters by calling the payment plan that the Ontario Energy Board (OEB) establishes a “regulated price,” although his government has passed legislation that requires the Board to charge whatever the market demands.

Unless the province’s media begin to inform Ontarians that McGuinty is deregulating electricity, we will lose the opportunity to debate this issue. And, without this debate, the government’s program will certainly make Ontario part of the U.S. electricity market, causing a loss of control over price, supply, profit, and executive compensation. The million jobs and many businesses that could be destroyed in the next decade because of increased deregulated electricity prices deserve thoroughly researched media attention, not a parroting of government propaganda.

The U.S. media and American legislators are debating the devastation that deregulated electricity is causing to their economy. We can only hope that Ontario’s media will begin to inform the public about the consequences of electricity deregulation before it causes more damage to Ontario’s economy.

Publishing news articles that demand adequate funding for hospitals and schools is futile if we don’t have a debate about how we can sustain an economy that will support such funding. Reliable, affordable electricity is at the heart of that debate.

(John Wilson, P.Eng., is an energy consultant and former Hydro One board member.)